LYNCH CORPORATION
8 Sound Shore Drive
Greenwich, Connecticut 06830
------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY #, 1996
----------------------------------------
To The Shareholders of May #, 1996
LYNCH CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Lynch
Corporation, an Indiana Corporation, will be held at the Greenwich Public
Library, 101 West Putnam Avenue, Greenwich, Connecticut on XXXXXday, May #,
1996, at 3:00 P.M. for the following purposes:
1. To elect seven directors to serve until the next Annual Meeting
of Shareholders and until their successors are duly elected and
qualified.
2. To consider and vote on the right to exchange promissory notes in
a principal amount of up to $25 million that may be issued by the
Corporation for convertible notes of the Corporation under
certain circumstances.
3. To transact such other business as may properly come before the
Annual Meeting or any adjournments thereof.
Information relating to the above matters is set forth in the attached
Proxy Statement. As fixed by the Board of Directors, only Shareholders of
record at the close of business of April 30, 1996 are entitled to receive
notice of, and to vote at, the Annual Meeting and any adjournments thereof.
The Board of Directors encourages all shareholders to personally attend
the annual meeting. Your vote is very important regardless of the number of
shares you own. Shareholders who do not expect to attend are requested to
promptly date, complete and return the enclosed proxy card in the enclosed
accompanying postage-paid envelope in order that their shares of common stock
may be represented at the annual meeting. Your cooperation is greatly
appreciated.
By Order of the Board of Directors
ROBERT A. HURWICH
Secretary
IMPORTANT: Your vote is important regardless of the number of shares you
own. Please date, sign and return your proxy promptly in the enclosed
envelope. Your cooperation is greatly appreciated.
LYNCH CORPORATION
8 Sound Shore Drive
Greenwich, Connecticut 06830
---------------------
PROXY STATEMENT
This Proxy Statement is furnished by the Board of Directors of Lynch
Corporation (the "Corporation") in connection with the solicitation of
proxies for use at the Annual Meeting of Shareholders to be held at the
Greenwich Public Library, Greenwich, Connecticut on May X, 1996, at 3:00 P.M.
and at any adjournments thereof. This Proxy Statement and the accompanying
proxy is first being mailed to shareholders on or about May #, 1996.
Only shareholders of record at the close of business on April 30, 1996
are entitled to notice of, and to vote at, the Annual Meeting. As of the
close of business on such date, 1,390,464 shares of the Corporation's common
stock, no par value (the "Common Stock"), were outstanding and eligible to
vote. Each share of Common Stock is entitled to one vote on each matter
submitted to the shareholders. Where a specific designation is given in the
proxy, 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
director named below, FOR approval of the right to exchange promissory notes
in a principal amount of up to $25 million that may be issued by the
Corporation for convertible notes of the Corporation under certain
circumstances, and in the discretion of the proxies with respect to any other
matter that is properly brought before the Annual Meeting. Any shareholder
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.
An automated system administered by the Corporation's transfer agent
tabulates the votes. Pursuant to the Indiana Business Corporation Law and
the By-laws of the Company, 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.
ELECTION OF DIRECTORS
Seven directors are to be elected at the Annual Meeting to serve
until the next Annual Meeting of Shareholders 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 below. If for any reason
any nominee shall not be available for election, such proxies will be voted
in favor of the remainder of those named and may be voted for substitute
nominees in place of those who decline to be candidates. Management,
however, has no reason to expect that any of the nominees will be unavailable
for election.
The election of directors shall be determined by a plurality of the
votes cast.
All of the nominees have served as directors of the Corporation
since the last annual meeting held May 18, 1995, except for Messrs. Papitto
and Muoio. The By-laws of the Corporation provide that Board of Directors
shall consist of no less than five and no more than thirteen members and that
any vacancies on the Board of Directors for whatever cause arising, including
newly-created directorships, may be filled by the remaining directors until
the next meeting of shareholders. Biographical summaries and ages as of
April 1, 1996 of the nominees are set forth below. Data with respect to the
number
of shares of the Common Stock beneficially owned by each of them appears
on pages 4 and 5 of this Proxy Statement. All such information has been
furnished to the Corporation by the nominees.
Name; Age; Business Experience
and Principal Occupation
for Last 5 Years; and Directorships in Served as
Public Corporations and Investment Companies Director from
Morris Berkowitz, 73
Business Consultant (since 1984); Vice
President (1970-1983) of LIN Broadcasting
Corporation, a corporation engaged in
cellular telephone, broadcasting and
publishing activities............................ 1987
E. Val Cerutti, 56
Business Consultant (since 1992);
President and Chief Operating Officer
(1975-1992) of Stella D'oro Biscuit Co.,
Inc., producer of bakery products;
Director of The Gabelli Convertible
Securities Fund and The Gabelli Gold
Fund............................................. 1990
Paul J. Evanson, 54
President (since 1995) of Florida Power
& Light Co.; Vice President, Finance and
Chief Financial Officer of FPL Group, Inc.
(1992-4), parent company of Florida Power
& Light; President and Chief Operating
Officer of the Corporation (1988-1992);
Chairman (1990-1992) and President (1988-
1992) of Spinnaker Industries, Inc., a
subsidiary of the Corporation and a
diversified manufacturing firm with major
subsidiaries in the specialty adhesive-
backed materials business; Executive Vice
President of Moore McCormack Resources, Inc.
