<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
SPINNAKER INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / 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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(4) Date Filed:
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<PAGE>
SPINNAKER INDUSTRIES, INC.
600 NORTH PEARL STREET, SUITE 2160
DALLAS, TEXAS 75201
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 28, 1998
------------------------
April ____, 1998
To the Stockholders of
SPINNAKER INDUSTRIES, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Spinnaker
Industries, Inc., a Delaware corporation ("Spinnaker"), will be held in the Nice
Room, Plaza of the Americas, 650 N. Pearl Street, Dallas, Texas 75201, on
Thursday, May 28, 1998, at 9:00 a.m., local time, for the following purposes:
1. to consider and vote upon a restatement of the Certificate of
Incorporation of Spinnaker;
2. to elect seven (7) directors to serve until the next Annual Meeting of
Stockholders and until their successors are elected; and
3. to transact such other business as may properly come before the Annual
Meeting and any adjournments thereof.
The Board of Directors of Spinnaker has fixed the close of business on April
13, 1998, as the record date for the determination of stockholders entitled to
notice of, and to vote at, the annual meeting and any adjournments thereof. A
form of proxy and a proxy statement containing more detailed information with
respect to the matters to be considered at the Annual Meeting accompany and form
a part of this notice. WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL
MEETING, AND REGARDLESS OF THE NUMBER SHARES YOU OWN, PLEASE COMPLETE, DATE, AND
SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT AT YOUR EARLIEST CONVENIENCE IN
THE ENCLOSED SELF-ADDRESSED, STAMPED ENVELOPE IN ORDER THAT YOUR SHARES OF CLASS
A COMMON STOCK OR COMMON STOCK MAY BE REPRESENTED AT THE ANNUAL MEETING. IF YOU
DO ATTEND THE ANNUAL MEETING IN PERSON, YOU MAY WITHDRAW YOUR PROXY AND VOTE
YOUR SHARES PERSONALLY.
By Order of the Board of Directors,
Robert A. Hurwich
SECRETARY
THE BOARD OF DIRECTORS OF SPINNAKER RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
RESTATEMENT OF SPINNAKER'S CERTIFICATE OF INCORPORATION AND THE ELECTION OF THE
NOMINEES FOR DIRECTOR SET FORTH HEREIN.
<PAGE>
SPINNAKER INDUSTRIES, INC.
600 NORTH PEARL STREET, SUITE 2160
DALLAS, TEXAS 75201
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
---------------------
This Proxy Statement is furnished by the Board of Directors of Spinnaker
Industries, Inc., a Delaware corporation ("Spinnaker" or the "Corporation"), in
connection with the solicitation of proxies for use at the Annual Meeting of
Stockholders to be held in the Nice Room, Plaza of the Americas, 650 N. Pearl
Street, Dallas, Texas 75201, on Thursday, May 28, 1998, at 9:00 a.m., local
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 April , 1998.
The purpose and business of the Annual Meeting is:
(1) to consider and vote upon a restatement of the Corporation's Certificate
of Incorporation;
(2) to elect seven (7) directors to serve until the next Annual Meeting; and
(3) to transact such other business as may properly come before the Annual
Meeting.
Only stockholders of record at the close of business on April 13, 1998, 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 [ ] shares of the
Corporation's Common Stock, no par value ("Common Stock"), and [ ] shares of
the Corporation's Class A Common Stock, no par value ("Class A Common Stock").
Each share of Common Stock is entitled to 1/10 of a vote. Each share of Class A
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.
RESTATEMENT OF THE CERTIFICATE OF INCORPORATION
RESTATEMENT OF THE CERTIFICATE OF INCORPORATION
The Board of Directors of Spinnaker has approved a restatement of
Spinnaker's Certificate of Incorporation to reflect the changes that have been
made to its charter since December 20, 1941. Since its incorporation, Spinnaker
has changed or amended its Certificate of Incorporation eight times for various
reasons, including to change the Company's name from "Special Service Co, Inc."
to "Safety Railway Service Corporation", to change the Company's name from
"Safety Railway Service Corporation" to "Spinnaker Industries, Inc.," to
increase its authorized capitalization, and most recently, in August of 1996, to
create a new class of common stock.
