SCHEDULE 14A
------------
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [ ] Filed by a Party other than the Registrant [ ] Check
the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2)
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant toss.240.14a-11(c) orss.240.14a-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(aa)(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:
4) Date Filed:
<PAGE>
PRELIMINARY PROXY STATEMENT
LYNCH CORPORATION
401 Theodore Fremd Avenue
Rye, NY 10580
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 11, 2000
April , 2000
To the Shareholders of
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 11,
2000, at 3:00 p.m. for the following purposes:
1. To elect six 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 sale of 100,000 shares of the Corporation's
Common Stock to Mario J. Gabelli.
3. To consider and vote on amendments to the Principal Executive Bonus
Plan which would (i) permit any participant to be awarded up to 80% of
the bonus pool, (ii) provide that participation in the Plan is
discretionary with the Plan Committee and (iii) permit awards to
officers who are not employees.
4. 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 March 27, 2000 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>
LYNCH CORPORATION
401 Theodore Fremd Avenue
Rye, NY 10580
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 11, 2000, 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 ___, 2000.
Only shareholders of record at the close of business on March 27, 2000 are
entitled to notice of, and to vote at, the Annual Meeting. As of the close of
business on such date, __________ 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
ratification of the sale of 100,000 shares of the Corporation's Common Stock to
Mario J. Gabelli, FOR approval of the amendments to 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.
On September 1, 1999, the Corporation spun off Lynch Interactive Corporation
(the "Spin Off"), and four directors of the Corporation resigned and became
directors of Interactive.
ELECTION OF DIRECTORS
Six 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.
Three of the nominees have served as directors of Lynch Corporation since the
last Annual Meeting of Shareholders on May 13, 1999, and three directors (Robert
E. Dolan, Avrum Gray and Louis A. Guzzetti) were appointed after the Spin Off on
September 1, 1999. 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, 2000 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 __ through __ of this Proxy Statement. All such information has been
furnished to the Corporation by the nominees.
<PAGE>
<TABLE>
<CAPTION>
Business Experience
And Principal Occupation
For Last 5 Years; and Directorships in Served as
Name: Age; Public Corporations and Investment Companies Director From
---------- -------------------------------------------- -------------
<S> <C> <C>
E. Val Cerutti, 60 .......................Business Consultant (since 1992); President and 1990
Chief Operating Officer (1975-1992) of Stella
D'oro Biscuit Co., Inc., producer of bakery
products; Director of Spinnaker Industries, Inc.,
The Gabelli Convertible Securities Fund and The
Gabelli Gold Fund
Robert E. Dolan, 48 ......................Chief Financial Officer (1992-January 2000) and 2000
Controller (1990-January 2000) of the Corporation;
Chief Financial Officer of Lynch Interactive
Corporation (1999 to present)
Mario J. Gabelli, 57 .....................Chairman (since 1986) and Chief Executive Officer 1986
(1986-January 2000) of the Corporation; Chairman,
Chief Executive Officer and a Director of Lynch
Interactive Corporation (since September 1999);
Chairman and Chief Executive Officer of Gabelli
Group Capital Partners, (since 1980), a private
company which makes investments for its own
account; Chairman and Chief Executive Officer of
Gabelli Asset Management Inc. (since 1999), a NYSE
listed holding company for subsidiaries engaged in
various aspects of the securities business;
Director/Trustee and/or President of all
registered investment companies managed by Gabelli
Funds, LLC (since 1986); Director of Spinnaker
Industries, Inc.; Governor of the American Stock
Exchange
Avrum Gray, 64 ...........................Chairman and Chief Executive Officer of G-Bar 1999
Limited Partnership and affiliates (1982 to
present), proprietary computer based derivative
arbitrage trading companies; Gray Capital Corp.,
and ACI I (1958-1998); Chairman of the Board,
Lynch Systems, Inc., (1997 to present)
Louis A. Guzzetti, 61 ....................President and Chief Executive Officer of the 2000
Corporation (since January 2000); President and
Chief Executive Officer of Envirosource, Inc.
(1986-1999); Director of Spinnaker Industries, Inc.
