<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
LYNCH CORPORATION
- --------------------------------------------------------------------------------
(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)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
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(4) Date filed:
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<PAGE> 2
LYNCH CORPORATION
8 SOUND SHORE DRIVE
GREENWICH, CONNECTICUT 06830
----------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 8, 1997
----------
To The Shareholders of April 16, 1997
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 Thursday, May 8,
1997, at 3:00 P.M. for the following purposes:
1. To elect eight 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 Principal Executive Bonus Plan.
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 4, 1997 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.
- --------------------------------------------------------------------------------
<PAGE> 3
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 8, 1997, 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 April 16, 1997.
Only shareholders of record at the close of business on April 4, 1997
are entitled to notice of, and to vote at, the Annual Meeting. As of the close
of business on such date, 1,416,834 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 Principal Executive Bonus Plan 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
Eight 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 June 27, 1996, except for John C. Ferrara. 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, 1997 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 4-5 of this
Proxy Statement. All such information has been furnished to the Corporation by
the nominees.
<PAGE> 4
<TABLE>
<CAPTION>
NAME; AGE; BUSINESS EXPERIENCE
AND PRINCIPAL OCCUPATION
FOR LAST 5 YEARS; AND DIRECTORSHIPS IN SERVED AS
PUBLIC CORPORATIONS AND INVESTMENT COMPANIES DIRECTOR FROM
--------------------------------------------
<S> <C>
Morris Berkowitz, 74
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, 57
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, 55
President (since 1995) of Florida Power & Light Co.; Vice President, Finance and
Chief Financial Officer of FPL Group, Inc. (since 1992), 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 engaged in the
manufacturing of adhesive backed materials; Director of FPL Group, Inc., Florida
Power & Light Company and Southern Energy Homes, Inc. . . . . . . . . . . . . . 1988
John C. Ferrara, 45
Vice President and Chief Financial Officer (1989-1997) of Renaissance
Communications Corp., a company which owned and operated television
broadcast stations and was recently acquired . . . . . . . . . . . . . . . . . . 1997
Mario J. Gabelli, 54
Chairman and Chief Executive Officer of the Corporation (since 1986);
Chairman and Chief Executive Officer of Gabelli Funds, Inc., (since 1980), an
investment adviser and holding company for subsidiaries engaged in various
aspects of the securities business (including GAMCO Investors, Inc. of which
he is Chairman and Chief Executive Officer); Director/Trustee and/or officer
of Gabelli International Growth Fund (since 1995), Gabelli Capital Series
Funds, Inc. (since 1994), 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 Convertible Securities Fund, Inc. (since 1989), The Gabelli Equity
Trust Inc. (since 1986), The Gabelli Money Market Funds (since 1992), The
Gabelli Growth Fund (since 1987) and The Gabelli Asset Fund (since 1986) . . . . 1986
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
NAME; AGE; BUSINESS EXPERIENCE
AND PRINCIPAL OCCUPATION
FOR LAST 5 YEARS; AND DIRECTORSHIPS IN SERVED AS
PUBLIC CORPORATIONS AND INVESTMENT COMPANIES DIRECTOR FROM
--------------------------------------------
<S> <C>
Salvatore Muoio, 37
Principal and Chief Investment Officer of S. Muoio & Co. LLC, a securities
advisory firm (since 1996); Security Analyst and Vice President of
Lazard Freres & Co., L.L.C., an investment banking firm (1995-1996);
Securities Analyst at Gabelli & Company, Inc. (1985-1995) . . . . . . . . . . . . 1995
Ralph R. Papitto, 70
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
construction products (1967-1993); Director of AFC Cable
Systems, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1995
Paul P. Woolard, 73
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 . . . . . . . . . . . . . . 1968
</TABLE>
OPERATION OF BOARD OF DIRECTORS AND COMMITTEES
There were four meetings of the Board of Directors during 1996, 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 three times during
1996. 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 and Bonus Plan, as summarized on pages x
through x 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 two times during 1996. 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 meeting of the Board of Directors. The Executive Committee
met once during 1996. 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.
3
<PAGE> 6
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 $15,000 worth of Common Stock of the Corporation at the beginning
of each year. In addition, a non-employee director serving as a committee
chairman receives an additional $2,000 annual cash retainer. 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.
Messrs. Woolard and Cerutti received $9,000 as directors of Lynch
Machinery, Inc. for 1996.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 15, 1997, 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 necessary 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, Form 4s and Form 5s
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 87,548 6.2%
Dimensional Fund Advisors, Inc. 84,500(1) 6.0%
Mario J. Gabelli 327,087(2) 23.1%
Morris Berkowitz 552 **
E. Val Cerutti 952(3) **
Paul J. Evanson 5,452 **
John C. Ferrara 0 **
Salvatore Muoio 652 **
Ralph R. Papitto 752 **
Paul P. Woolard 2,355 **
Robert E. Dolan 235(4) **
Robert A. Hurwich 170(5)
All Directors and Executive
Officers as a group (ten in total) 338,207 23.9%
</TABLE>
4
<PAGE> 7
- --------------
* The address of each holder of more than 5% of the Common Stock
is as follows: Barbara 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) 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 84,500 shares.