The restatement of the Certificate of Incorporation of Spinnaker will ease
the paper burden and filing requirements for financing and acquisition
transactions, and will clarify corporate governance issues by compiling all of
the changes to the Certificate of Incorporation of Spinnaker in a single
document. The Board of Directors recommends that stockholders vote FOR the
proposed restatement.
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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.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR EACH OF THE NOMINEES
NAMED IN THIS PROXY STATEMENT.
VOTING AT THE ANNUAL MEETING
The affirmative vote of a majority of the votes cast by stockholders of the
Corporation present in person or by proxy at the Annual Meeting and entitled to
vote is necessary to approve the restatement of the Certificate of Incorporation
of the Corporation and the election of directors. 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 ("Lynch"), held 62.7% of the Common
Stock outstanding and 63.2% of the Class A Common Stock outstanding on March 27,
1998; therefore, Lynch has the ability to approve the restatement of the
Certificate of Incorporation of the Corporation described above and elect each
of the nominees set forth below.
THE NOMINEES FOR DIRECTOR
The following information has been furnished to the Corporation by the
nominees for director:
RICHARD J. BOYLE
Mr. Boyle, age 63, has been a director and Chairman and Chief Executive
Officer of the Corporation since June 1994. Mr. Boyle also has served as a
Managing Director of Boyle Fleming & Co., Inc. ("BF"), an investment and
management firm, since 1993. From 1990 to 1992, Mr. Boyle 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 several privately-held companies.
NED N. FLEMING, III
Mr. Fleming, age 38, became a member of the Board of Directors and President
of the Corporation in June 1994 and has been Chief Operating Officer since May
1997. In addition, Mr. Fleming is a Managing Director of BF, a position he has
held since 1993. From 1988 to 1993, Mr. Fleming was an Associate at Cardinal
Investment Company, Inc., an investment concern. Mr. Fleming serves on the
Boards of Directors of Internet, Inc. and several privately-held companies.
2
<PAGE>
PHILIP WM. COLBURN
Mr. Colburn, age 69, was elected to the Board of Directors of the Company in
March 1996, and has been the Chairman of Allen Telecom Inc. ("ATI") since 1988.
From 1988 to 1992, Mr. Colburn was the Chief Executive Officer of ATI. Mr.
Colburn is a director of ATI, Superior Industries International, Earl Scheib,
Inc. and TransPro, Inc.
ROBERT E. DOLAN
Mr. Dolan, age 46, became a director of the Company in November 1995. Since
February 1992, he has been the Chief Financial Officer of Lynch, and he has been
its Controller since May 1990.
FRANK E. GRZELECKI
Mr. Grzelecki, age 60, has served as a director since January 1997. He was
Vice Chairman of Handy & Harman, a New York based diversified industrial
manufacturing company until April, 1998. Prior to being named Vice Chairman in
1997, Mr. Grzelecki had served as President and Chief Operating Officer of Handy
& Harman since 1992. Mr. Grzelecki previously served as Vice Chairman of Handy &
Harman since 1989. Mr. Grzelecki currently serves on the Board of Directors of
Handy & Harman, The Morgan Group, Inc., Chartwell Re Corporation, and Barnes
Group, Inc.
JOSEPH P. RHEIN
Mr. Rhein, age 71, has served as a director of the Corporation since 1992
and has been a business consultant since 1989. From 1992 to 1994, he was
Chairman of Safety Railway Service Corporation.
ANTHONIE C. VAN EKRIS
Mr. van Ekris, age 63, has been a director of the Corporation since December
1995. Mr. van Ekris is Chairman and Chief Executive Officer of Balmac
International, Inc., a New York based importer of coffee and cocoa and exporter
of refrigeration equipment, a position he has held since 1991. He also serves as
a Director of The Gabelli US Treasury Money Market Fund, Gabelli Gold Fund,
Gabelli International Growth Fund, Inc., The Gabelli Growth Fund, The Gabelli
Asset Fund, The Gabelli Convertible Securities Fund, Inc., The Gabelli Small Cap
Growth Fund, The Gabelli Equity Income Fund, The Gabelli Global
Telecommunications Fund, The Gabelli Global Securities Fund, The Gabelli Global
Interactive Couch Potato Fund, and Gabelli Capital Asset Fund. In addition, Mr.
van Ekris is Chairman of Combaro International, Lausanne, Switzerland.