Ralph R. Papitto, 73 .....................Chairman and Chief Executive Officer of AFC Cable 1995
Systems, Inc., a manufacturer and supplier of
electrical distribution products (1993-1999(?);
Founder, Chairman and a Director of Nortek, Inc.,
a manufacturer of construction products
(1967-1993); Director of Lynch Interactive
Corporation (since 1999), and Spinnaker
Industries, Inc.; AFC Cable Systems, Inc.; and
Global Sports & Gaming.Com; Chairman of the Board
of Trustees of Roger Williams University
</TABLE>
<PAGE>
OPERATION OF BOARD OF DIRECTORS AND COMMITTEES
There were four meetings of the Board of Directors during 1999, and the Board
acted four times 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 two times during
1999. The present members are Messrs. Papitto (Chairman), and Mr. Gray.
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 Interactive
Corporation Bonus Plan, 401(k) Savings Plan, and Phantom Stock Plan, as
summarized on pages __ through __ 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 twice during 1999 and acted once by
unanimous written consent. The present members are Messrs. Papitto (Chairman),
and Cerutti.
Executive Committee: Exercises all the power and authority of the Board of
Directors, except as otherwise provided by Delaware 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 did not meet
during 1999. The present members are Messrs. Gabelli (Chairman), Papitto and
Cerutti.
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
Since the Spin Off, directors who are not otherwise employees receive a cash
retainer of $2,000 per quarter, a fee of $1,000 for each in personam Board of
Directors Meeting and a fee of $1,000 for each telephonic Board of Directors
meeting (which lasts for at least one hour) and each committee meeting the
director attends. In addition, a non-employee director serving as a committee
chairman receives an additional $1,000 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.
Mr. Cerutti is also a member of the Boards of Directors of the Corporation's
subsidiaries Spinnaker Industries, Inc., Lynch Systems, Inc. and M-tron
Industries, Inc. and received $15,000 in 1999 for such services. Mr. Gray is
also a Chairman of the Board of Lynch Systems, Inc. and received $48,000 in 1999
for such service.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 15, 2000, 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 ___ 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, 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>
Dimensional Fund Advisors, Inc. ......... 86,900(1) 6.1%
Mario J. Gabelli ........................ 429,921(2) 28.5%
E. Val Cerutti .......................... 1,152(3) **
Avrum Gray .............................. 8,900(4)
Louis A. Guzzetti ....................... 0 **
Ralph R. Papitto ........................ 952 **
Robert E. Dolan ......................... 235(5) **
Robert A. Hurwich ....................... 298(6) **
All Directors and Executive Officers as a
group (nine in total) 441,458 29.2%
<FN>
* The address of each holder of more than 5% of the Common Stock is as
follows: 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
86,900 shares. Dimensional disclaims beneficial ownership of all such
shares.
(2) Includes 259,921 shares of Common Stock owned directly by Mr. Gabelli
(including 2,922 held for the benefit of Mr. Gabelli under the
Corporation's 401(k) Savings Plan), 1,000 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 an approximate 6% interest. Mr. Gabelli disclaims beneficial
ownership of the shares owned by the foundation and by the
partnership, except for his 6% interest therein. Includes 100,000
shares purchased from the Corporation subject to shareholder
ratification (see Item 2 at page ___).
<PAGE>
(3) 500 shares are jointly owned with his wife and sharing voting and
investment power.
(4) Includes 3,400 shares owned by Mr. Gray, 500 shares owned by a
partnership of which Mr. Gray is the general partner, 1,600 shares
owned by a partnership of which Mr. Gray is one of the general
partners, 1,400 shares owned by Mr. Gray's wife and 2,000 shares owned
by a partnership of which Mr. Gray's wife is one of the general
partners.
(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.
</FN>
</TABLE>
Spinnaker Industries, Inc. is an approximately 48% owned subsidiary ( 60% voting
interest) of the Corporation whose stock is traded on the American Stock
Exchange (AMEX). Mr. Gabelli may be deemed to be a beneficial owner of 2,237,203
shares of Common Stock and 1,259,036 shares of Spinnaker's Class A Common Stock
owned by the Corporation, by virtue of his ownership of approximately 28.5% of
the shares of Common Stock of the Corporation. Mr. Gabelli, however,
specifically disclaims beneficial ownership of all shares of Spinnaker stock
held by the Corporation.
EXECUTIVE COMPENSATION
At the time of the Spin Off on September 1, 1999, the Executive Officers of
Lynch Corporation became employees of Lynch Interactive Corporation (with
substantially the same salaries, bonus potential and other compensation
arrangements as were then in effect). At that time, they ceased to be employees
of Lynch Corporation although they remained the Executive Officers of Lynch
Corporation. Lynch Interactive began charging Lynch Corporation for the
corporate services provided by such Executive Officers (approximately 25% of
their compensation cost from September 1 to December 31, 1999).