Dimensional disclaims beneficial ownership of all such shares.
(2) Includes 255,087 shares of Common Stock owned directly by Mr.
Gabelli (including 3,173 held for the benefit of Mr. Gabelli under the
Corporation's 401(k) Savings Plan), 2,000 shares owned by a charitable
foundation of which Mr. Gabelli is a trustee and 70,000 shares owned by a
limited partnership in which Mr. Gabelli is the general partner and has a 20%
interest. Mr. Gabelli disclaims beneficial ownership of the shares owned by
the foundation and by the partnership, except for his 20% interest therein.
(3) 500 shares are jointly owned with wife and sharing voting and
investment power.
(4) Includes 35 shares registered in the name of Mr. Dolan's
children with respect to which Mr. Dolan has voting and investment power.
(5) 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 may be deemed to be a beneficial owner of 2,237,203 shares (72.8% of
the outstanding shares) of Spinnaker's Common Stock and 2,259,063 shares (73.5%
of the outstanding shares) of Spinnaker's Class A Common Stock owned by the
Corporation (through Lynch Manufacturing Corporation, a wholly-owned subsidiary
of the Corporation) by virtue of his ownership of 23.1% of the shares of the
Common Stock of the Corporation. Mr. Gabelli, however, specifically disclaims
beneficial ownership of all shares of the Common Stock and Class A Common Stock
of Spinnaker held by the Corporation. As of April 1, 1997, Mr. Evanson owns
1,500 shares of Spinnaker Common Stock and Mr. Dolan owns 1,125 shares of
Spinnaker Common Stock.
Morgan Group is an approximately 50% owned subsidiary of the
Corporation whose stock is traded on the American Stock Exchange (AMEX). As of
April 1, 1997 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 23.1% 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. As of April 1, 1997, Mr. Woolard
owns 200 shares of Morgan Group's Class A Common Stock.
5
<PAGE> 8
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:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
- -------------------------------------------------------------------------------------------------
NAME AND LONG TERM ALL OTHER
PRINCIPAL COMPENSATION AWARDS COMPENSATION
POSITION YEAR SALARY($) BONUS($)(1) STOCK UNDERLYING OPTIONS(2) ($)(3)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mario J. Gabelli 1996 500,000 0 -- 200
Chief Executive Officer,
Chairman of the Board 1995 325,000 625,000 -- 200
Chairman of the Executive
Committee 1994 150,000 0 -- 200
Robert E. Dolan 1996 172,500 200,000 4,000 200
Chief Financial Officer 1995 152,700 125,000 -- 200
Chief Financial Officer 1994 140,096 0 -- 200
Robert A. Hurwich(4) 1996 147,500 50,000 2,500 200
Vice President-Admin- 1995 135,200 50,000 -- 200
istration, 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) Shares of Common Stock underlying Phantom Stock Plan units.
(3) 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 1996.
(4) Mr. Hurwich joined the Corporation in February 1994.
6
<PAGE> 9
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<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> <C> <C>
Robert E. Dolan 4,000 54% $63.03 2/2/01 $ 69,656 $153,922
- ----------------------------------------------------------------------------------------------------------------------------------
Robert A. Hurwich 2,500 34% $63.03 2/2/01 $ 43,535 $ 96,201
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------
(1) Grants were awards under the Phantom Stock Plan
AGGREGATE OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES UNDER- VALUE OF UNEXERCISED IN-THE-
LYING OPTIONS/SARS AT FISCAL MONEY OPTIONS/SARS AT
SHARES ACQUIRED ON VALUE REALIZED YEAR-END (#) FISCAL YEAR-END ($)
NAME EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
(a) (b) (c) (d) (e)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert E. Dolan None None None/4,000 $0/$29,880
- ------------------------------------------------------------------------------------------------------------------------------------
Robert A. Hurwich None None None/2,500 $0/$18,675
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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:
- Support the achievement of desired Corporation performance.
- Provide compensation that will attract and retain superior
talent and reward performance.
- Ensure that there is appropriate linkage between executive
compensation and the enhancement of shareholder value.
- Evaluate the effectiveness of the Corporation's incentives for
key executives.
7
<PAGE> 10
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, as well as individual performance.
The Committee uses its discretion to recommend executive compensation at levels
warranted in its judgment by corporate and individual performance. The
Committee reviewed its executive compensation program for the chief executive
officer with that of certain other companies, although it was difficult to find
comparable companies, and the Committee based its compensation actions on
factors other than specific comparisons to other companies.
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 1996 the Corporation adopted a Phantom
Stock Plan applicable 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 relating
to the Corporation. A summary of the compensation awarded to the Chief
Executive Officer and the other executive officers is set forth in the "Summary
Compensation Table" on page 6 of this Proxy Statement. Salary increases for
1996 were based upon a variety of judgmental factors, including the individual
performances of the officers in 1995 and their anticipated contributions to the
Corporation in 1996, 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 1995 was the right time to
raise Mr. Gabelli's salary to $500,000 per year, a more appropriate level and a
more appropriate spread between his salary and the other officers of the
Corporation. Mr. Gabelli's salary has not been increased since then.
