UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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. )
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Lynch Corporation
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LYNCH CORPORATION
140 GREENWICH AVE, 4TH FLOOR
GREENWICH, CONNECTICUT 06830
NOTICE OF THE 2006 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 20, 2006
May 5, 2006
To the Shareholders of Lynch Corporation:
NOTICE IS HEREBY GIVEN that the 2006 Annual Meeting of Shareholders of
Lynch Corporation, an Indiana corporation (the "Corporation"), will be held at
The Greenwich Museum, 101 West Putnam Avenue, Greenwich, Connecticut on Tuesday,
June 20, 2006, at 9:30 a.m. for the following purposes:
1. To elect five directors to serve until the 2007 Annual Meeting
of Shareholders and until their successors are duly elected
and qualify;
2. To approve an amendment to the Corporation's Restated Articles
of Incorporation to change our name from "Lynch Corporation"
to "The LGL Group, Inc.";
3. To ratify the appointment of Ernst & Young LLP as the
Corporation's independent auditors for the fiscal year ended
December 31, 2006; and
4. To transact such other business as may properly come before
the 2006 Annual Meeting of Shareholders or any adjournments
thereof.
Information relating to the above matters is set forth in the attached
Proxy Statement. As determined by the Board of Directors, only shareholders of
record at the close of business on April 20, 2006 are entitled to receive notice
of, and to vote at, the 2006 Annual Meeting of Shareholders and any adjournments
thereof.
THE BOARD OF DIRECTORS ENCOURAGES ALL SHAREHOLDERS TO PERSONALLY ATTEND
THE 2006 ANNUAL MEETING OF SHAREHOLDERS. 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 2006 ANNUAL MEETING OF SHAREHOLDERS. YOUR
COOPERATION IS GREATLY APPRECIATED.
By Order of the Board of Directors
EUGENE HYNES
SECRETARY
3
LYNCH CORPORATION
140 GREENWICH AVENUE, 4TH FLOOR
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 2006 Annual Meeting of Shareholders to be held at The Greenwich
Library, 101 West Putnam Avenue, Greenwich, Connecticut on June 20, 2006, at
9:30 a.m. and at any adjournments thereof. This Proxy Statement and the
accompanying proxy are first being mailed to shareholders on or about May 5,
2006.
Only shareholders of record at the close of business on April 20, 2006
are entitled to notice of, and to vote at, the 2006 Annual Meeting of
Shareholders. As of the close of business on such date, 2,154,702 shares of the
Corporation's Common Stock, $0.01 par value (the "Common Stock"), were
outstanding and eligible to be voted by their holders. Each share of Common
Stock is entitled to one vote on each matter submitted to shareholders. Where
specific instructions are given in the proxy, the proxy will be voted in
accordance with such instructions. If no such instructions are given, the proxy
will be voted FOR the nominees for director named below, FOR approval of an
amendment to the Corporation's Restated Articles of Incorporation, FOR
ratification of the appointment of the Corporation's independent auditors and in
the discretion of the proxies with respect to any other matter that is properly
brought before the 2006 Annual Meeting of Shareholders. Any shareholder giving a
proxy may revoke it at any time before it is voted at the 2006 Annual Meeting of
Shareholders by delivering to the Secretary of the Corporation a written notice
of revocation, a duly executed proxy bearing a later date or by appearing at the
2006 Annual Meeting of Shareholders and revoking his or her proxy and voting in
person.
No action may be taken on any matter to be acted upon at the meeting
unless a quorum is present with respect to that matter. For each matter to be
acted upon at the meeting, a quorum consists of a majority of the votes entitled
to be cast by the holders of all shares of Common Stock outstanding on the
record date for the meeting. The election of directors shall be determined by a
plurality of the votes cast.