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:
The information set forth under Executive Compensation includes the compensation
paid both prior to September 1, 1999 by the Corporation and after September 1,
1999 by Lynch Interactive Corporation.
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Compensation
<CAPTION>
Long Term Compensation
Awards
Stock
Underlying All Other
SARs2 Payments3 Compensation
Name and Principal Position Year Salary($) Bonus($)1 (#) ($) ($)4
- --------------------------- ---- --------- --------- --- --- ----
<S> <C> <C> <C> <C> <C> <C>
Mario J. Gabelli .......... 1999 500,000 0 -- 483,039 0
Chief Executive Officer . 1998 500,000 0 -- -- 200
Chairman of the Board ... 1997 500,000 0 25,000 -- 200
Chairman of the Executive
Robert E. Dolan ........... 1999 250,000 75,000 -- 177,249 0
Chief Financial Officer(5) 1998 240,000 50,000 2,000 -- 200
1997 0 0 4,000 -- 200
Robert A. Hurwich ......... 1999 180,000 0 -- 89,351 0
Vice President-Admin- ... 1998 164,000 20,000 1,000 -- 200
Istration, Secretary, ... 1997 156,000 0 1,500 -- 200
General Counsel
<FN>
(1) Bonuses earned in any fiscal year are generally paid during the
following fiscal year.
(2) Shares of Common Stock of Lynch Corporation at the time of grant
underlying Phantom Stock Plan awards.
(3) Represents payments by Lynch Corporation under the Phantom Stock Plan
of Lynch Corporation and Lynch Interactive in 2000 based upon December
31, 1999, stock values. Does not include $1,868,998, $685,822 and
$345,722 paid by Lynch Interactive in 2000 based upon December 31,
1999 stock values to Messrs. Gabelli, Dolan and Hurwich, respectively.
(4) The compensation reported represents contributions made 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 the
lesser of $50,000 or 10% of salary and bonus for 1999.
(5) Mr. Gabelli resigned as Chief Executive Officer of the Corporation in
January 2000 upon the appointment of Louis A. Guzzetti as President
and Chief Executive Officer.
(6) Mr. Dolan resigned as Chief Financial Officer of the Corporation in
January 2000 and Roger J. Dexter became Controller of the Corporation
in March 2000.
</FN>
</TABLE>
There were no grants of stock options or stock appreciation rights during 1999,
and the Phantom Stock Plan was terminated by the Board of Directors of Lynch
Corporation (See "Termination of Lynch Phantom Stock Plan") at page __.
<PAGE>
<TABLE>
AGGREGATE OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
<CAPTION>
Number of Securities
Underlying Options/SARs at Value of Unexercised
SARs Value Fiscal Year-End In-the-Money Options/SARs at
Exercised Realized (#) Fiscal Year-End (#)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
(a) (b) (c) (d) (e)
--- --- --- --- ---
<S> <C> <C> <C> <C>
Mario J. Gabelli
Chairman of the Board 25,000 483,039 None/None $0/$0(3)
Robert E. Dolan Chief
Financial Officer 10,000 177,249 None/None $0/$0
Robert A. Hurwich
VP-Admin., Sec. & Gen
Counsel 5,000 89,351 None/None $0/$0
<FN>
(1) Represents payments in 2000 by Lynch Corporation upon exercises under the
Phantom Stock Plan of Lynch Corporation and Lynch Interactive based upon
December 31, 1999 stock values. Does not include $1,868,998, $685,822 and
$345,722 paid by Lynch Interactive in 2000 based upon December 31, 1999
stock prices.