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
less (ii) 25% of the Corporation's shareholders equity at the beginning of such
year. For 1998 shareholders equity will be the average of shareholders' equity
at the beginning of 1998 and 1997, and for 1999 and beyond shareholders equity
will be the average of shareholders equity at the beginning of such year and
the beginning of the two preceding years. The bonus pool would also be reduced
by amounts paid pursuant to the proposed Principal Executive Bonus Plan. See
Item 2 below. The Executive Compensation and Benefits Committee in its
discretion may take into consideration other factors and circumstances in
determining the amount of the bonus pool and awarding bonuses such as progress
toward 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. The total bonuses paid for 1995 were
generally in accordance with the bonus formula. The total bonuses paid for 1996
exceeded the bonus formula because of the work by management in achieving
strategic goals, including investments in personal communications services,
acquisitions and financings. The breakdown of the bonus pool is not based upon
a formula but upon judgmental factors.
8
<PAGE> 11
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. 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 four 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 unit. Thirty-one thousand, seven hundred units were awarded in
March 1997, of which 25,000 were awarded to Mr. Gabelli, 4,000 were awarded to
Mr. Dolan and 1,500 were awarded to Mr. Hurwich at $70.106 per share unit. The
awards were discretionary and not based upon a formula but were intended to
give executive officers 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. The shares may be put to the
Corporation in full satisfaction of the loan principal. 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 certain of its subsidiaries are
eligible to participate in the Lynch Corporation 401(k) Savings Plan, 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 1996. 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 whom
deferred $9,500 under the Plan during 1996, which amounts have been included
for each individual in the Summary Compensation Table.
9
<PAGE> 12
BENEFITS
The Corporation provides medical life insurance and disability
benefits to the executive officers 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 1996.
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 1996
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Salary 0 0 60,000 90,000 90,000 90,000 150,000 150,000 150,000 325,000 500,000
Bonus 0 0 30,000 0 0 0 100,000 250,000 0 625,000 0
</TABLE>
Mr. Gabelli performs the usual 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. Therefore, the Committee increased Mr. Gabelli's salary
to $500,000 per year effective July 1, 1995, with no raise since then. 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 in March 1996 (equal to Mr. Gabelli's 1995 bonus), which
resulted in the purchase of 10,373 shares. The Corporation had a good year in
1996 including record EBITDA (earnings before interest, taxes, depreciation and
amortization) and the undertaking and/or completion of several important
strategic steps, including investments in personal communications services,
acquisitions and financings. Executive officers, including Mr. Gabelli, made
substantial contributions to the Corporation's performance; however, no bonus
was awarded to Mr. Gabelli. See also Item 2 as to a proposal to adopt a
Principal Executive Bonus Plan.
Paul P. Woolard, Chairman
Ralph R. Papitto
Members of the Executive Compensation
and Benefits Committee
10
<PAGE> 13
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, 1996 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, 1991, and reinvestment of all dividends).
INVESTMENT OF $100 DOLLARS ON DECEMBER 31, 1991
WITH REINVESTMENT OF DIVIDENDS
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
LYNCH CORPORATION 100.00 154.70 136.03 177.78 346.67 417.78
BROAD MARKET: AMERICAN STOCK EXCHANGE MARKET VALUE INDEX 100.00 101.06 120.78 109.78 138.77 147.65
PEER GROUP: AMERICAN STOCK EXCHANGE SERVICE INDUSTRY INDEX 100.00 108.69 142.01 118.88 146.85 137.90
</TABLE>
11
<PAGE> 14
ITEM 2
THE PRINCIPAL EXECUTIVE BONUS PLAN
On March 26, 1997, the Board of Directors of the Corporation adopted,
subject to approval by the shareholders of the Corporation, the Principal
Executive Bonus Plan (the "Plan") to provide the chief executive officer of the
Corporation and, if so designated, certain other key employees with a
performance-based Annual Bonus (as defined below) for calendar years beginning
January 1, 1997. The Plan is similar to the Corporation's existing bonus plan
which has been in effect since 1987 and is applicable to the chief executive
officer and certain other key corporate employees, except that the Plan: (i)
specifies a Maximum Annual Bonus (as defined below) applicable to participants,
which is based on a maximum percentage of a specified bonus pool; (ii) provides
that Shareholders Equity (as defined below) is not adjusted during the year and
commencing with 1998 becomes a two and then three year beginning average; (iii)
removes the discretion of the Board of Directors; and (iv) removes the
discretion of the Committee (as defined below) to award Annual Bonuses (as
defined below) above the established Maximum Annual Bonus (as defined below).
For the 1997 calendar year, only the chief executive officer is participating
in the Plan, and he is not eligible to participate in the existing bonus plan.