(1986-1988), formerly a diversified construction
materials and natural resources company;
Director of FPL Group, Inc., Florida Power
& Light Company and Southern Energy
Homes, Inc....................................... 1988
Mario J. Gabelli, 53
Chairman and Chief Executive Officer of
the Corporation (since 1986); Director of
The Morgan Group, Inc., a subsidiary of
the Corporation (since 1994); Director of
Spinnaker Industries, Inc., a subsidiary of
the Corporation (since 1995); Chairman and
Chief Executive Officer of Gabelli Funds,
Inc., successor to The Gabelli Group, Inc.
(since 1980), an investment adviser and
holding company for subsidiaries engaged in
various aspects of the securities business;
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); Chairman of Gabelli
International Growth Fund, Inc. (since 1994);
Trustee of The Gabelli Money Market Funds (since
1992), The Gabelli Growth Fund (since 1987)
and The Gabelli Asset Fund (since 1986)............... 1986
Salvatore Muoio, 36
Security Analyst and Vice President
of Lazard Freres & Co., L.L.C., an
investment banking firm (since 1995);
Securities Analyst at Gabelli &
Company, Inc.(1985-1995).............................. 1995
Ralph R. Papitto, 69
Chairman and Chief Executive Officer of
AFC Cable Systems, Inc., a manufacturer
and supplier of electrical distribution
products (since 1993); Founder,
Chairman and a Director of Nortek, Inc.,
a manufacturer of con-struction products
(1967-1993); Director of AFC Cable Systems,
Inc.................................................. 1995
Paul P. Woolard, 72
Business Consultant (since 1986); Senior
Executive Vice President (1975- 1986)
of Revlon, Inc.; President of Revlon Beauty
Group of Revlon, Inc., (1984-1986),
manufacturer of cosmetics and fragrances;
Director of Chemex Pharmaceutical,
Inc................................................ 1968
OPERATION OF BOARD OF DIRECTORS AND COMMITTEES
There were five (5) meetings of the Board of Directors during
1994, and the Board acted twice by unanimous written
consent.
The Board of Directors has established three standing committees, the
principal duties of which are described below: Audit Committee: Recommends to
the Board of Directors the appointment of independent auditors; reviews
annual financial reports to shareholders 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 4 times during 1995. The
present members are Messrs. Berkowitz (Chairman) and Woolard.
Executive Compensation and Benefits Committee: Develops and makes
recommendations to the Board of Directors with respect to the Corporation's
executive compensation policies; recommends to the Board of Directors the
compensation to be paid to executive officers; administers the Lynch
Corporation 401(k) Savings Plan, Phantom Stock Plan, and Bonus Plan, as
summarized on pages 7 through 10 of this Proxy Statement; and performs such
other duties as may be assigned to it by the Board of Directors. The
Executive Compensation and Benefits Committee met 2 times during 1995. The
present members are Messrs. Woolard (Chairman) and Papitto.
Executive Committee: Exercises all the power and authority of the Board
of Directors, except as otherwise provided by Indiana law or by the By-laws
of the Corporation, in the management affairs of the Corporation during
intervals between meetings of the Board of Directors. The Executive Committee
met once and acted once during 1995. The present members are Messrs. Gabelli
(Chairman), Cerutti, Evanson and Papitto.
The Corporation does not have a nominating committee. Nominations for
directors and officers of the Corporation are matters considered by the
entire Board of Directors.
COMPENSATION OF DIRECTORS
Directors, who are not otherwise employees, receive an annual cash
retainer of $10,000 and a fee of $1,000 for each Board of Directors meeting
and each committee meeting (which lasts for at least one hour) the Director
attends, and commencing with 1996 $15,000 worth of Common Stock of the
Corporation. In addition, a non-employee director serving as a committee
chairman receives an additional $2,000 payment. A director who is an
employee of the Corporation is not compensated for services as a member of
the Board of Directors or any committee thereof. In addition, the
Corporation purchases
accident and dismemberment insurance coverage of $100,000 for each member of
the Board of Directors and maintains a liability insurance policy which
provides for indemnification of each Director (and officer) against certain
liabilities which each may incur in his capacity as such.
Mr. Bell, who resigned as a director of the Corporation as of
December 31, 1995, is also a director and a member of the Compensation
Committee of The Morgan Group, Inc. ("Morgan Group") and received the normal
compensation payable to directors and committee members thereof. Mr. Cerutti
received $79,000 in 1995 as a director of and for special consulting service
provided to Lynch Machinery, Inc., a subsidiary of the Corporation. Mr.
Woolard received $4,000 in 1995 as a director of Lynch Machinery, Inc.
and Mr. Boyle received $9,000 as a director of M-tron Industries, Inc.,
a subsidiary of the Corporation. See Compensation Committee Interlocks and
Insider Participants on page 13 for certain payments by Spinnaker Industries,
Inc. ("Spinnaker") to a company affiliated with Mr. Boyle, who resigned as a
director of the Corporation effective January 17, 1996.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 1, 1996, certain information
with respect to all persons known to the Corporation to each beneficially own
more than 5% of the Common Stock of the Corporation, which is the only class
of voting stock of the Corporation outstanding. The table also sets forth
information with respect to the Corporation's Common Stock beneficially owned
by the directors, by each of the executive officers named in the Summary
Compensation Table on page 6 of this Proxy Statement, and by all directors
and executive officers as a group. The number of shares beneficially owned
is determined under rules of the Securities and Exchange
Commission, and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership
includes any shares to which a person has the sole or shared voting or
investment power or any shares which the person can acquire within 60 days
(e.g., through exercise of stock options or conversions of securities).
Except as otherwise indicated, the shareholders listed in the table have sole
voting and investment powers with respect to the Common Stock set forth in
the table. The following information is either reflected in Schedule 13Ds
and 13Gs or Form 3s and Form 4s that have been filed with the Securities and
Exchange Commission or which has otherwise been furnished to the
Corporation.