</FN>
</TABLE>
<TABLE>
Ten Year Option/SAR Repricing or Amendments(1)
<CAPTION>
Number of Length of
Securities Market Price Original Term
Underlying of Stock at Exercise Price New Remaining at
Options/SARs Time of at Time of Exercise Date of
Repriced or Repricing or Repricing or Price Repricing or
Name Date Amended Amendment(2) Amendment $ Amendment
(a) (b) (c) (d) (e) (f) (g)
- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Mario J. Gabelli
Chairman of the Board 3/15/00 25,000 Units $155 $ 70.106(3) $ 70.106(3) 3/5/02
Robert E. Dolan
Chief Executive
Officer 3/15/00 10,000 Units $155 $ 70.18(3)(4) $ 70.18(2)(3) 2/29/01-3/5/03(5)
Robert A. Hurwich
VP-Admin, Sec &
General Counsel 3/15/00 5,000 Units $155 $ 69.47(3)(4)$ $ 69.47(2)(3) 2/29/01-3/5/03(5)
<FN>
(1) As a result of the Interactive Spin Off, Lynch Corporation and Lynch
Interactive each decided to terminate the Phantom Stock Plan,
including outstanding units. The termination of the outstanding units
prior to their original expiration date required the consent of
participants. The total amount paid to each participant was calculated
based upon the December 31, 1999 (i) Lynch Corporation stock price
($25.81), (ii) the Lynch Interactive stock price ($99.875) and (iii)
East/West Communications, Inc. stock price ($38.50). East/West was
spun off by Lynch Corporation in December 1997 and the Boards of Lynch
Corporation and Lynch Interactive, in connection with the termination
of the outstanding units, agreed to add its value to that of Lynch
Corporation and Lynch Interactive stocks for units granted prior to
December 1997.. To the extent necessary, the Boards of Directors also
waived the requirement (enacted retroactively in 1998 after the
grants) that the stock price double prior to exercise. It was further
determined that Lynch Corporation would pay 20.5% of the amount, and
Lynch Interactive would pay 79.5% of the amount. See "Termination of
Lynch Phantom Stock Plan" at page ___.
(2) Combined closing prices of Lynch Corporation and Lynch Interactive
stock prices on the American Stock Exchange on March 15, 2000.
(3) Combined exercise prices of Lynch Corporation and Lynch Interactive
units.
<PAGE>
(4) Average exercise price of units. Of the 8,000 units granted to Mr.
Dolan prior to the East/West spin off, 4,000 units had a grant price
of $63.03 and 4,000 units had a grant price of $70.106, and the 2,000
units granted after the East/West spin off had a grant price of
$84.63. Of the 4,000 units granted to Mr. Hurwich prior to the
East/West spin off, 2,500 units had a grant price of $63.03, and 1,500
units had a grant price of $70.106, and the 1,000 units granted after
the East/West spin off had a grant price of $84.63. The units only
became exercisable if at any time during the term the stock price
exceeds two times the grant price.
(5) Of Mr. Dolan's 8,000 units granted prior to the East/West spin off,
4,000 expired February 28, 2001, and 4,000 expired March 5, 2002 and
the 2,000 units granted after the East/West spin off expired on March
5, 2003. Of Mr. Hurwich's 4,000 units granted prior to the East/West
spin off, 2,500 expired February 28, 2001, and 1,500 expired March 5,
2002 and the 2,000 units granted after the East/West spin off expired
on March 5, 2003.
</FN>
</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:
o Support the achievement of desired Corporation performance. o Provide
compensation that will attract and retain superior talent and reward
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 incentives for key executives.
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.
<PAGE>
Executive Officer Compensation Program
The Corporation's executive officer compensation program is comprised of base
salary, cash bonus compensation, Lynch Interactive Corporation 401(k) Savings
Plan, and other benefits generally available to employees of the Corporation. In
1996 Lynch Corporation adopted a Phantom Stock Plan applicable to officers and
employees of the Lynch Corporation.
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 __ of this Proxy Statement. Salary increases for
1999 were based upon a variety of judgmental factors, including the individual
performances of the officers in 1998 and their anticipated contributions to the
Corporation in 1999, 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 determined again not to raise Mr. Gabelli's salary
of $500,000 per year. Mr. Gabelli resigned as the Chief Executive Officer of the
Corporation in January 2000 upon the appointment of Louis A. Guzzetti as
President and Chief Executive Officer.
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 (other than the Principal Executive Officer, i.e.,
Mr. Gabelli) 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 average shareholders equity at the beginning of such year.
Shareholders' equity is the average of shareholders equity at the beginning of
the period and at the beginning of the two preceding years. The bonus pool would
also be reduced by amounts paid pursuant to the Principal Executive Bonus Plan.
See next paragraph 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. The total bonuses paid for 1998 and 1999 exceeded the bonus formula
because of the work by management in achieving strategic goals, including
investments in personal communications services, acquisitions and financings. No
bonuses were paid to executive officers for 1997. The breakdown of the bonus
pool is not based upon a formula but upon judgmental factors.