An automated system administered by the Corporation's transfer agent
tabulates the votes. Under the laws of Indiana (the Corporation's domicile),
abstentions and broker non-votes are not counted for purposes of determining
whether a proposal has been approved, but will be counted for purposes of
determining whether a quorum is present. A broker non-vote occurs when a bank,
broker or other nominee holding shares for a beneficial owner does not receive
voting instructions from the beneficial owner on a particular matter and the
nominee cannot vote the shares under AMEX rules.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Five directors are to be elected at the 2006 Annual Meeting of
Shareholders to serve until the 2007 Annual Meeting of Shareholders and until
their successors are duly elected and qualify. 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 does not stand 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 do not stand. Management, however, has no reason
to expect that any of the nominees will be not stand for election. The election
of directors shall be determined by a plurality of the votes cast.
The By-laws of the Corporation provide that the Board of Directors
shall consist of no fewer than five and no more than 13 members. Each of the
five nominees currently serves as a director of the Corporation. Biographical
summaries and ages of the nominees are set forth below. Data with respect to the
number of shares of the Common Stock beneficially owned by each of the nominees
is set forth under the caption "Security Ownership of Certain Beneficial Owners
and Management" herein. All such information has been furnished to the
Corporation by the nominees.
Business Experience and Principal
Served as Occupation for Last Five Years; and
Director Directorships in Public Corporations
Name Age From and Investment Companies
- ----------------------- ---- --------- -----------------------------------------
Marc Gabelli 38 2004 Chairman (September 2004 to present)
and Director (May 2003 to May 2004) of
the Corporation; Managing director
(1996 to 2004) and President (2004 to
present) of GGCP, Inc. (the parent
company of GAMCO Investors, Inc.
("GAMCO") a private corporation that
makes investments for its own account;
President of Gemini Capital Management
LLC; President of the general partner
of Venator Merchant Fund, LP.
("Venator Fund")
E. Val Cerutti 66 1990 Business Consultant (since 1992);
Consulting Vice Chairman (2006 to
present) and President and Chief
Operating Officer (1975 to 1992) of
Stella D'Oro Biscuit Co., Inc.,
producer of bakery products; current
Director or Trustee of four registered
investment companies included within
the Gabelli Funds Mutual Fund Complex;
Director of Approach, Inc., a private
company providing computer consulting
services (1999-2005); former Chairman
of Board of Trustees of Fordham
Preparatory School.
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John C. Ferrara 54 2004 President and Chief Executive Officer
(October 2004 to present) of Lynch
Corporation; Private investor from
March 2002 to present; President and
Chief Executive Officer (2001 to March
2002) and Chief Financial Officer (1999
to 2001) of Space Holding Corporation,
a private multimedia company dedicated
to space, science and technology;
Executive Vice President and Chief
Financial Officer (1998 to 1999) of
Golden Books Family Entertainment,
Inc., a NASDAQ listed publisher,
licenser and marketer of entertainment
products; Vice President and Chief
Financial Officer (1989 to 1997) of
Renaissance Communications Corp., a
NYSE listed owner and operator of
television stations; Director of GAMCO
and Lynch Interactive Corporation
("LIC").
Avrum Gray 70 1999 Chairman and Chief Executive Officer of
G-Bar Limited Partnership and
affiliates (1982 to present),
proprietary computer based derivative
arbitrage trading companies; Chairman
of the Board, Lynch Systems, Inc.,
(1997 through 2001); Director of Nashua
Corp., a NASDAQ listed manufacturer of
paper products and labels (2001 to
present); Director of SL Industries,
Inc., an AMEX listed manufacturer of
power and data quality equipment and
systems (since 2001); Director of
Material Sciences Corporation, a NYSE
listed provider of material-based
solutions for electronic, acoustical,
thermal and coated metal applications
(since 2003); Director of LIC (2006 to
present); Current member of Illinois
Institute of Technology Financial
Markets and Trading Advisory Board;
Former member of Illinois Institute of
Technology Board of Overseers MBA
Program; Former Chairman of Chicago
Presidents Organization; Former
Chairman of the Board of Trustees of
Spertus College; Former Presidential
Appointee to The U.S. Dept. of Commerce
ISAC 16.