<TABLE>
<CAPTION>
Name of Amount and Nature Percent
Beneficial Owner* of Beneficial Ownership of Class
- ------------------ ------------------------------ ---------
<S> <C> <C>
Barbara Ritzenthaler 117,248(1) 8.4%
Dimensional Fund Advisors, Inc. 84,800(2) 6.1%
Mario J. Gabelli 346,905(3) 24.9%
Morris Berkowitz 338 **
E. Val Cerutti 738(4) **
Paul J. Evanson 5,238 **
Salvatore Muoio 438 **
Ralph R. Papitto 538 **
Paul P. Woolard 2,141 **
Robert E. Dolan 235(5) **
Robert A. Hurwich 92(6)
All Directors and Executive
Officers as a group (ten in total) 356,663 25.7%
</TABLE>
- ------------
* The address of each holder of more than 5% of the Common Stock is as
follows: Bruce A. Ritzenthaler--7-A West Jackson Avenue, Naperville, IL
60540; Dimensional Fund Advisors--1299 Ocean Avenue, Santa Monica, CA
90401; and Mr. Gabelli--Corporate Center at Rye, Rye, NY 10580.
** Represents holdings of less than one percent.
(1) Based upon a Schedule 13D dated April 17, 1996.
(2) Because of its investment and/or voting power over shares of Common
Stock of the Corporation held in the accounts of its investment
advisory clients, Dimensional Fund Advisors, Inc., an investment
adviser (Dimensional"), is deemed to be the beneficial owner of 84,800
shares. Dimensional disclaims beneficial ownership of all such shares.
(3) Includes 256,905 shares of Common Stock 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 of Common Stock owned by certain family
trusts. Mr. Gabelli disclaims beneficial ownership of the shares owned
by the family trusts.
(4) 500 shares are jointly owned with wife and sharing voting and
investment power.
(5) Includes 35 shares registered in the name of Mr. Dolan's children with
respect to which Mr. Dolan has voting and investment power.
(6) Held for the benefit of Mr. Hurwich under the Corporation's 401(k)
Savings Plan.
- -----------
Spinnaker is a majority-owned subsidiary of the Corporation whose stock
is traded in the over-the-counter market and which is listed in the National
Association of Securities Dealers Automated Quotations (NASDAQ). Mr. Gabelli
beneficially owns 52,200 shares (including 15,300 shares owned by certain
family trusts which Mr. Gabelli disclaims beneficial ownership of) (2.2% of
the outstanding shares) of Spinnaker's Common Stock. He may also be deemed
to be a beneficial owner of 2,259,063 shares (83.2% of the outstanding
shares) of Spinnaker's Common Stock owned by the Corporation (through Lynch
Manufacturing Corporation, a wholly-owned subsidiary of the Corporation)
by virtue of his ownership of 24.9% of the shares of the Common Stock of the
Corporation. Mr. Gabelli, however, specifically disclaims beneficial
ownership of all shares of the Common Stock of Spinnaker held by the
Corporation. Mr. Evanson owns 2,250 shares of Spinnaker Common Stock. Mr.
Dolan owns 1,225 shares of Spinnaker Common Stock.
Morgan Group is a 47% owned subsidiary of the Corporation whose stock is
traded on the NASDAQ National Market System. Mr. Gabelli beneficially owns
10,000 shares (0.7%) of Morgan Group's Class A Common Stock. He may also be
deemed to be a beneficial owner of 150,000 shares of Morgan Group's Class A
Common Stock and 1,200,000 shares of Morgan Group's Class B Common Stock
owned by the Corporation, by virtue of his ownership of 24.9% of the shares of
Common Stock of the Corporation. Mr. Gabelli, however, specifically
disclaims beneficial ownership of all shares of Morgan Group stock held by
the Corporation. Mr. Woolard owns 200 shares of Morgan Group's Class A
Common Stock.
EXECUTIVE COMPENSATION
The following tables set forth compensation received by the
Corporation's Chief Executive Officer and each of the other executive
officers of the Corporation for the last three fiscal years and certain
information as to stock options:
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Compensation
<CAPTION>
Long Term
Name and Compensation All Other
Principal Awards Compensation
Position Year Salary($) Bonus($)1 Stock Underlying Options ($)2
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mario J. Gabelli 1995 325,000 625,000 00 200
Chief Executive
Officer, Chairman
of the Board 1994 150,000 0 -- 200
Chairman of the
Executive
Committee 1993 150,000 250,000 -- 200
Michael J. Small3 1995 183,846 0 12,256 Shs --
Office of the
President 1994 191,538 0 37,000 Shs --
Robert E. Dolan 1995 152,700 125,000 -- --
Chief Financial
Officer 1994 140,096 0 -- 200
1993 125,096 50,000 -- 200
1992 104,469 15,000 -- 200
Robert A. Hurwich3 1995 135,200 50,000 -- 200
Vice President-
Administration,
Secretary, 1994 107,538 0 -- --
General Counsel
</TABLE>
- -----------
(1) Bonuses earned during any fiscal year are generally paid during the
following fiscal year. Mr. Gabelli used his 1995 bonus to purchase 10,373 shares
of Common Stock from the Corporation.
(2) The compensation reported represents contributions made by the
Corporation to the Lynch Corporation 401(k) Savings Plan. The amount of
perquisites, as determined in accordance with the rules of the Securities
and Exchange Commission relating to Executive Compensation did not exceed
10% of salary and bonus for 1995.