Mr. Gabelli is the sole participant in the Principal Executive Bonus Plan of
Lynch Corporation adopted by the Board of Directors and approved by shareholders
in 1997. The Principal Executive Bonus Plan is similar to the regular Bonus
Plan, except that it (i) specifies a Maximum Annual Bonus (as defined therein)
which is based on a maximum percentage (80%) of a specified bonus pool and (ii)
removes the discretion of the Committee to award annual bonuses above the
established Maximum Annual Bonus. The Plan is designed to satisfy an exemption
from Section 162(m) of the Internal Revenue Code, which denies a deduction by an
employer for certain compensation in excess of $1 million per year. No bonus was
paid to Mr. Gabelli for 1997, 1998 or 1999 under the Principal Executive Bonus
Plan. The Committee determined that for 1999 bonus calculations would be made on
the assumption that the Spin Off did not occur until January 1, 2000.
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 ___
of this Proxy Statement.
The Corporation has adopted subject to shareholder approval at the 2000 Annual
Meeting of Shareholders certain amendments to the Plan. See Principal Executive
Bonus Plan at pages ___ to ___ below.
<PAGE>
Termination of the 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 could be
awarded to officers and employees of the Corporation. The Committee was
responsible for administering the Phantom Stock Plan, including selection of the
persons to be awarded share units and number of units to be awarded. Under the
terms of the Phantom Stock Plan 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 1996, of which 25,000 were awarded to Mr.
Gabelli, 4,000 were awarded to Mr. Dolan and 1,500 were awarded to Mr. Hurwich,
all at $70.106 per share unit. Three thousand nine hundred units were awarded in
March 1998, of which 2,000 were awarded to Mr. Dolan and 1,000 were awarded to
Mr. Hurwich at $84.63 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. In 1998, the Plan, as well as outstanding rights, was
amended to provide that rights would become exercisable only if at any time
during the term thereof the stock price exceed twice the base or grant price.
As a result of the Interactive Spin Off, an adjustment in the terms of the
outstanding units was required. The approach that was taken was to divide each
unit into two units, one representing one share of Lynch Corporation stock and
one representing one share of Lynch Interactive stock. This was considered
appropriate since, at least for the short term, the individuals holding those
units would provide services for both Lynch Corporation and Lynch Interactive.
The original grant prices were apportioned between the corresponding units based
on the relative market prices of the common stock of the two companies after the
spin off.
After further reflection, the Boards of Directors of Lynch Corporation and Lynch
Interactive each decided that the preferable course of action would be to
terminate the phantom stock plan, including outstanding units, and to start with
a clean slate in each company regarding an appropriate long term incentive
program. The companies operate in completely different industries and
competitive environments. Consequently, the business conditions and prospects
that existed in Lynch Corporation at the time the units were granted were
substantially different than they are today in either company. In the case of
Lynch Interactive particularly, there was concern that stock price fluctuations
over the remaining terms of the outstanding units could result in material
quarterly charges (and distortions) to reported earnings.
In order to terminate the outstanding units, the consent of the employees
holding those units was required and, in this connection, the future
appreciation potential of the units being relinquished had to be taken into
account. An agreement was reached, deemed by the Boards of Directors of both
Lynch Corporation and Lynch Interactive to be both fair and equitable to all of
the employees holding the units, as well as in the best interests of the
respective shareholders of both corporations. The agreement recognizes the fact
that the holders of the units created significant value for shareholders since
their issuance, as well as the manner in which that value was created,
specifically including the spin off to Lynch Corporation shareholders of both
the stock of East/West Communications, Inc. in December 1997, and the stock of
Lynch Interactive.
<PAGE>
In calculating the payment the holders are to receive, they are treated as
holding only the original set of stock appreciation units issued to them by
Lynch Corporation, each with the original exercise price. The payment due under
each unit was determined by subtracting that exercise price from the total of
the market prices on December 31, 1999, of a share of (a) Lynch Corporation, (b)
Lynch Interactive, and (c) except for units granted after December 1997,
East/West Communications. To the extent necessary, the Boards of Directors of
both companies also waived the requirement (enacted retroactively in 1998, after
the grants) that the stock price exceed twice the exercise price before a unit
could be exercised.
Finally, the Boards of Directors of Lynch Corporation and Lynch Interactive
agreed that the total payments so determined would be paid 20.5% by Lynch
Corporation and 79.5% by Lynch Interactive. The allocation was based on the
relative market prices of the common stock of the two companies on December 31,
1999.
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 1998. 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, each of Messrs. Gabelli, Dolan, and Hurwich,
deferred $10,000 under the Lynch Corporation Plan during 1999, which amounts
have been included for each individual in the Summary Compensation Table.
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 1999.