OTHER EXECUTIVE OFFICERS OF THE CORPORATION
K.C. CALDABAUGH
Mr. Caldabaugh, age 51, has been the Chairman, Chief Executive Officer, and
President of Spinnaker Coating, Inc., a wholly owned subsidiary of the
Corporation ("Spinnaker Coating"), since September 1994. From 1987 to 1993, he
served in various capacities (most recently as Senior Vice President and Chief
Financial Officer) of LTV Corporation, a diversified manufacturing firm.
JOHN R. POWERS
Mr. Powers, age 65, joined Central Products Company, a wholly owned
subsidiary of the Corporation ("Central Products"), in 1979 and has been its
President since 1981. Mr. Powers currently serves on the Boards of Directors of
Pressure Sensitive Tape Council and the First National Bank of Menasha.
3
<PAGE>
MARK R. MATTESON
Mr. Matteson, age 34, became Vice President, Corporate Development of the
Corporation in January 1995. During 1994, Mr. Matteson was an Associate at BF.
From 1992 to 1994, Mr. Matteson was a Managing Associate at George Group,
Incorporated, a corporate re-engineering consulting firm.
CRAIG J. JENNINGS
Mr. Jennings, age 39, became Vice President, Finance and Treasurer in
December 1997. From May 1997 to December 1997, he served as Vice President and
Controller of the Company. From 1992 to 1996, he served in finance and
administrative roles with companies in the manufacturing and retail distribution
industries. Mr. Jennings most recently served as Vice President, Director of
Finance for Continental Emsco Company (formerly LTV Energy Products). Prior to
1992, he was a senior audit manager with the public accounting firm of Ernst &
Young LLP.
OPERATION OF BOARD OF DIRECTORS AND COMMITTEES
There were five meetings of the Board of Directors during 1997.
The Board of Directors has established two standing committees, the Audit
Committee and the Compensation Committee. The Audit Committee: (i) recommends to
the Board of Directors the appointment of independent auditors; (ii) reviews
annual financial reports to stockholders prior to their publication; (iii)
reviews the report by the independent auditors concerning management procedures
and policies; and (iv) 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 1997. The Audit Committee consists
of Messrs. Colburn and Rhein, with Mr. Rhein serving as Chairman of the Audit
Committee.
The Compensation Committee, which was created in August 1996, sets and
reviews the compensation of the executive officers of the Corporation. The
Compensation Committee met once during 1997. The Compensation Committee consists
of Messrs. Colburn, van Ekris, Dolan and Grzelecki. Prior to the formation of
the Compensation Committee, compensation matters were determined by the Board of
Directors as a whole.
The Corporation does not have a nominating committee. Nominations for
directors and officers are considered by the entire Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Dolan is an executive officers of Lynch, which through LMC owns
approximately 63.2% and 62.7%, respectively, of the outstanding Class A Common
Stock and the Common Stock of the Corporation, as of March 27, 1998.
IN JUNE 1994, BEFORE MESSRS. BOYLE AND FLEMING BECAME DIRECTORS AND
EXECUTIVE OFFICERS OF THE CORPORATION, THE CORPORATION ENTERED INTO THE
MANAGEMENT AGREEMENT (AS DEFINED) WITH BF, PURSUANT TO WHICH 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. IN
MAY 1997, MR. FLEMING ALSO BECAME THE CHIEF OPERATING OFFICER OF THE
CORPORATION. SEE "CERTAIN TRANSACTIONS."