(3) Messrs. Small and Hurwich joined the Corporation in January 1994 and
February 1994, respectively. Mr. Small's employment terminated effective
September 1, 1995; amount for 1995 includes consulting fees paid to Mr.
Small for the remainder of 1995.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
Individual Grants Potential Realizable Value at Assumed
Annual Rates of Stock Price
Appreciation For Option Term
Number of Percent of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base
Granted Fiscal Year Price Expiration
Name (#) ($/Sh) Date 5% ($) 10%($)
(a) (b) (c) (d) (e) (f) (g)
<S> <C> <C> <C> <C> <S><C> <S><C>
Michael J.
Small1 12,256 100% $33.25 1/18/99 N.A(1) N.A.(1)
</TABLE>
- -------------
(1) The options set forth in the table were the second installment granted
to Mr. Small pursuant to an employment agreement for Mr. Small to serve in the
Office of the President. In addition, the employment agreement provided for
a third additional option installment of 12,256 shares, which would have had
an exercise price equal to the closing prices of the Corporation stock on
January 18, 1996. All options terminated as a result of his termination of
employment effective September 1, 1995. See Transactions with Certain
Affiliated Parties.
EXECUTIVE COMPENSATION AND BENEFITS COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
Overview and Philosophy
The Executive Compensation and Benefits Committee ("Committee") of the
Board of Directors is responsible for developing and making recommendations
to the Board of Directors with respect to the Corporation's executive
compensation policies and administering the various executive compensation
plans. In addition, the Committee recommends to the Board of Directors
the annual compensation to be paid to the Chief Executive Officer and each of
the other executive officers of the Corporation, as well as to other key
employees. The Committee is comprised of two independent, non-employee
directors.
The objectives of the Corporation's executive compensation program are
to:
o Support the achievement of desired Corporation performance.
o Provide compensation that will attract and retain superior talent
and link reward with performance.
o Ensure that there is appropriate linkage between executive
compensation and the enhancement of shareholder value.
o Evaluate the effectiveness of the Corporation's incentive
arrangements.
The executive compensation program 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 Company performance and specific issues peculiar to the
Corporation, as well as individual performance. While the Committee did not
base its 1995 compensation actions on specific comparisons to other
companies, a major factor was the growth of the Corporation, with revenues
and total assets having more than doubled since 1993. In 1996, the Committee
is undertaking a comparison of its executive compensation program with that
of other companies, beginning with the companies in American Stock Exchange
Service Industry Index to determine which of those companies are most
comparable to the Corporation. The Committee uses its discretion to
recommend executive compensation at levels warranted in its judgment by
corporate and individual performance.
Executive Officer Compensation Program
The Corporation's executive officer compensation program is comprised of
base salary, cash bonus compensation, Executive Stock Purchase Loan Plan,
Lynch Corporation 401(k) Savings Plan, and other benefits generally available
to employees of the Corporation. In connection with recruiting for the
Office of the President in 1994, the Corporation also awarded stock options.
In 1996 the Corporation adopted a Phantom Stock Plan application to officers
and employees of the Corporation. Mr. Gabelli elected not to participate in
the Phantom Stock Plan.
Base Salary
Base salary levels for the Corporation's executive officers are intended
to be competitive. In recommending salaries the Committee also takes into
account individual experience and performance and specific issues particular
to the Corporation. A summary of the compensation awarded to the Chief
Executive Officer and certain other executive officers is set forth in the
"Summary Compensation Table" on page 6 of this Proxy Statement. Salary
increases for 1995 were based upon a variety of judgmental factors, including
the individual performances of the officers in 1994 and their anticipated
contributions to the Corporation in 1995, the increasing size and complexity
of the Corporation and the general financial and strategic performance of the
Corporation. With respect to Mr. Gabelli, the Committee believed that it was
the right time to raise Mr. Gabelli's salary to a more appropriate level and
a more appropriate spread between his salary and the other officers of the
Corporation.
Bonus Plan
The Corporation has in place a bonus plan that is based on an objective
measure of corporate performance and on subjective evaluation of individual
performance for its executive officers and other key personnel. In general,
the plan provides for an annual bonus pool equal to 20% of the excess of (i)
the consolidated pre-tax profits of the Corporation for a calendar year over
(ii) 25% of the Corporation's shareholders' equity at the beginning of such
year adjusted for dividends paid during the year. The Executive Compensation
and Benefits Committee at its discretion may take into consideration other
factors and circumstances in awarding bonuses such as progress toward a
achievement of strategic goals and qualitative aspects of management
performance. A summary of bonuses awarded to the Chief Executive Officer and
certain other executive officers is set forth in the "Summary Compensation
Table" on page 6 of this Proxy Statement. No bonuses were paid for 1994
although the Corporation had a good year because the bonus pool formula did
not provide for any bonus and the Committee determined not to recommend any
bonuses. The total bonuses paid for 1995 were in accordance with the bonus
formula. The breakdown of the bonus pool is not based upon a formula but
upon judgmental factors. Mr. Gabelli received a higher percentage of the
bonus pool based upon his greater responsibilities as chief executive officer
(the Office of the President was vacant for the last four months of the year)
for the performance of the Corporation and its financial and strategic
achievements.
Lynch Phantom Stock Plan
In February 1996 the Corporation adopted a Phantom Stock Plan pursuant
to which share units equivalent to one share of Common Stock of the
Corporation may be awarded to officers and employees of the Corporation. Mr.