The Plan is designed to satisfy Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"). Section 162(m) of the Code denies a
deduction by an employer for certain compensation in excess of $1 million per
year paid by a publicly held corporation to the chief executive officer and the
four other most highly compensated executive officers who are employed at the
end of the fiscal year. Certain compensation, including compensation paid based
on the achievement of preestablished performance goals, is excluded from this
deduction limit. For compensation to qualify for this exclusion, the material
terms pursuant to which the compensation is to be paid, including the
performance goals, must be disclosed to, and approved by, the shareholders in a
separate vote prior to the payment. Accordingly, the Plan is being submitted to
shareholders so that payments thereunder will be exempt under Section 162(m) of
the Code.
ADMINISTRATION
The Plan is administered by the Executive Compensation and Benefits
Committee, which is currently composed of two members of the Board of Directors
who qualify as "outside directors" under Section 162(m) of the Code (the
"Committee"). The Committee has the authority to designate the key employees
eligible to participate in the Plan (other than the chief executive officer),
establish Individual Bonus Pool Percentages (as defined below), determine
performance criteria, certify attainment of performance goals and other
material terms, to construe and interpret the Plan and make all other
determinations deemed necessary or advisable for the administration of the
Plan.
ELIGIBILITY AND PARTICIPATION
The chief executive officer of the Company will participate in the
Plan during each calendar year automatically. In addition, the Committee may,
in its sole discretion, select other key employees of the Company (including
subsidiaries) to be eligible to participate in the Plan for any calendar year.
DETERMINATION OF ANNUAL BONUS
Each participant's Annual Bonus under the Plan for each calendar year
will be equal to the participant's Individual Bonus Pool Percentage (as defined
below) multiplied by the achieved Annual Bonus Pool (as defined below) for the
respective calendar year. The Annual Bonus Pool is determined pursuant to an
objective formula or standard based on the attainment of preestablished
performance goals specified by the Committee. The Individual Bonus Pool
12
<PAGE> 15
Percentage shall be determined by the Committee and be expressed as a
percentage of the Annual Bonus Pool for each calendar year. In no event may the
total of all participant's Individual Bonus Pool Percentages exceed one hundred
percent (100%) of the Annual Bonus Pool for any calendar year. Unless
otherwise reduced by the Committee, payment of a participant's Annual Bonus
shall be made only if and to the extent performance goals for the relevant
calendar year are attained.
PERFORMANCE GOALS
The Committee generally has the authority to determine the performance
goals that will be in effect for each calendar year. The performance goals
with respect to the Annual Bonus Pool will be based on the attainment of
certain target levels of, or a percentage increase in, Pre-Tax Profits (as
defined below) in excess of certain target levels or percentages of
Shareholders Equity (as defined below). In addition, the Committee has the
authority to incorporate provisions in the performance goals allowing for
adjustments in recognition of unusual or non-recurring events affecting the
Corporation or the financial statements of the Corporation, or in response to
changes in applicable laws, regulations or accounting principles, to the extent
permitted by Section 162(m) of the Code.
LIMITS ON ANNUAL BONUS
Notwithstanding the attainment of performance goals, the Committee has
the discretion to reduce (but not increase) a participant's Annual Bonus under
the Plan for any calendar year, regardless of the degree of attainment of the
performance goals. In any event, the Maximum Annual Bonus permitted under the
Plan with respect to any calendar year may not exceed (i) in the case of the
chief executive officer, eighty percent (80%) of an amount equal to twenty
percent (20%) of the excess of (a) Pre-Tax Profits (as defined below) for such
calendar year less (b) twenty-five percent (25%) of Shareholders Equity (as
defined below), or (ii) in the case of any participant other than the chief
executive officer, twenty percent (20%) of an amount equal to twenty percent
(20%) of the excess of (a) Pre-Tax Profits for such calendar year less (b)
twenty-five percent (25%) of Shareholders Equity.
Pre-Tax Profits means income before income taxes (excluding any
provision for annual bonuses under the Plan and under the Bonus Plan applicable
to other corporate employees), minority interest (if any), extraordinary items
(if any), cumulative changes in accounting (if any) and discontinued operations
(if any) in the Corporation's Statement of Consolidated Income reported in its
annual financial statements adjusted by (i) minority interest effects on such
pre-tax profits; and (ii) pre-tax effect of income or loss associated with
discontinued operation net of minority interest effects. Shareholders Equity
means (i) with respect to the 1997 Plan Year (as defined in the Plan)
shareholders equity at the beginning of the Plan Year, (ii) with respect to the
1998 Plan Year, the average of shareholders equity at the beginning of the Plan
Year and the beginning of the 1997 Plan Year and (iii) with respect to the 1999
and subsequent Plan Years, the average of shareholders equity at the beginning
of the Plan Year and at the beginning of the two preceding Plan Years, in each
case as reported in the Company's consolidated balance sheet in its annual
financial statements.