COMPENSATION OF DIRECTORS
The Company maintains, through Lynch, 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 receives a director's fee of $1,000 per
month of the director's tenure plus $1,000 for each Board or committee meeting
the director attends. In
4
<PAGE>
addition, pursuant to the Spinnaker Industries, Inc. Directors Stock Option
Plan, each director also was granted options for 10,000 shares of Class A Common
Stock and 10,000 shares of Common Stock (after giving effect to the stock split
effected August 16, 1996 (the "Stock Split"), whereby each share of the
Corporation's then outstanding common stock, no par value (the "Old Stock"), was
designated "Class A Common Stock" and was entitled to receive one share of
Common Stock), which vest over a period of two years. All persons becoming
directors after the Stock Split, including Mr. Grzelecki, would receive new
directors options for 10,000 shares of Common Stock which vest over a period of
two years. Messrs. Rhein, Colburn, van Ekris and Grzelecki are the only
directors eligible to be paid director's fees. Pursuant to an agreement with
LMC, Mr. Colburn receives annual compensation from LMC equal to the difference
between $50,000 and the director's fees paid to him by the Corporation each year
for serving as a director of the Corporation.
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth on an accrual basis for the three fiscal
years ended December 31, 1997, the compensation paid to the Chief Executive
Officer of the Company and the three other most highly compensated executive
officers who earned more than $100,000.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS($) COMPENSATION ($)(2) COMPENSATION ($)
- --------------------------------------------- --------- ------------ ------------ -------------------- ----------------
<S> <C> <C> <C> <C> <C>
Richard J. Boyle ............................ 1997 125,000 12,000(3) -- --
Chairman and Chief Executive 1996 33,333(4) -- (4) -- --
Officer(4) 1995 -- (4) -- (4) -- --
Ned N. Fleming, III ......................... 1997 325,000 29,000(3) 14,517 264
President and Chief Operating 1996 100,000(4) -- (4) 2,908 --
Officer(4) 1995 -- (4) -- (4) -- --
K.C. Caldabaugh ............................. 1997 280,000 50,000 19,777 4,750(5)
Chairman, Chief Executive 1996 270,000 100,000 17,275 315,970(6)
Officer and President of 1995 250,000 50,000 2,518 169,57(7)
Spinnaker Coating
John R. Powers .............................. 1997 194,300 -- 7,647 4,740(8)
President of Central Products(9) 1996 194,300 -- 15,192 4,750(8)
1995 194,300(9) 194,300(9) 11,500(9) 3,000(9)
</TABLE>
- ------------------------
(1) Except as noted, the Corporation does 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 agreements.
(2) Includes automobile allowances and club membership dues.
(3) The Compensation Committee awarded bonuses to Mr. Boyle and Mr. Fleming
under an established program which is based on pre-established objective and
subjective criteria. The bonuses awarded to Mr. Boyle and Mr. Fleming
represent approximately 24% and 15%, respectively, of the maximum bonus
amounts provided under the bonus program, or approximately 10% and 9% of
their respective base salaries.
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<PAGE>
(4) 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 the Management Agreement and other related agreements. During the
term of the Management Agreement, they received no salary from the
Corporation, but under the Management Agreement, BF received a management
fee of $200,000 per year, plus the reimbursement of expenses. Effective
January 1996, the management fee was increased to $400,000 per year. Such
Management Agreement was terminated effective August 31, 1996. Effective
upon termination of the Management Agreement, the Corporation began paying
Messrs. Boyle and Fleming an aggregate salary of $400,000 per year as
employees of the Corporation. Mr. Fleming has served as Chief Operating
Officer of the Company since May 1997. See "--Certain Transactions."
(5) Contribution to the Spinnaker Coating, Inc. 401(k) Plan of $4,750 in 1997.
(6) Includes estimated fair value of Spinnaker Coating stock options (55,000
options) exercised in 1996 and contribution to the Spinnaker Coating, Inc.
401(k) Plan of $4,450 in 1996.
(7) Includes contribution to the Spinnaker Coating, Inc. 401(k) Plan of $4,572
in 1995, in addition to expenses directly related to his relocation from
Dallas, Texas to Troy, Ohio that were paid pursuant to an employment
agreement ($165,000).
(8) Contribution to the Central Products Corporation 401(k) Plan.
(9) Central Products, formerly a division of Alco Standard Corporation ("Alco"),
was acquired in October 1995. Mr. Powers, who ran the division for the
seller, continued as the President of Central Products following the Central
Products Acquisition. Includes $145,725 of Salary, the $194,300 Bonus,
$9,625 in Other Annual Compensation and $3,000 in All Other Compensation
that was paid by Alco; 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.