Chief Executive Officer Compensation
The following table sets forth compensation received by Mr. Gabelli for the last
ten years as Chairman and Chief Executive Officer of Lynch Corporation
(including September 1 - December 31, 1999 from Lynch Interactive):
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Salary 90,000 90,000 150,000 150,000 150,000 325,000 500,000 500,000 500,000 500,000
Bonus 0 0 100,000 250,000 0 625,000 0 0 0 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 Lynch Corporation
Compensation Committee recognized that Mr. Gabelli's 1994 and prior years'
compensation was materially below that of chief executive officers of comparable
companies. Therefore, that Committee increased Mr. Gabelli's salary to $500,000
per year effective July 1, 1995, with no raise since then. Effective in 2000,
the $500,000 salary will be split, with $150,000 to be paid by the Corporation
and $350,000 to be paid by Lynch Interactive. 1999 was a year of strategic
accomplishments, including the Spin Off and the sale by Spinnaker of its tape
operations. However, 1999 was also a year of certain disappointments including
the profitability of certain manufacturing operations and The Morgan Group, Inc.
(part of the Interactive Spin Off). Mr. Gabelli made substantial contributions
to the Corporation's performance; however, no bonus was awarded to Mr. Gabelli
for 1999. In addition, that Committee recognizes the role of leadership,
particularly that of Mr. Gabelli, in developing existing businesses and in
<PAGE>
making strategic acquisitions. On March 9, 2000, in order to more closely
identify Mr. Gabelli's interests with those of the Corporation and its stock
price, the Corporation authorized, subject to shareholder ratification, the sale
of 100,000 shares of stock to Mr. Gabelli at $30 per share, a premium of
approximately 14.8% above the closing price of stock on March 9, 2000. In 1997,
the Committee granted Mr. Gabelli 25,000 units under the Lynch Corporation's
Phantom Stock Plan in 1997. See Termination of the Lynch Phantom Stock Plan at
page ___ and the Summary Compensation Table for amounts paid to Mr. Gabelli upon
such termination. Previously, 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, and
in January 1994, the Corporation sold Mr. Gabelli 100,000 shares at the then
market price.
Ralph R. Papitto, Chairman of the Executive Compensation and
Benefits Committee
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, 1999
with the cumulative total return over the same period on the broad market, as
measured by the American Stock Exchange Market Value Index, and on a peer group,
as measured by a composite index based on the total returns earned on the stock
of the publicly traded companies included in the Media General Financial
Services database under the three Standard Industrial Classification (SIC) codes
within which the Corporation conducts the bulk of its business operations; SIC
Code 4813, Telephone Communications, except Radio Telephone (105 companies, SIC
Code 267, Converted Pager and Paperboard Products, except Boxes (33 companies)
and SIC Code 4213, Trucking, except Local (52 companies). The data presented in
the graph assumes that $100 was invested in the Corporation's Common Stock and
in each of the indexes on December 31, 1994 and that all dividends were
reinvested. On September 1 1999, the Corporation spun off Lynch Interactive
Corporation which owned the multimedia and services businesses previously owned
by the Corporation.
INVESTMENT OF $100 DOLLARS ON DECEMBER 31, 1994
WITH REINVESTMENT OF DIVIDENDS
[OBJECT OMITTED]
<PAGE>
On September 1, 1999, the Corporation's stock traded without giving effect to
the Spin Off and closed at $87. On September 2, 1999, giving effect to the Spin
Off, the Corporation's stock closed at $33 and Lynch Interactive's stock closed
at $56.
Item 2
TO CONSIDER AND VOTE ON THE SALE OF 100,000 SHARES OF STOCK TO MR. GABELLI
Subject to ratification by shareholders as described below, Mr. Gabelli
purchased 100,000 shares of Common Stock, no par value, from the Corporation at
$30 per share, for a total consideration of $3,000,000, pursuant to a
Subscription Agreement dated as of March 9, 2000. The purchase price of $30 per
share was $3.875 higher than the $26.125 closing price of the stock of the
American Stock Exchange on March 9, 2000. This represented a premium of 14.8%.
In addition, if the Corporation had sold 100,000 shares of its stock through an
investment banker, the shares would presumably have been sold at a discount from
the public market price. Conversely, to yield $30 per share, if the shares were
sold in an underwritten transaction, the prevailing commission would be 6% and
the Corporation would have had to obtain approximately $32 per share to net $30
per share.
On April __, 2000, the closing price of the stock on the American Stock Exchange
was $ _____. The sale and purchase increased the number of shares of Common
Stock personally owned directly by Mr. Gabelli, as determined under the rules of
the Securities and Exchange Commission, from 259,921 shares to 359,921. In
addition, 70,000 shares are owned by a limited partnership in which Mr. Gabelli
is the general partner and has an approximate 6% beneficial interest. See
"Security Ownership of Certain Beneficial Owners and Management" at pages __
through __ above.