FORM AND PAYMENT OF ANNUAL BONUS
With respect to each participant, payment under the Plan will be made
in cash in an amount equal to the achieved Annual Bonus and may be made only
after attainment of the performance goals has been certified in writing by the
Committee. Unless otherwise determined by the Committee in its sole discretion,
each participant shall, to the extent the applicable performance goals with
respect to the Annual Bonus Pool are attained at the end of each calendar year,
13
<PAGE> 16
have the right to receive payment of a prorated portion of such participant's
Annual Bonus under the Plan for any calendar year during which the
participant's employment with the corporation is terminated for any reason
other than for "cause" (as determined by the Committee in its sole discretion).
AMENDMENT AND TERMINATION OF PLAN
The Committee may at any time and from time to time alter, amend,
suspend or terminate the Plan in whole or in part; provided, that no amendment
shall, without the prior approval of the shareholders of the Corporation in
accordance with the laws of the State of Indiana to the extent required under
Code Section 162(m): (i) materially alter the performance goals, (ii) increase
the Maximum Annual Bonus for any calendar year, (iii) change the class of
employees eligible to participate in this Plan, or (iv) implement any change to
a provision of the Plan requiring shareholder approval in order for the Plan to
continue to comply with the requirements of Section 162(m) of the Code.
Notwithstanding the foregoing, no amendment shall affect adversely any of the
rights of any participant, without such participant's consent, under the award
theretofore granted under the Plan.
1997 PERFORMANCE AWARD
Only the chief executive officer of the Corporation is participating
in the Plan for calendar year 1997. On March 27, 1997, the Committee set for
the 1997 calendar year the performance goals underlying the 1997 Annual Bonus
Pool and the Individual Bonus Pool Percentage for the chief executive officer.
The Committee determined that the 1997 Annual Bonus Pool amount, if any, will
be equal to twenty percent (20%) of the excess of (a) Pre-tax Profits of the
Corporation less (b) twenty-five percent (25%) of the Corporation's
Shareholders Equity. In addition, the Committee determined that the chief
executive officer's Individual Bonus Pool Percentage under the Plan will be
equal to eighty percent (80%) of the 1997 Annual Bonus Pool.
If the Plan had been in effect for 1996, neither Mr. Gabelli, the
chief executive officer of the Corporation, nor any other key employee, would
have received any annual bonus; however, for 1997 and future years the Plan
could result in substantial bonuses if Pre-Tax Profits increase substantially
and/or Shareholders Equity decreases substantially. The Corporation has stated
that it is examining the possibility of splitting, through a spin-off, either
its multimedia operations or its manufacturing operations although there is no
assurance such a spin-off can be effected. A spin-off, if consummated, might
affect bonuses payable under the Plan.
OTHER PLANS
Corporate executives and employees, other than the chief executive
officer, will continue to participate for the 1997 calendar year in the
existing bonus plan which permits the Corporation to use subjective factors,
such as progress towards achievement of strategic goals and qualitative aspects
of management performance, in addition to the formula, in awarding bonuses.
See the Summary Compensation Table on page 6, the Option/SAR Tables on
page 7 and the Executive Compensation and Benefits Committee Report on
Executive Compensation for additional information on compensations and employee
benefit plans.
THE BOARD OF DIRECTORS (OTHER THAN MR. GABELLI WHO IS MAKING NO
RECOMMENDATION) RECOMMENDS A VOTE IN FAVOR OF APPROVAL OF THE PLAN.
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.
14
<PAGE> 17
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. During 1996, 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 (including $204,000 reimbursement in connection with an airplane in
part owned by a subsidiary of Gabelli Funds, Inc.), was less than $60,000. 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 1996 bonus paid in Common Stock.
At the Corporation's 1996 Annual Meeting of Shareholders, shareholders
approved a proposal whereby if the Corporation needs funds: (i) it may retain
Gabelli & Company, Inc. ("GSI"), a subsidiary of Gabelli Funds, Inc. ("GFI"),
to obtain such funds, which funds may be provided by GSI or its Principal
Accounts in the form of borrowings evidenced by promissory notes ("Notes"),
(ii) if the Corporation were to default on the Notes, the holders would have
the right to exchange Notes for notes convertible into Common Stock of the
Corporation ("Convertible Notes") and (iii) if GSI or its Principal Accounts
hold any Notes which would become exchangeable for Convertible Notes, the
Corporation would use its best efforts to offer additional Convertible Notes
(to the extent of Mr. Gabelli's direct or indirect equity interest in GSI or
its Principal Accounts, on a pro rata basis to all shareholders of the
Corporation, including Mr. Gabelli. GSI has no obligation to assist the
Corporation in obtaining funds, and neither GSI, Mr. Gabelli nor GSI's
Principal Accounts, have any obligation to provide funds. Reference is made to
the Corporation's Proxy Statement dated June 7, 1996, for further information.