EMPLOYMENT AGREEMENT AND OTHER COMPENSATION AGREEMENTS
Mr. Caldabaugh has an employment agreement with Spinnaker Coating 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 and a similar employment agreement with Richard T. Ray, the
Executive Vice President and Chief Financial Officer of Brown-Bridge, granted to
Messrs. Caldabaugh and Ray options to purchase up to an aggregate 71,065 shares
of Brown-Bridge's common stock at various prices per share (the "Brown-Bridge
Options"). Pursuant to an agreement with the Corporation entered into in
connection with the merger of a newly-formed wholly owned subsidiary of the
Corporation with the former Brown-Bridge entity (the "Brown-Bridge Merger"), the
Brown-Bridge Options were accelerated. Messrs. Caldabaugh and Ray exercised
their respective Brown-Bridge Options for shares of Brown-Bridge's common stock
immediately prior to the exchange of the outstanding shares of Brown-Bridge
common stock pursuant to the such merger. See "--Certain Transactions."
REPORT OF THE COMPENSATION COMMITTEE
Until August 31, 1996, compensation matters were determined by the Board as
a whole. However, in August 1996, a Compensation Committee was formed and
charged with the responsibility for developing the Corporation's executive
compensation policies.
COMPENSATION POLICY
The Compensation Committee is ultimately responsible for compensation paid
to the executive officers. As with Messrs. Boyle and Fleming, all executive
officers and their compensation levels are
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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 and benefits that will attract and retain superior
talent and reward performance.
- 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, performance 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.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The compensation policy applied by the Corporation in establishing the
compensation for Richard J. Boyle, the Chairman of the Board and Chief Executive
Officer of the Corporation, is essentially the same as for other senior
executives of the Corporation--to provide a competitive compensation opportunity
that rewards for corporate performance and recognizes individual contribution.
For the 12 months in 1997 during which Mr. Boyle was an employee of the
Corporation, he received compensation of $125,000. Such amount was determined by
the Compensation Committee and initially referenced to the management fee
received by BF in 1996 from the Corporation under the Management Agreement
before it was terminated in August 1996. Under the Management Agreement, the
Corporation paid BF an annual amount of $400,000, of which $100,000 was
allocated to Mr. Boyle. The 1997 compensation amount includes a $25,000 annual
increase approved by the Compensation Committee effective January 1, 1997.
Members of the Compensation Committee
of the Board of Directors
Philip Wm. Colburn
Robert E. Dolan
Frank E. Grzelecki
Anthonie van Ekris
7
<PAGE>
CORPORATE PERFORMANCE
The following Performance Graph compares the Corporation's cumulative total
stockholder return on the Old Stock, which was split into the Common Stock and
the Class A Common Stock pursuant to the Stock Split, for a five-year period
(December 31, 1992 to December 31, 1997) 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 NYSE/AMEX/ NYSE/AMEX/
<S> <C> <C> <C>
Industries,
Inc. NASDAQ Stock Market NASDAQ Stocks
12/31/92 100.00 100.00 100.00
12/31/93 105.77 111.23 115.78
12/30/94 403.85 110.66 116.37
12/29/95 2,446.15 150.89 153.79
12/31/96 6,674.30 182.92 198.15
12/31/97 3,188.75 239.49 271.64
</TABLE>
- ------------------------
* Assumes $100 invested on December 31, 1992 in the Old Stock. NASDAQ Market
Index and both Peer Groups. Total return assumes re-investment of dividends.