The 100,000 shares increased the outstanding shares of Common Stock of the
Corporation from 1,410,183 to 1,510,183 or 7.1%. The book value per share of the
Common Stock at December 31, 1999 was $9.03. The average daily trading volume of
the Common Stock on the American Stock Exchange for the 30 day period from
February 8, 2000, through March 9, 2000 was 959 shares, and the high and low
sales prices of the common Stock on such Exchange for that period were $30.50
and $25.75, respectively.
The shares acquired by Mr. Gabelli are "restricted securities" as defined in
Rule 144 under the Securities Act of 1933, as amended, and generally may not be
sold or transferred for a period of one year and thereafter only in accordance
with the volume, manner of sale and other limitations of Rule 144 so long as Mr.
Gabelli is deemed to be an affiliate of the Corporation. IF THE SALE IS NOT
RATIFIED, MR. GABELLI WILL RETURN THE SHARES TO THE CORPORATION IN EXCHANGE FOR
$3,000,000, THE ORIGINAL PURCHASE PRICE, PLUS INTEREST. There are no preemptive
rights with respect to the Common Stock.
Subject to ratification by shareholders, the Board of Directors approved the
sale on March 9, 2000 (with Mr. Gabelli not participating in the decision). The
closing price of the Corporation's common stock on the American Stock Exchange
on that date was $26.125. The Board of Directors believes that it is in the best
interest of the Corporation for Mr. Gabelli to own additional shares of the
Corporation, thereby more closely identifying Mr. Gabelli's interests with those
of the Corporation and its stock price. The additional funds available to the
Corporation will be used for general corporate purposes, including possible
acquisitions. See Executive Compensation and Benefits Committee Report on
Executive - Chief Executive Officer Compensation at page __ for a description of
certain previous stock sales by the Corporation to Mr. Gabelli.
Ratification of the sale 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 agreed that he will not vote his personal
shares against ratification of the sale. Otherwise, he has not indicated how he
intends to vote the shares beneficially owned by him; however, he has indicated
that the 100,000 shares purchased by him will not be voted, but will count for
quorum purposes.
THE BOARD OF DIRECTORS (OTHER THAN MR. GABELLI WHO IS MAKING NO RECOMMENDATION)
RECOMMENDS A VOTE IN FAVOR OF RATIFICATION OF THE SALE.
Item 3
AMENDMENTS TO THE PRINCIPAL EXECUTIVE BONUS PLAN
General
In 1997, the Corporation adopted 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 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.
<PAGE>
Proposed Amendments
The proposed amendments to the Plan (i) would permit any participant to be
awarded not more than 80% of the bonus pool, (ii) make participation by the
chief executive officer discretionary with the Plan Committee and (iii) permit
awards to officers who are not employees of the Corporation. The current Plan
(i) provides that no executive officer other than the chief executive officer
can be awarded more than 20% of the bonus pool, (ii) provides for the automatic
participation of the chief executive officer, and (iii) is unclear whether
executive officers of the Corporation who are not employees may participate in
the Plan. As a result of the Spin Off, the executive officers of the Corporation
remained as executive officers of the Corporation but ceased to be employees.
Without the amendment as to bonus pool percentage, the chairman of the board,
who resigned as chief executive officer of the Corporation in January 2000 would
be limited to 20% of the bonus pool. The Amendments were approved by the Board
of Directors on March 9, 2000 (with Mr. Gabelli and Mr. Guzzetti not voting).
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 executive officers and key
employees eligible to participate in the Plan, 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
It is expected that the new chief executive officer of the Corporation will not
participate in the Plan, although the Committee has the authority to include him
in years after 2000. The Committee may, in its sole discretion, select other
executive officers and key employees of the Company (including subsidiaries) to
be eligible to participate in the Plan for any calendar year. Only the Chairman
of the Board will participate in the Plan in the Year 2000.
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
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 participants' 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.
<PAGE>
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 in the case of any
participant 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).
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 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
(restated as the result of the Spin Off).
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,
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 Delaware 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.
<PAGE>
2000 Performance Award
Only the chairman of the board of the Corporation is participating in the Plan
for calendar year 2000. On March __, 2000, the Committee set for the 2000
calendar year the performance goals underlying the 2000 Annual Bonus Pool and
the Individual Bonus Pool Percentage for the chairman of the board. The
Committee determined that the 2000 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 2000 Annual Bonus Pool.