On August 12, 1996, GFI loaned the Corporation $11.8 million, which
was used by a subsidiary of the Corporation for a loan to Aer Force
Communications B, L.P. ("AER"), of which the subsidiary is a 49.9% limited
partner. AER used the funds to bid on and win 10 megahertz licenses for
personal communications services ("PCS") in the Federal Communications
Commission ("FCC")'s F-Block Auction concluded in January 1997. The interest
rate on the loan is 10% per annum plus a commitment fee of 1% and a special fee
equal to a 10% net profits interest (after a capital charge) in the
subsidiary's 49.9% limited partnership interest. The loan is secured by
security interests in the subsidiary's limited partnership interest, the AER
note, and the stock of Lynch Entertainment Corporation, Lynch Entertainment
Corporation II, and Lynch Telephone Corporation. The Corporation repaid
approximately $10 million of the loan but expects to reborrow an additional
$1.9 million. The loan becomes due on August 12, 1997. As of August 12, 1996,
Rivgam Communicators, L.L.C., a subsidiary of GFI, agreed to pay a subsidiary
of the Corporation a 10% net profit interest (after a capital charge) in PCS
licenses won by Rivgam in the FCC's D and E Block auctions concluded in January
1997 in return for certain services to be provided by the Corporation's
subsidiary in connection with bidding on and developing PCS licenses. Mr.
Gabelli is the principal shareholder of GFI and is its Chairman and Chief
Executive Officer.
On March 17, 1997, GFI and a subsidiary loaned the Corporation $10
million which was used to purchase stock of Upper Peninsula Telephone Company
("UPTC"). The loan is due on the earlier of May 19, 1997 or the obtaining of
permanent financing for the UPTC acquisition, bears interest at the prime rate,
plus a fee to be determined, and is secured by UPTC, Lynch Entertainment
Corporation and Lynch Entertainment Corporation II stock.
15
<PAGE> 18
INDEPENDENT AUDITORS
Representatives of Ernst & Young, the Corporation's auditors for 1996,
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 1997.
Effective March 19, 1996, The Morgan Group, Inc., a publicly traded
subsidiary of the Corporation, 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 for 1994 and 1995. 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 its
reports.
SECTION 16(a) REPORTING
Section 16(a) of the Securities and Exchange Acts 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, 1996, its officers, directors, and 10%
shareholders are in compliance with all Section 16(a) filing requirements
applicable to them.
PROPOSALS OF SHAREHOLDERS
Proposals of shareholders intended to be presented at the 1998 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 15, 1997, for inclusion in the Corporation's proxy statement and
form of proxy relating to the 1998 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., 345
Hudson Street, New York, New York, 10014 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
16
<PAGE> 19
(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, 1996, has been sent herewith to each shareholder. 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 16, 1997
17
<PAGE> 20
APPENDIX: PRINCIPAL EXECUTIVE BONUS PLAN
NOT PART OF PROXY STATEMENT
AND NOT PROVIDED TO SECURITY HOLDERS
LYNCH CORPORATION
PRINCIPAL EXECUTIVE BONUS PLAN
The purpose of this Plan is to provide the Chief Executive
Officer of the Lynch Corporation (the "Company") and certain other designated
key employees with an Annual Bonus (as defined below) that qualifies as
performance-based compensation under Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code") or any successor section and the Treasury
regulations promulgated thereunder ("Section 162(m) of the Code"). Under the
Plan, the Chief Executive Officer and designated key employees of the Company
may participate in the Annual Bonus Pool (as defined below) if certain
preestablished performance goals are attained. This Plan is effective as of
January 1, 1997, subject to approval by the shareholders of the Company in
accordance with the laws of the State of Indiana.
1. Definitions. The following terms, as used
herein, shall have the following meanings:
(a) "ANNUAL BONUS" shall mean, with respect
to each Participant, the product of the
Participant's Individual Bonus Pool
Percentage and the achieved Annual Bonus
Pool for any Plan Year.
(b) "ANNUAL BONUS POOL" shall mean, with
respect to each Plan Year, that amount
determined pursuant to an objective
formula or standard that is based on the
attainment of preestablished performance
goals specified by the Committee in
accordance with Section 4 hereof.
(c) "BOARD" shall mean the Board of Directors
of the Company.
(d) "COMMITTEE" shall mean the Executive
Compensation and Benefits Committee of
the Board, or such other committee of the
Board comprised solely of two (2) or more
members who qualify as "outside
directors" within the meaning of Section
162(m) of the Code.
(e) "INDIVIDUAL BONUS POOL PERCENTAGE" shall
mean, with respect to each Participant,
that percentage of the achieved Annual
Bonus Pool, as specified by the Committee
in accordance with Section 4(b) hereof,
used to determine the Participant's
Annual Bonus for any Plan Year.
(f) "PARTICIPANT" shall mean the Chief
Executive Officer of the Company and any
other key employee of the Company
(including subsidiaries) selected, in
accordance with Section 3 hereof, to
participate in the Plan.
(g) "PLAN YEAR" shall mean each calendar year
during which the Plan is in effect.