** The Peer Group index represents SIC Code 267--Converted Paper and Paperboard
Products (which includes Spinnaker Coating and Central Products). This Peer
Group consists of twenty-five companies which trade on the NASDAQ, American
Stock Exchange or New York Stock Exchange.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of the close of business on March 27, 1998, the Corporation had 3,575,680
shares of Common Stock, and 3,566,067 shares of Class A Common Stock, issued and
outstanding. The following table sets forth the number of shares of Common Stock
and Class A Common Stock (which are the only classes of outstanding voting stock
of the Corporation) held by persons known to the Corporation to own beneficially
more than 5% of such classes of common stock as of March 27, 1998. (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
8
<PAGE>
stock options or conversion of securities). The following information is
reflected in Schedule 13D, as amended, that have been filed with the Securities
and Exchange Commission or that have otherwise been furnished to the
Corporation.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK COMMON STOCK
---------------------------- ----------------------------
AMOUNT OF AMOUNT OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS OWNERSHIP CLASS
- -------------------------------------------------------------- -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Lynch Manufacturing Corporation (1) .......................... 2,259,063(1) 63.2% 2,237,203(1) 62.7%
100 Douglas Street
Yankton, S.D. 57078
Boyle Fleming & Co., Inc.(2) ................................. 659,045(2) 18.4% 659,045(2) 18.5%
600 N. Pearl Street, Suite 2160
Dallas, Texas 75201
</TABLE>
- ------------------------
(1) Mario J. Gabelli, of Corporate Center at Rye, Rye, New York, 10580, Chairman
of the Board and Chief Executive Officer of Lynch, may be deemed to be a
beneficial owner of the Class A Common Stock and the Common Stock owned by
Lynch, through LMC, by virtue of his and certain affiliated parties'
beneficial ownership of 23.0% of the shares of common stock of Lynch. Mr.
Gabelli, however, specifically disclaims beneficial ownership of all shares
of the capital stock of the Corporation held by Lynch and LMC. See "Certain
Transactions."
(2) BF, an investment and management firm, is an affiliate of Richard J. Boyle
and Ned N. Fleming, III who each own 50% of the outstanding capital stock of
BF. Messrs. Boyle and Fleming may be deemed to share voting and dispositive
power over these shares; however, Messrs. Fleming and Boyle specifically
disclaim beneficial ownership of such shares. See "Certain Transactions."
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information concerning the beneficial
ownership of the capital stock of the Corporation and Lynch by each director of
the Corporation, as well as by all directors and executive officers of the
Corporation as a group, as of March 27, 1998. 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
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<PAGE>
which such person can acquire such power within 60 days by, for example, the
exercise of stock options or the conversion of securities.
<TABLE>
<CAPTION>
AMOUNT OF CLASS A COMMON
AMOUNT OF LYNCH SHARES STOCK SHARES BENEFICIALLY AMOUNT OF COMMON STOCK
BENEFICIALLY OWNED(1) OWNED(1) BENEFICIALLY OWNED(1)
-------------------------- ------------------------- -------------------------
NUMBER OF NUMBER OF NUMBER OF
NAME SHARES PERCENT SHARES PERCENT SHARES PERCENT
- --------------------------------------------- ------------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Richard J. Boyle............................. 100 * 659,045(2) 18.5% 659,517(2) 18.4%
Ned N. Fleming, III.......................... -- -- 659,045(2) 18.5% 659,045(2) 18.4%
Philip Wm. Colburn........................... -- -- 10,000(3) * 10,000(3) *
Robert E. Dolan.............................. 235 * -- -- 1,125 *
Anthonie C. van Ekris........................ -- -- 10,000(3) * 10,000(3) *
Joseph P. Rhein.............................. -- -- 12,250(3) * 12,250(3) *
Frank E. Grzelecki........................... -- -- -- -- 5,000(4) *
All Directors and Officers of the Corporation
as a group (eleven persons, including those
named above)............................... 547 * 691,295(2) 19.2% 698,114(2) 19.3%
</TABLE>
- ------------------------
* Less than one percent.
(1) 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.
(2) Includes 659,045 shares of Common Stock and 659,045 shares of Class A Common
Stock owned by BF. BF, an investment and management firm, is an affiliate of
Richard J. Boyle and Ned N. Fleming, III, who each own 50% of the
outstanding capital stock of BF. Messrs. Boyle and Fleming, together with
former shareholders of BF, may be deemed to share voting and dispositive
power over these shares of Common Stock and Class A Common Stock; however,
Mr. Fleming and Mr. Boyle specifically disclaim beneficial ownership of such
shares. See "Certain Transactions."
(3) Includes 10,000 shares issuable upon exercise of vested stock options
granted pursuant to the Spinnaker Industries, Inc. Directors Stock Option
Plan.
(4) Includes 5,000 shares issuable upon exercise of vested stock options granted
pursuant to the Spinnaker Industries, Inc. Directors' Stock Option Plan.