Gabelli elected not to participate in the Plan. The Committee administers
the Phantom Stock Plan, including selecting the persons to be awarded share
units and number of units to be awarded. Such share units are initially
valued at a trailing average price of the Corporation's Common Stock (or such
other price as the Committee determines), vest on the first anniversary of
the date of grant and may be exercised by the grantee at any time after
vesting and prior to the fifth anniversary of the date of grant. Upon
exercise the grantee is entitled to the difference between the market price
of the Corporation's Common Stock on the date of exercise and the award value,
multiplied by the number of share units granted, and the Corporation may
elect to pay the award with Common Stock of the Corporation for up to 100% of
the value. Seven thousand one hundred units were awarded in February 1996,
of which 4,000 were awarded to Mr. Dolan and 2,500 were awarded to Mr.
Hurwich at $63.03 per share units. The awards were discretionary and not
based upon a formula but were intended to give certain officers, other than
Mr. Gabelli, a substantially increased equity equivalent interest in the
Corporation as a continuing incentive.
Executive Stock Purchase Loan Plan
In December 1994, the Corporation adopted the Executive Stock Purchase
Loan Plan ("Stock Loan Plan"). The Stock Loan Plan is intended to encourage
stock ownership in the Corporation by its executive officers. The Corporation
may loan up to one hundred percent (100%) of the purchase price of the shares
to officers of the Corporation selected by the Chairman of the Board (who is
not eligible to participate). The maximum amount of loans under the Stock
Loan Plan is $100,000 per year ($30,000 per officer per year) and $200,000 in
total, which amounts may be increased by the Board of Directors. Loans will
bear interest (currently 6.34% per annum) and will be collateralized by the
shares so acquired until the loan has been repaid. In order to induce
executive officers to purchase stock, the interest rate may be below
generally prevailing interest rates but is expected to be high enough so that
no income will be inputed to the executive officer for tax purposes. The
shares may be put to the Corporation in full satisfaction of the loan
principal not withstanding the price of stock at the time of the put. To date,
no such loans have been made to any individual under the Stock Loan Plan.
Lynch Corporation 401(k) Savings Plan
All employees of the Corporation and its subsidiaries are eligible to
participate in the Lynch Corporation 401(k) Savings Plan, other than those
employed in the Corporation's telephone entities and those covered by a
collective bargaining agreement, after having completed one year of service
(as defined in the Plan) and having reached the age of 18.
The 401(k) Plan permits employees to make contributions by deferring a
portion of their compensation. Participating employees also share in
contributions made by their respective employers. The annual mandatory
employer contribution to each participant's account is equal to 25% of
the first $800 of the participant's contribution. In addition, the employer
may make a discretionary contribution of up to 75% of the first $800 of the
participant's contribution. No such discretionary contribution was made in
1994. A participant's interest in both employee and employer contributions
and earnings thereupon are fully vested at all times.
Employee and employer contributions are invested in guaranteed
investment contracts, certain mutual funds or Common Stock of the Corporation,
as determined by the participants. With respect to the individuals listed in
the Summary Compensation Table, employer contributions of $200 were paid to the
accounts of each of Messrs. Gabelli, Dolan, and Hurwich, and each of such
individuals deferred $9,240 under the Plan during 1995, which amounts have
been included for such individual in the Summary Compensation Table.
Benefits
The Corporation provides medical life insurance and disability benefits
to the executive officers (in the case of Mr. Gabelli, it shares the cost
with Gabelli Funds, Inc.) that are generally available to Corporation
employees. The amount of perquisites, as determined in accordance with the
rules of the Securities and Exchange Commission relating to executive
compensation, did not exceed 10% of salary and bonus for fiscal 1994.
Chief Executive Officer Compensation
The following table sets forth compensation received by Mr. Gabelli
since 1986 when Mr. Gabelli became Chairman and Chief Executive Officer of the
Corporation:
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Salary 0 0 60,000 90,000 90,000 90,000 150,000 150,000 150,000 325,000
Bonus 0 0 30,000 0 0 0 100,000 250,000 0 625,000
</TABLE>
Mr. Gabelli performs the normal functions of the chief executive officer
of a company and is particularly involved in the development of acquisition,
investment and financial strategies. After considering the substantial
increase in the size and scope of the Corporation, improved financial
performance as reflected by the increase in private market value as well as
public market value, and improved return on shareholder equity, the
Compensation Committee recognized that Mr. Gabelli's 1994 and prior years'
compensation was materially below that of chief executive officers of
comparable companies, even after considering that Mr. Gabelli's service to
the Corporation is not full time. Therefore, the Committee increased Mr.
Gabelli's salary to $500,000 per year effective July 1, 1995. In addition,
the Committee recognizes the role of leadership, particularly that of the
Chief Executive Officer, in developing existing businesses and in making
strategic acquisitions. Therefore, it is considering other forms of "at
risk" incentive compensation for Mr. Gabelli to maximize both the intrinsic
value of the Corporation's assets and the market price of the Company's
stock. In order to further identify Mr. Gabelli's interests with that of the
Corporation, the Corporation authorized the sale by the Corporation to Mr.
Gabelli of $625,000 of Common Stock (equal to Mr. Gabelli's 1995 bonus),
which resulted in the purchase of 10,373 shares. The Corporation had a good
year in 1995 including record earnings and the undertaking and/or completion
of several important strategic steps, and executive officers, especially Mr.
Gabelli, made substantial contributions to the Corporation's performance
which is reflected in the bonus awarded to Mr. Gabelli as well as other
executives.