<PAGE> 21
(h) "PRE-TAX PROFITS" shall mean the Company's
income before income taxes, (excluding
any provision for annual bonuses under
the Plan and under the Bonus Plan
applicable to other corporate employees),
minority interest (if any), extraordinary
items (if any), cumulative changes in
accounting (if any) and discontinued
operations (if any) contained in the
Statement of Consolidated Income in the
Company's annual financial statements
adjusted by (i) the minority interest
effects on such pre-tax profits, and (ii)
the pre-tax effect of income or loss
associated with discontinued operation
net of minority interest effects.
(i) "SHAREHOLDERS EQUITY" shall mean (i) with
respect to the 1997 Plan Year,
shareholders equity at the beginning of
the Plan Year, (ii) with respect to the
1998 Plan Year, the average of
shareholders equity at the beginning of
the 1998 Plan Year and the beginning of
the 1997 Plan Year and (iii) with respect
to the 1999 and subsequent Plan Years,
the average of shareholders equity at the
beginning of the Plan Year and at the
beginning of the two preceding Plan
Years, in each case as reported in the
Company's consolidated balance sheet in
its annual financial statements.
2. Administration of the Plan. The Plan shall be
administered by the Committee. The Committee shall have exclusive and final
authority in all determinations and decisions affecting the Plan and each
Participant. The Committee shall also have the sole authority to interpret the
Plan, to designate eligible Participants in the Plan (other than the Chief
Executive Officer of the Company), to establish and revise rules and
regulations relating to the Plan, to delegate such responsibilities or duties
as it deems desirable, and to make any other determination that it believes
necessary or advisable for the administration of the Plan including, but not
limited to: (i) setting the performance criteria and the Individual Bonus Pool
Percentages within the Plan guidelines, and (ii) certifying attainment of
performance goals and other material terms. The Committee shall have the
authority in its sole discretion, subject to and not inconsistent with the
express provisions of the Plan, to incorporate provisions in the performance
goals allowing for adjustments in recognition of unusual or non-recurring
events affecting the Company or the financial statements of the Company, or in
response to changes in applicable laws, regulations, or accounting principles;
provided, that the Committee shall have such authority solely to the extent
permitted by Section 162(m) of the Code. To the extent any provision of the
Plan creates impermissible discretion under Section 162(m) of the Code or would
otherwise violate Section 162(m) of the Code, such provision shall have no
force or effect.
3. Eligibility and Participation.
(a) For each Plan Year, the Committee, in its
sole discretion, may select the employees
of the Company (other than the Chief
Executive Officer of the Company) who are
to participate in the Plan from among the
key employees of the Company.
(b) No person (except the Chief Executive
Officer of the Company) shall be entitled
to an Annual Bonus under this Plan for
any Plan Year unless he or she is so
designated as a Participant for that Plan
Year. The Committee may add or delete
individuals from the list of designated
Participants at any time and
2
<PAGE> 22
from time to time, in its sole
discretion, subject to any limitations
required to comply with Section 162(m) of
the Code.
4. Payment.
(a) With respect to each Participant, payment
under the Plan will be made in cash in an
amount equal to the achieved Annual
Bonus, as determined by the Committee in
its sole discretion for each Plan Year.
Payment with respect to a Plan Year shall
be made only if and to the extent the
applicable performance goals upon which
the Annual Bonus Pool is based are
attained. Notwithstanding anything else
herein, the Committee may, in its sole
discretion, elect to pay any Participant
an amount that is less than (but in no
event more than) his or her Annual Bonus
regardless of the degree of attainment of
the performance goals with respect to the
Annual Bonus Pool.
(b) Not later than ninety (90) days after the
commencement of each Plan Year (or, in
the event the period of service to which
the performance goal relates is shorter
than a Plan Year, during such time period
required by Section 162(m) of the Code),
the Committee shall establish in writing
all performance goals with respect to the
Annual Bonus Pool and the Individual
Bonus Pool Percentages for each
Participant for such Plan Year. At the
time the performance goals are
established, the Committee shall
prescribe an objective formula or
standard to determine the amount of the
Annual Bonus Pool which may be payable
based upon the degree of attainment of
the performance goals during the Plan
Year. In no event may the total of the
Individual Bonus Pool Percentages for all
Participants exceed one hundred percent
(100%) of the Annual Bonus Pool for any
Plan Year.
(c) The performance goals with respect to the
Annual Bonus Pool shall be based on the
attainment of certain target levels of,
or a percentage increase in, Pre-Tax
Profits in excess of certain target
levels or percentages of Shareholders
Equity. Notwithstanding the preceding
sentence, in no event shall any
Participant's Annual Bonus for any Plan
Year exceed: (i) in the case of the Chief
Executive Officer of the Company, eighty
percent (80%) of an amount equal to
twenty percent (20%) of the excess of (a)
Pre-Tax Profits for such Plan Year less
(b) twenty-five percent (25 %) of
Shareholders Equity; or (ii) in the case
of any Participant other than the Chief
Executive Officer, twenty percent (20%)
of an amount equal to twenty percent
(20%) of the excess of (a) Pre-Tax
Profits for such Plan Year less (b)
twenty-five percent (25 %) of
Shareholders Equity (the "Maximum Annual
Bonus"). Subject to Section 2 of the Plan
regarding certain adjustments, in
connection with the establishment of the
performance goals, the performance
criteria listed above for the Company
shall be determined in accordance with
generally accepted accounting principles
consistently applied by the Company, but
before consideration of payments to be
made pursuant to this Plan.