In 1999 the chairman of the Board and chief executive officer, the only
participant in the Plan in 1999, did not receive any annual bonus because the
gain on the sale by Spinnaker of its tape operations was offset by the write
down of the investment in personal communications services. For 1999, the Plan
Committee had determined that the bonus calculation should be made as if the
Spin Off had not occurred until January 1, 2000. For Year 2000 and beyond, the
bonus calculation will be made on the basis of Lynch Corporation performance
without including the performance of Lynch Interactive Corporation. For 2000 and
future years the Plan could result in substantial bonuses if Pre-Tax Profits
increase substantially, including without limitation as a result of the sale or
monetization of a business such as Spinnaker, and/or Shareholders Equity
decreases substantially.
Other Plans
Corporate executives and employees, other than the chief executive officer, will
continue to participate for the 2000 calendar year in the existing bonus plan
which permits the Corporation to use subjective factors, such as progress
towards achievement of strategic in goals and qualitative aspects of management
performance, in addition to the formula, in awarding bonuses.
See the Summary Compensation Table on page __, the Option/SAR Tables on page __
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 AMENDMENTS TO 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.
<PAGE>
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 1999, 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
approximately $69,000 reimbursement (including Lynch Interactive) in connection
with an airplane in part owned by a subsidiary of Gabelli Asset Management), was
less than $60,000.
In 1998, the Lynch Corporation entered into a lease for approximately 5,000
square feet in a building in Rye, New York, recently purchased by an affiliate
of Mr. Gabelli. The lease runs through December, 2002, and provides for rent at
approximately $18.00 per square foot, per annum plus a minimum of $2.50 per
square foot per annum for electricity, subject to adjustment for increases in
tax and other operating expenses. The amount of the lease is currently
approximately $8,400 per month. Lynch Interactive become the primary lessee of
such lease at the Spin Off. Effective as of March 1, 2000, Lynch Corporation
entered into a one year lease for approximately 1,150 additional feet of space
at a rent of $2,400 per month.
INDEPENDENT AUDITORS
Representatives of Ernst & Young, the Corporation's auditors for 1999, 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 2000.
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, 1999, 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 2000 Annual Meeting of
Shareholders must be received by the Office of the Secretary, Lynch Corporation,
401 Theodore Fremd Avenue, Rye, NY 10580, by no later than December __, 2000,
for inclusion in the Corporation's proxy statement and form of proxy relating to
the 2001 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 (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.
<PAGE>
ANNUAL REPORT
The Corporation's Annual Report to Shareholders for the fiscal year ended
December 31, 1999, 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__, 2000
<PAGE>
APPENDIX
LYNCH CORPORATION
PRINCIPAL EXECUTIVE BONUS PLAN
The purpose of this Plan is to provide certain Executive Officers 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, certain
Executive Officers 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.
(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 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 (as adjusted for the spin off by
Lynch Corporation of the Company on September 1, 1999).
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 Executive Officers and employees of the
Company who are to participate in the Plan from among the
Executive Officers and key employees of the Company.
(b) No person 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 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 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 (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 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 persons 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
amendment shall affect adversely any of the rights of
any Participant, without such Participant's consent,
under the award theretofore granted under the Plan.
<PAGE>
PRELIMINARY PROXY CARD
LYNCH CORPORATION
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned shareholder of LYNCH CORPORATION (the "Corporation") hereby
appoints George E. Fuehrer 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 11, 2000 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, FOR
ratification of the sale of 100,000 shares of the Corporation's Common Stock to
Mario J. Gabelli, and FOR approval of the amendments to 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.
(continued and to be signed on the reverse side)
LYNCH CORPORATION
1. Election of Directors Duly Nominated:
FOR WITHHOLD E. Val Cerutti, Robert E. Dolan, Mario J. Gabelli, Avrum
Gray, Louis A. Guzzetti and Ralph R. Papitto. (INSTRUCTION: To
withhold authority to vote for one or more individual nominees, write
such name or names on the space provided below.)
2. Ratification of the Sale of 100,000 Shares of Common Stock to Mario J.
Gabelli:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of the Amendments to the Principal Executive Bonus Plan:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
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:______________________________, 2000
_____________________________________(L.S.)
(Signature of Shareholder)
____________________________________(L.S.)
(Signature of Shareholder)
PLEASE DATE, SIGN AND MAIL THIS PROXY IN THE ENVELOPE PROVIDED.