Paul P. Woolard, Chairman
Ralph R. Papitto
Members of the Executive Compensation
and Benefits Committee
<PAGE>
PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on the
Common Stock of the Corporation for the last five fiscal years ended December
31, 1995 with the cumulative total return on the broad market by the American
Stock Exchange Market Value Index, and the peer group, as measured by the
Amex
Service Industry Subindex over the same period (assuming the investment of
$100 in the Corporation's Common Stock, and each of the indexes on December
31, 1990, and reinvestment of all dividends).
INVESTMENT OF $100 DOLLARS ON DECEMBER 31, 1990
WITH REINVESTMENT OF DIVIDENDS
[GRAPH]
ITEM 2
TO CONSIDER AND VOTE ON THE EXCHANGE RIGHT IN PROMISSORY NOTES IN A PRINCIPAL
AMOUNT OF UP TO $25 MILLION THAT MAY BE ISSUED BY THE CORPORATION
The Corporation may require funds for general corporate purposes,
including, without limitation, advances to Spinnaker, investment in personal
communication services ("PCS") and acquisitions. If those funds are
required, the Corporation may request an investment banking firm, which may
be Gabelli Funds, Inc.("GFI"), to assist the Corporation in obtaining up to
$25 million of those funds. Mr. Gabelli is the principal shareholder of, and
controls, GFI. GFI or its Proprietary Accounts may provide some or all of
those funds. To the extent GFI assists in obtaining funds from persons other
than GFI or its Proprietary Accounts, the Corporation would pay GFI customary
fees for such services, as determined and approved by the Board of Directors
of the Corporation. Proprietary Accounts shall mean the accounts of (i) all
subsidiaries of GFI, (ii) all directors, officers and key employees of GFI
and its subsidiaries, including Mr. Gabelli, (iii) all accounts of members of
the immediate family of a person included in clause (ii), i.e., spouse and
minor children living with such person, and (iv) all accounts in which (a)
any one of the persons or entities listed in clauses (i) through (iii) has at
least a 10% interest or (b) in which persons or entities listed in clauses
(i) through (iii) in the aggregate have at least a 25% interest.
This Item 2 contemplates that, if the Corporation needs funds:
(i) it may retain GFI to obtain such funds, which funds might be
provided by GFI or its Proprietary Accounts in the form of borrowings
evidenced by promissory notes (the "Notes"); and
(ii) if the Corporation were to default in the payment of the Notes,
the holders would have the right to exchange the Notes for notes convertible
into Common Stock of the Corporation (the "Convertible Notes").
If GFI or its Proprietary Accounts hold any Notes and there is a
payment default and the Notes become exchangeable for Convertible Notes, the
Corporation would use its best efforts to offer additional Convertible Notes
on a pro rata basis to all shareholders of the Corporation, including Mr.
Gabelli, pursuant to a registration statement under the Securities Act of
1933. If other shareholders are unable or unwilling at the time of such an
offer to purchase their pro rata share of Convertible Notes, their equity
interest in the Corporation could be reduced relative to that of Mr. Gabelli,
GFI and their affiliates.
Shareholder approval of this Item 2 is being sought because Mr.
Gabelli, the Chairman of the Board and Chief Executive Officer and a 24.%
shareholder of the Corporation, also is the principal shareholder and
controlling person of GFI, and, therefore, the Corporation, on the one hand,
and Mr. Gabelli and GFI, on the other hand, may be deemed to have conflicting
interests in this matter. The Company believes that, because of Mr.
Gabelli's relationships with both the Corporation and GFI, the Corporation
may be able to obtain funds more expeditiously and on better terms through
GFI than through other sources, and GFI may be willing to provide funds in
circumstances where others would not. However, GFI has no obligation to
assist the Corporation in obtaining funds and neither GFI, Mr. Gabelli nor
GFI's Proprietary Accounts have any obligation to provide funds. GFI may
earn fees in connection with obtaining funds for the Corporation and, to the
extent GFI or its Proprietary Accounts provide funds, the terms and
conditions on which they would provide funds would have to be satisfactory to
them as well as to the Board of Directors of the Corporation. If there were
a payment default on the Notes and Convertible Notes were issued to Mr.
Gabelli, GFI or their affiliates, the interest of other shareholders in the
equity of the Corporation could be reduced. Shareholder approval of this
Item 2 may satisfy any American Stock Exchange shareholder approval
requirements with respect to certain issuances of Common Stock.
It is anticipated that the Notes would bear interest at 8% per annum,
with principal and interest payable not earlier than 120 days after the
issue date of the Notes. It is further anticipated that the Notes may be
secured by a pledge of the stock of certain subsidiaries of the Corporation
(which may, at the time, be subject to a prior security interest) and
possibly other security. The formula for determining the conversion price
under the Convertible Notes will be determined by the Board of Directors when
the Notes are issued. If the conversion price were $40, $60 or $80, the
number of shares of Common Stock that could be issued upon conversion of the
$25,000,000 aggregate principal amount of Convertible Notes that could be
issued would be 625,000, 416,667 and 312,500 shares, respectively, which
would constitute 44.9%, 30.0% and 22.5%, respectively, of the shares
currently outstanding.
It is anticipated that the holder(s) of the Notes would be entitled
after the occurrence of a payment default on the Notes to exchange the Notes for
Convertible Notes of the Corporation. It is anticipated that the Convertible
Notes would have a maturity of up to 10 years, and would contain such terms
as the Board of Directors may authorize, including a right to be converted
into Common Stock at a conversion price equal to the lowest of (i) $60 per
share, (ii) the closing price of the Common Stock on the last trading day
before issuance of the Notes or (iii) the average market price of the Common
Stock during an agreed period before the default. The closing price of the
Common Stock on the American Stock Exchange on April , 1996, was $_________.