Anthony R. Pustorino, 80 2002 Professor Emeritus, Pace University
CPA (2001 to Present), Professor of
Accounting, Pace University (1965 to
2001), and former Assistant Chairman,
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Accounting Department at Pace
University; President and Shareholder of
Pustorino, Puglisi & Co., P.C., CPAs
(1961 to 1989); Instructor, Fordham
University (1961-1965); Assistant
Controller, Olivetti-Underwood
Corporation (1957-1961); CPA with Peat,
Marwick, Mitchell & Co., CPAs
(1953-1957); former Chairman, Board of
Directors of New York State Board for
Public Accountancy; former Chairman, CPA
Examination Review Board of National
Association of State Boards of
Accountancy; former Member of Council of
American Institute of Certified Public
Accountants; former Vice President,
Treasurer, Director and member of
Executive Committee of New York State
Society of Certified Public Accountants;
current Director or Trustee of fourteen
registered investment companies included
within the Gabelli Funds Mutual Fund
Complex.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ITS
NOMINEES FOR THE BOARD OF DIRECTORS FOR TERMS TO EXPIRE AT THE 2007 ANNUAL
MEETING OF SHAREHOLDERS.
CORPORATE GOVERNANCE
The Board of Directors met on 10 occasions during the year ended
December 31, 2005. Each of the directors attended at least 75% of the aggregate
of (i) the total number of meetings of the Board of Directors (held during the
period for which he was a director); and (ii) the total number of meetings held
by all committees of the Board of Directors on which he served (during the
periods that he served). The Board of Directors has three committees, the
principal duties of which are described below.
AUDIT COMMITTEE: The members of the Audit Committee are Messrs.
Pustorino (Chairman), Cerutti and Gray. The Board of Directors has determined
that all audit committee members are financially literate and independent under
the current listing standards of the American Stock Exchange ("AMEX"). Mr.
Pustorino serves as Chairman and qualifies as an "audit committee financial
expert." The Audit Committee met seven times during 2005. The Audit Committee
operates in accordance with its charter, which is available on our website at
WWW.LYNCHCORP.COM. The charter gives the Audit Committee the authority and
responsibility for the appointment, retention, compensation and oversight of our
independent auditors, including pre-approval of all audit and non-audit services
to be performed by our independent auditors. The Audit Committee also reviews
the independence of the independent auditors, reviews with management and the
independent auditors the annual financial statements prior to their filing with
the Securities and Exchange Commission (the "SEC"), reviews the report by the
independent auditors regarding 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
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connection with their audit of the Corporation's records. The Audit Committee
also reviews the Corporation's financial reporting process on behalf of the
Board of Directors, reviews the financial information issued to shareholders and
others, including a discussion of the quality, not just the acceptability, of
the accounting principles; the reasonableness of significant judgments; and the
clarity of discussions in the financial statements, and monitors the systems of
internal control and the audit process. Management has primary responsibility
for the financial statements and the reporting process. See "Report of the Audit
Committee" herein.
COMPENSATION COMMITTEE: The members of the Compensation Committee are
Messrs. Cerutti (Chairman), Gray and Pustorino. All members of the Compensation
Committee are "independent" in accordance with AMEX rules. The Compensation
Committee met twice during 2005. The responsibilities of the Compensation
Committee are to review and approve compensation and benefits policies and
objectives, determine whether the Corporation's officers and directors are
compensated in accordance with these policies and objectives and carry out the
Board of Directors' responsibilities relating to compensation of the
Corporation's executives. The Compensation Committee Charter is available at
WWW.LYNCHCORP.COM.