CERTAIN TRANSACTIONS
In June 1994, the Corporation and BF entered into a warrant purchase
agreement, under which BF received a warrant (the "A Warrant") to purchase
678,945 shares of Common Stock and 678,945 shares of Class A Common Stock (as
adjusted for the three-for-two stock splits that occurred in December 1994 and
December 1995 and for the Stock Split) for a price of $2.67 for one share of
both Class A Common Stock and Common Stock at any time on or before June 10,
1999. The warrant purchase agreement grants certain demand and incidental
registration rights to BF and certain repurchase rights to the Corporation with
respect to such shares. The A Warrant was exercised as to all remaining shares
issuable thereunder on January 8, 1998.
On September 19, 1994, the Corporation completed its acquisition of
Spinnaker Coating, in which it, together with the Minority Stockholder (as
defined), purchased the label stock business of Kimberly-Clark Corporation
through its newly formed subsidiary, Brown-Bridge Acquisition Corp., which is
now named Spinnaker Coating, Inc. The minority stockholders of the former
Brown-Bridge entity (the "Minority Stockholders"), which included Lynch, certain
officers and employees of Brown-Bridge (including Mr. Caldabaugh) and certain
affiliates of BF (including Messrs. Boyle and Fleming), all acquired their
respective interests on the same terms and conditions as the Corporation. Prior
to October 1996, 19.9% of
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<PAGE>
the common stock of Brown-Bridge was held by the Minority Stockholders. In
October 1996, in connection with the offering of the Corporation's 10 3/4%
Senior Secured Notes due 2006, the shares held by the Minority Stockholders
acquired by Spinnaker (the "Brown-Bridge Merger") were converted into an
aggregate of approximately $2.3 million and 9,613 shares of Common Stock. In
addition, as part of the consideration for the shares of capital stock of the
former Brown-Bridge entity that were converted pursuant to the Brown-Bridge
Merger, the Minority Stockholders received the right to a contingent payment,
which is exercisable at any time during the period beginning October 1, 1998 and
ending September 30, 2000. The value of the contingent payment is equal to the
percentage of the capital stock of the former Brown-Bridge entity owned by such
stockholder at the time of the Brown-Bridge Merger multiplied by 75% of the fair
market value of the capital stock of Brown-Bridge, as determined in accordance
with certain economic assumptions, as of the date such right is exercised, less
the consideration already received pursuant to the Brown-Bridge Merger. The
contingent purchase price is payable through the issuance of Common Stock of the
Corporation, unless the Corporation elects to pay the contingent price in cash.
If such payments are made in cash, they could give rise to a default under the
Indenture, unless there is sufficient availability under provisions regarding
Restricted Payments contained in the Indenture. The Minority Stockholders were
granted demand and incidental registration rights for their shares of Common
Stock received in connection with the Brown-Bridge Merger. In connection with
the Brown-Bridge Merger and other related agreements, Brown-Bridge accelerated
all of the Brown-Bridge Options, which were owned by Mr. K.C. Caldabaugh, the
Chairman, Chief Executive Officer and President of Brown-Bridge, and Mr. Richard
T. Ray, the Executive Vice President and Chief Financial Officer of
Brown-Bridge. In addition, pursuant to agreements with such officers, the
Corporation loaned such officers an amount equal to the corporate tax benefit
resulting to the Corporation from the deduction received by it (or its
consolidated group) as a result of the early vesting of such options, which is
evidenced by promissory notes executed by such officers. The promissory notes
had an aggregate principal amount at closing of the Notes Offering of
approximately $140,000, bear interest at the rate of 6.02% per annum, shall
mature and be repayable on the 90th day after the contingent payment is made,
and are secured by each officer's rights to receive such contingent payments.
The Corporation is a party to a management agreement with Lynch that
provides for Lynch to render management, financial and other services to the
Corporation in exchange for an annual payment of management fees, the amount of
which is subject to review each year. Pursuant to the foregoing management
agreement, Lynch was paid $100,000 for the year ended December 31, 1997.
RELATIONSHIP WITH INDEPENDENT AUDITORS
Representatives of Ernst & Young L.L.P., the Corporation's auditors for
1997, 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 appropriate questions.