If the Corporation were to issue Notes, it is anticipated that the
Corporation would attempt to refinance such Notes from unaffiliated financing
sources, or from the sale of assets. In the absence of such a refinancing or
sale, the Corporation would be unable to repay the Notes when they become
due. No such refinancing or sale is currently under discussion.
It is anticipated that any Notes held by GFI or its Proprietary Accounts
would provide that in the event of a payment default the Corporation would
use its best efforts to register with the Securities and Exchange Commission,
Convertible Notes equal to the principal amount of Notes (plus accrued but
unpaid interest thereon) held by such party or parties and the shares of
Common Stock into which the Convertible Notes may be convertible, for
offering by the Corporation to all shareholders of the Corporation, including
Mr. Gabelli, on a basis such that each shareholder would be entitled to
acquire a portion of such Convertible Notes as nearly equal as possible to
that portion of the outstanding shares of Common Stock owned by such
shareholder on the date the registration is declared effective. The offering
would be made to shareholders at that time so that shareholders could, if
they so determine, avoid any reduction in their equity interest in the
Corporation relative to GFI, Mr. Gabelli and their affiliates. It is
anticipated that Mr. Gabelli would be able to pay for his allocable portion
of the Convertible Notes by exchanging Notes held by GFI and its Propriety
Accounts valued at the principal amount of Notes so exchanged plus accrued
but unpaid interest thereon. It is anticipated that the Corporation may use
any net proceeds from that offering to pay any Notes that shall not have been
exchanged for Convertible Notes. If the Notes qualify for listing on the
American Stock Exchange, the Corporation anticipates that it would seek to
have the Convertible Notes listed.
The terms of the Notes and Convertible Notes would be determined by the
Board of Directors of the Corporation (of which Mr. Gabelli is Chairman) and
would have to be acceptable to GFI. The Corporation does not intend to seek
further shareholder approval of the terms of the Notes or Convertible Notes.
The Corporation has no current intention to issue the Notes; however,
subsidiaries of the Corporation have certain funding obligations with respect
to pending or completed acquisitions and investments in personal
communications services (PCS), and the Corporation and its subsidiaries are
actively engaged in seeking out and reviewing acquisitions and investment
opportunities.
The Corporation hereby incorporates by reference the financial
statements, the supplementary financial information and management's
discussion and analysis of financial condition in the Corporation's 1995
Annual Report to Shareholders delivered to shareholders with this Proxy
Statement. In addition, the Corporation hereby incorporates by reference the
financial statements (i) of the Corporation contained in Part I, Item 1, of
the Corporation's Form 10-Q for the quarterly period ended March 31, 1996,
and (ii) of Central Products Company contain in Form 8-K/A-1 dated October 4,
1995.
The Board believes that, in a circumstance in which the Notes would
become convertible into Convertible Notes (i.e., after a payment default
on the Notes), and if the Notes (or a substantial portion thereof) were
converted, the default might be cured. The Board considers the exchange
provision of the Notes to be reasonable and appropriate under the
circumstances.
NOTWITHSTANDING SUBMISSION OF THIS PROPOSAL TO SHAREHOLDERS, THE
CORPORATION, WHETHER OR NOT THIS PROPOSAL IS APPROVED, RESERVES THE RIGHT TO
ISSUE, WITHOUT SHAREHOLDER APPROVAL, SUCH SECURITIES AS THE CORPORATION DEEMS
ADVISABLE, INCLUDING WITHOUT LIMITATION PROMISSORY NOTES WHICH MAY OR MAY NOT
BE SIMILAR TO THE NOTES AND CONVERTIBLE NOTES WHICH MAY OR MAY NOT BE SIMILAR
TO THE CONVERTIBLE NOTES.
THE BOARD OF DIRECTORS (OTHER THAN MR. GABELLI, WHO IS MAKING NO
RECOMMENDATION) RECOMMENDS A VOTE IN FAVOR OF APPROVAL OF THE EXCHANGE RIGHT.
Approval of this Item 2 requires the affirmative vote of a
majority of the shares of Common Stock of the Corporation voting on the
proposition, excluding any abstentions. Mr. Gabelli has not indicated how he
intends to vote the shares beneficially owned by him on this matter.
TRANSACTIONS WITH CERTAIN AFFILIATED PERSONS
Mr. Gabelli is affiliated with various entities which he directly or
indirectly controls and which are engaged in various aspects of the
securities business, such as an investment advisor to various institutional and
individual clients including registered investment companies and pension
plans, as a broker-dealer, and as managing general partner of various private
investment partnerships. On March 12, 1996, the Corporation paid Mr. Gabelli
his 1995 bonus of $625,000 and sold him 10,373 shares of Common Stock for
$625,000, or $60.25 per share, the closing price of the Common Stock on March
11, 1996. In addition, the Corporation loaned Mr. Gabelli $212,000 for the
period from March 15, 1996 until March 31, 1996, at 6% interest, for the
payment of withholding taxes on Mr. Gabelli's 1995 bonus used to purchase
Common Stock. During 1995, the Corporation and its subsidiaries engaged in
various transactions with certain of these entities and the amount of
commissions, fees, and other remuneration paid to such entities, excluding
reimbursement of certain expenses related to Mr. Gabelli's employment by the
Corporation, was less than $60,000. Pursuant to Indiana law and the
Corporation's Articles of Incorporation and as previously reported, the
Corporation indemnified Mr. Gabelli for outside legal fees of $391,575
incurred in connection with a regulatory inquiry. See also Item 2 above.