NOMINATING COMMITTEE: The members of the Nominating Committee are
Messrs. Gray (Chairman), Cerutti and Pustorino. All members of the Nominating
Committee are "independent" in accordance with the rules of the AMEX. The
Nominating Committee did not meet during 2005. The responsibilities of the
Nominating Committee are to identify individuals qualified to become Board
members and recommend that the Board select director nominees for the annual
meetings of shareholders. The Nominating Committee Charter is available at
WWW.LYNCHCORP.COM.
In evaluating and determining whether to nominate a candidate for a
position on the Board of Directors, the Nominating Committee utilizes a variety
of methods and considers criteria such as high professional ethics and values,
relevant management and/or manufacturing experience and a commitment to
enhancing shareholder value. Candidates may be brought to the attention of the
Nominating Committee by current Board members, shareholders, officers or other
persons. The Nominating Committee will review all candidates in the same manner
regardless of the source of the recommendation.
The Nominating Committee will consider nominees recommended by
shareholders when properly submitted. Shareholder recommendations should include
the nominee's name, the nominee's business and professional experience and
membership on other boards sufficient to demonstrate qualifications to serve on
the Corporation's Board of Directors and the shareholder's name and address.
Shareholder recommendations should be addressed to Corporate Secretary, Lynch
Corporation, 140 Greenwich Ave, 4th Floor, Greenwich, Connecticut 06830. For
purposes of potential nominees to be considered at the 2007 Annual Meeting of
Shareholders, the Corporate Secretary must receive this information by January
5, 2007.
Shareholders may communicate with the Board of Directors, including the
non-management directors, by sending an e-mail to GHYNES@LYNCHCORP.COM or by
sending a letter to Lynch Corporation, 140 Greenwich Ave, 4th Floor, Greenwich,
Connecticut 06830. The Corporate Secretary will submit such correspondence to
8
the Chairman of the Board or to any specific director to whom the correspondence
is directed.
CODE OF ETHICS: The Corporation has adopted a code of ethics as part of
its Amended and Restated Business Conduct Policy, that applies to all employees
of the Corporation including its principal executive, financial and accounting
officers.
COMPENSATION OF DIRECTORS
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
2005, Directors who were not employees received (i) a cash retainer of $5,000
per quarter; (ii) a fee of $2,000 for each meeting of the Board of Directors
attended in person or telephonically that has a duration of at least one hour;
(iii) a fee of $1,500 for each Audit Committee meeting attended in person or
telephonically that has a duration of at least one hour; and (iv) a fee of $750
for each Compensation Committee, each Executive Committee and each Nominating
Committee meeting attended in person. In addition, the Audit Committee Chairman
receives an additional $4,000 annual cash retainer and the Nominating and
Compensation Committee Chairmen receive an additional $2,000 annual retainer.
Marc Gabelli, the Chairman, receives a $100,000 annual fee, payable in
equal quarterly installments. Mr. Gabelli has volunteered to defer payment of
his annual fee, payable in cash, to a later date.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 20, 2006, certain
information with respect to all persons known to the Corporation to own
beneficially 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 directors, each of the executive officers named in the Summary
Compensation Table herein, and by all directors and executive officers as a
group. The number of shares beneficially owned is determined under rules of the
SEC. Under such rules, beneficial ownership includes any shares as to which a
person has sole or shared voting or investment power or any shares that such
person can acquire within 60 days (e.g., through exercise of stock options or
conversion of securities). Except as otherwise indicated, the shareholders
listed in the table have sole voting and investment power with respect to the
Common Stock indicated. The following information is reflected in filings with
the SEC.