The Corporation has not yet selected a principal auditor for 1998.
On August 25, 1997, the Corporation dismissed Deloitte & Touche L.L.P.,
independent accountants ("DT"), as the principal accountant for Central Products
and expanded the auditing responsibility of the Corporation's principal
accountants, Ernst & Young, to include Central Products operations. Ernst &
Young has served as the Corporation's principal independent accountant since at
least 1988. Ernst & Young referred to DT's audits of Central Products financial
statements as of December 31, 1995 and 1996 and for the year ended December 31,
1996 and the three months ended December 31, 1995, in its reports regarding its
audits of the financial statements of the Corporation.
The Corporation's Audit Committee recommended the foregoing change in
accountants to the Corporation's Board of Directors, who approved such action on
August 12, 1997. The Corporation's Audit Committee's recommendation was based
upon its desire to consolidate its annual audit process under one independent
accounting firm.
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<PAGE>
The reports of DT on Central Products' financial statements as of December
31, 1996 and 1995 and for the year ended December 31, 1996 and the three months
ended December 31, 1995, have not contained an adverse opinion or a disclaimer
of an opinion, nor were they qualified or modified as to uncertainty, audit
scope, or accounting principals. There were no disagreements with DT on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure during those two periods and in the subsequent
interim periods, which, if they had not been resolved to the satisfaction of DT,
would have caused it to make reference to such disagreement in its report on
Central Products' financial statements.
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 1, 1999, for inclusion in the proxy statement and
form of proxy relating to the 1999 Annual Meeting.
MISCELLANEOUS
The Board of Directors knows of no other matters that 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 and the
Class A Common Stock of the Corporation. In addition, officers and employees of
the Corporation (none of whom will receive any compensation therefor 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.
ANNUAL REPORT
The Corporation's Annual Report to Stockholders for the fiscal year ended
December 31, 1997, 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
Robert A. Hurwich
SECRETARY
DATED: April , 1998
12
<PAGE>
Page 1
PROXY
SPINNAKER INDUSTRIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Spinnaker Industries, Inc. (the
"Corporation") hereby (1) acknowledges receipt of the Notice of Annual
Meeting of Stockholders of the Corporation to be held on May 28, 1998 (the
"Annual Meeting"), and the Proxy Statement in connection therewith, and (2)
appoints Ned N. Fleming, III and Richard J. Boyle, or each of them (each with
full power to act alone and with power of substitution) proxies of the
undersigned, with authority to vote at the Annual Meeting and at any
adjournments thereof, all of the shares of Common Stock and Class A Common
Stock of the Corporation which the undersigned would be entitled to vote if
then personally present, upon the matters specified below, and, in their
discretion, upon such other matters that may properly come before the Annual
Meeting, and any adjournments thereof.
THE SHARES REPRESENTED BY THIS PROXY SHALL BE VOTED FOR THE NOMINEES FOR
DIRECTORS IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN BY THE STOCKHOLDER, BUT
IF NO INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR THE FOLLOWING
NOMINEES FOR DIRECTOR. THE BOARD RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING
PROPOSALS.
1. PROPOSAL TO RESTATE THE CERTIFICATE OF INCORPORATION OF THE CORPORATION TO
REFLECT THE CHANGES THAT HAVE BEEN MADE TO THE CORPORATION'S CHARTER SINCE
DECEMBER 20, 1941.
FOR AGAINST ABSTAIN
2. ELECTION OF DIRECTORS
FOR WITHHOLD
Richard J. Boyle, Ned N. Fleming, III, Philip Wm. Colburn, Robert E.
Dolan, Frank Grzelecki, Joseph P. Rhein and Anthonie C. van Ekris
INSTRUCTION: To withhold authority to vote for any individual nominee(s), write
that nominee's name in the space below.
<PAGE>
Page 2
- -------------------------------------------------------------------------------
3. In the discretion of the proxies on any other matter that may properly come
before the meeting or any adjournment thereof.
Signature: Signature:
-------------------------- -------------------------
Dated:
--------------------------
Please sign exactly as name appears on this Proxy. All joint owners
must sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. Proxies executed by a corporation
should be signed by its president or other authorized officer.