(d) Unless otherwise determined by the
Committee in its sole discretion, each
Participant shall, to the extent the
applicable performance goals with respect
to
3
<PAGE> 23
the Annual Bonus Pool are attained at the
end of a Plan Year, have the right to
receive payment of a prorated portion of
such Participant's Annual Bonus under the
Plan for any Plan Year during which the
Participant's employment with the Company
is terminated for any reason other than
for "cause" (as determined by the
Committee in its sole discretion).
5. Time of Payment. Subject to Section 4 hereof,
each Participant's Annual Bonus under this Plan will be paid within a
reasonable period after performance goal achievements for the Plan Year have
been finalized, reviewed, approved, and certified in writing by the Committee.
6. Miscellaneous Provisions.
(a) Each Participant's rights and interests
under the Plan may not be sold, assigned,
transferred, pledged or alienated.
(b) In the case of any Participant's death,
payment, if any, under the Plan shall be
made to his designated beneficiary, or in
the event no beneficiary is designated or
surviving, to the Participant's estate.
(c) Neither this Plan nor any action taken
hereunder shall be construed as giving
any Participant the right to continue his
employment with of the Company.
(d) The Company shall have the right to make
such provisions as it deems necessary or
appropriate to satisfy any obligations it
may have to withhold federal, state or
local income or other taxes incurred by
reason of payments made pursuant to the
Plan.
(e) The Plan and any amendments thereto shall
be construed, administered and governed
in all respects in accordance with the
laws of the State of Indiana (regardless
of the law that might otherwise govern
under applicable principles of conflicts
of law).
(f) The Plan is designed and intended to
comply with Section 162(m) of the Code
with regard to awards made to each
Participant and all provisions hereof
shall be limited, construed and
interpreted in a manner to so comply.
(g) The Board or the Committee may at any
time and from time to time alter, amend,
suspend or terminate the Plan in whole or
in part; provided, that no amendment
shall, without the prior approval of the
shareholders of the Company in accordance
with the laws of the State of Indiana to
the extent required under Code Section
162(m): (i) materially alter the
performance goals as set forth in Section
4(c) hereof, (ii) increase the Maximum
Annual Bonus for any Plan Year, (iii)
change the class of employees eligible to
participate in this Plan, or (iv)
implement any change to a provision of
the Plan requiring shareholder approval
in order for the Plan to continue to
comply with the requirements of Code
Section 162(m). Notwithstanding the
foregoing, no
4
<PAGE> 24
amendment shall affect adversely any of
the rights of any Participant, without
such Participant's consent, under the
award theretofore granted under the Plan.
5
<PAGE> 25
LYNCH CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of LYNCH CORPORATION (the
"Corporation") hereby appoints Robert E. Dolan and Robert A. Hurwich, or any
one of them (each with power to act alone and with power of substitution),
Proxies of the undersigned, with authority to vote at the Annual Meeting of
Shareholders of the Corporation to be held May 8, 1997 at 3:00 p.m., and at any
adjournments thereof, all the shares of 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 IN
ACCORDANCE WITH THE INSTRUCTIONS GIVEN BY THE SHAREHOLDER, BUT IF NO
INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR ALL OF THE NOMINEES FOR
DIRECTORS LISTED IN ITEM 1 AND FOR ITEM 2 AND, IN THE DISCRETION OF THE
PROXIES, WITH RESPECT TO ANY OTHER MATTER THAT IS PROPERLY BROUGHT BEFORE THE
ANNUAL MEETING.
(continued and to be signed on the reverse side)
<PAGE> 26
LYNCH CORPORATION
1. ELECTION OF DIRECTORS DULY NOMINATED:
FOR WITHHOLD Morris Berkowitz, E. Val Cerutti, Paul J.
Evanson, John C. Ferrara, Mario J. Gabelli,
Salvatore Muoio, Ralph R. Papitto and Paul
P. Woolard. (INSTRUCTION: To withhold
authority to vote for one or more
individual nominees, write such name or
names on the space provided below.)
-------------------------------------------
2. APPROVAL OF THE PRINCIPAL EXECUTIVE BONUS PLAN AS DESCRIBED IN THE
PROXY STATEMENT.
FOR AGAINST WITHHOLD Please sign exactly as your name appears
on this Proxy. All joint owners must
sign. When acting as attorney,
executor, administrator, trustee or
guardian, please give full title as
such. If a corporation, please sign in
full corporate name by President or
other authorized person. If a
partnership, please sign in full
partnership name by authorized person.
Dated: ,1997
------------------------------
(L.S.)
-----------------------------------
(Signature of Shareholder)
(L.S.)
-----------------------------------
(Signature of Shareholder)
PLEASE DATE, SIGN AND MAIL THIS PROXY IN
THE ENVELOPE PROVIDED.