Michael J. Small ceased to be an officer and employee of the Corporation
effective September 1, 1995, and his employment agreement and stock options
terminated as of that date. The Corporation agreed to pay Mr. Small
consulting fees of $350,000 over a three and one-quarter year period plus
an additional $600,000, half of which was paid at year-end 1995 and the other
half to be paid over three years.
See Compensation Committee Interlocks and Insider Participation below.
Compensation Committee Interlocks and Insider Participants
Mr. Boyle, who is the Chairman and Chief Executive Officer of Spinnaker,
served as a member of the Executive Compensation and Benefits Committee from
August 17, 1995 until his resignation as a director of the Corporation on
January 17, 1996 and attended one meeting on December 7, 1995. Messrs.
Gabelli and Dolan serve as directors of Spinnaker, which does not have
a compensation committee.
In June 1994, Spinnaker and Boyle, Fleming, George & Co., Inc. ("BF")
entered into a Management Agreement (the "Management Agreement"), pursuant
to which BF agreed to provide to Spinnaker operations management, strategic
planning, acquisition analysis and implementation, investment banking
and financial advisory services and supervision of Spinnaker's financial
reporting and regulatory obligations. Mr. Boyle, a director of the
Corporation through January 17, 1996, is a director, chief executive officer
and a principal owner of BF and pursuant to the Management Agreement became a
director and Chairman of the Board and chief executive officer of Spinnaker.
The Management Agreement had 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 prior to the end of the
first anniversary of the Agreement. Thereafter, the Agreement is terminable
on 90 days' notice by either party. Pursuant to the Management Agreement BF
received a management fee of $200,000 in 1995, plus reimbursement of
expenses. The management fee for 1996 has been raised to $400,000 reflecting,
among other things, the increased size and complexity of Spinnaker. Mr.
Boyle does not receive a salary from Spinnaker, nor does Mr. Fleming, the
President of Spinnaker.
Spinnaker and BF also entered into a Warrant Purchase Agreement (the
"Warrant Purchase Agreement") in June 1994, pursuant to which BF received a
Warrant (the "A Warrant") to purchase 678,945 shares of Common Stock of
Spinnaker for a price of $2.67 per share (adjusted for the three for two
stock split in December 1994 and December 1995) at any time on or before June
10, 1999. BF may also receive a warrant to purchase additional Spinnaker shares
under certain circumstances on the occurrence of an equity offering by
Spinnaker.
When Spinnaker acquired an 80.1% interest in Brown-Bridge Industries,
Inc., an acquisition opportunity developed by BF prior to entering into
the Management Agreement, certain affiliates of BF loaned Spinnaker $322,000
at an interest rate of 18% to help Spinnaker fund its portion of Spinnaker's
acquisition and acquired 6.2% of the Brown-Bridge stock on the same terms and
conditions as Spinnaker.
INDEPENDENT AUDITORS
The Board of Directors upon the recommendation of its Audit Committee,
has reselected the firm of Ernst & Young, independent auditors, to audit the
consolidated financial statements of the Corporation for the fiscal year
ending December 31, 1996. Management has not followed the practice of
presenting the selection of auditors to the shareholders for their approval.
Representatives of Ernst & Young 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.
Effective March 19, 1996, Morgan replaced Arthur Anderson LLP ("Arthur
Anderson") and retained Ernst & Young LLP ("Ernst &Young"), which are the
auditors for the Corporation, as Morgan's public accountants. Ernst & Young
had expressed reliance on Arthur Anderson's audit. Arthur Anderson's report
on the company's financial statements during the 1994 and 1995 fiscal year
prior to its replacement contained no adverse opinion or disclaimer of
opinions, and was not qualified or modified as to uncertainty, audit scope or
accounting principles. The decision to change auditors was approved by
Morgan's Board of Directors and the Corporation's Audit Committee.
During the 1994 and 1995 fiscal years and until its replacement there
were no disagreements between Morgan or the Corporation and Arthur Anderson
on any matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of Arthur Anderson, would have caused it to make
a reference to the subject matter of the disagreement in connection with it
reports.
SECTION 16(a) REPORTING
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Corporation's directors, executive officers and holders of more
than 10% of the Corporation's Common Stock to file with the Securities and
Exchange Commission and American Stock Exchange initial reports of ownership
and reports of changes in the ownership of Common Stock and other equity
securities of the Company. Such persons are required to furnish the
Corporation with copies of all Section 16(a) filings. Based solely on the
Corporation's review of the copies of such filings it has received and
written representations of directors and officers, the Corporation believes
that during the fiscal year ended December 31, 1995, its officers, directors,
and 10% shareholders are in compliance with all Section 16(a) filing
requirements applicable to them, except that the initial filing when Mr.
Muoio became a director was inadvertently filed approximately one week late.
PROPOSALS OF SHAREHOLDERS
Proposals of shareholders intended to be presented at the 1997 Annual
Meeting of Shareholders must be received by the Office of the Secretary,
Lynch Corporation, 8 Sound Shore Drive, Greenwich, Connecticut 06830, by no
later than December 14, 1995, for inclusion in the Corporation's proxy
statement and form of proxy relating to the 1996 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 has employed the firm of Morrow & Co. Inc., 909 Third Avenue,
New York, New York, 10022 to assist in this solicitation at a cost of $3,500,
plus out-of-pocket expenses. 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 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 and personal interviews, and the telephone.
ANNUAL REPORT
The Corporation's Annual Report to Shareholders for the fiscal year
ended December 31, 1995, has been sent herewith to each shareholder. Except as
specifically incorporated by reference in Item 2, such 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 11, 1996