Amount and Nature
Name and Address of of Beneficial Percent of
Beneficial Owner(1) Ownership Class(2)
- ------------------------------------------------------------------- --------------------- --------------
Marc Gabelli..................................................... 528,384(3) 23.9%
Mario J. Gabelli................................................. 371,152(4) 17.0%
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E. Val Cerutti................................................... 1,445(5) *
John C. Ferrara.................................................. 75,622(6) 3.3%
Avrum Gray....................................................... 13,385(7) *
Eugene Hynes..................................................... 25,000(8) 1.1%
Anthony R. Pustorino............................................. 1,504 *
All Directors and Executive Officers as a group (7 in total)..... 1,016,492(9) 44.0%
- ----------
* Represents holdings of less than 1%
(1) The address of each holder of more than 5% of the Common Stock is 401
Theodore Fremd Ave., Rye, New York 10580-1430.
(2) The applicable percentage of ownership for each beneficial owner is
based on 2,188,510 shares of Common Stock outstanding as of April 20,
2006. Shares of Common Stock issuable upon exercise of options,
warrants or other rights beneficially owned that are exercisable within
60 days are deemed outstanding for the purpose of computing the
percentage ownership of the person holding such securities and rights
but are not deemed outstanding for computing the percentage ownership
of any other person.
(3) Includes (i) 1,000 shares of Common Stock owned directly by Marc
Gabelli and (ii) 507,384 shares beneficially owned by Venator Fund and
Venator Global, LLC ("Venator Global") and 20,000 shares issuable upon
the exercise of options held by Marc Gabelli at a $13.173 per share
exercise price. Venator Global, which is the sole general partner of
Venator Fund, is deemed to have beneficial ownership of the securities
owned beneficially by Venator Fund. Marc Gabelli is the President of
Venator Global.
(4) Includes (i) 248,674 shares of Common Stock owned directly by Mario J.
Gabelli (including 13,181 held for the benefit of Mario J. Gabelli
under the LIC 401(k) Savings Plan); (ii) 1,203 shares owned by a
charitable foundation of which Mario J. Gabelli is a trustee; (iii)
96,755 shares owned by a limited partnership in which Mario J. Gabelli
is the general partner and has an approximate 5% interest; and (iv)
24,519 shares owned by LIC, of which Mario J. Gabelli is Chairman and
the beneficial officer of approximately 23% of the outstanding common
stock. Mario J. Gabelli disclaims beneficial ownership of the shares
owned by such charitable foundation, by LIC and by such limited
partnership, except to the extent of his 5% interest in such limited
partnership.
(5) 1,445 shares are jointly owned with Mr. Cerutti's wife, with whom he
shares voting and investment power.
(6) Includes 75,000 shares issuable upon the exercise of options held by
Mr. Ferrara at a $13.173 per share exercise price.
(7) Includes (i) 5,114 shares owned by Mr. Gray; (ii) 751 shares owned by a
partnership of which Mr. Gray is the general partner; (iii) 2,407
shares owned by a partnership of which Mr. Gray is one of the general
partners; (iv) 2,105 shares owned by Mr. Gray's wife; and (v) 3,008
shares owned by a partnership of which Mr. Gray's wife is one of the
general partners.
(8) Represents 25,000 shares issuable upon the exercise of options held by
Mr. Hynes at a $13.173 per share exercise price.
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(9) Includes an aggregate of 120,000 shares issuable upon exercise of
options held by all Directors and Executive Officers as a group.
EXECUTIVE COMPENSATION
The following table sets forth the compensation received in the
Corporation's last two fiscal years by the Corporation's current Chairman of the
Board and the two most highly compensated executive officers.
SUMMARY COMPENSATION TABLE
Annual Compensation
Other Annual
Salary Bonus Compensation
Name and Principal Position Year ($) ($) ($)
- --------------------------------------------------- ----------- -------------- ----------- -------------------
Marc Gabelli...................................... 2005 0 0 100,000(2)
Chairman of the Board(1) 2004 0 0 36,369(3)
John C. Ferrara................................... 2005 250,000 100,000 0
President and Chief Executive Officer 2004 79,808(4) 0 0
Eugene Hynes...................................... 2005 150,000 50,000 0
Vice President, Secretary and Treasurer 2004 43,269(5) 0 0
- ----------
(1) Marc Gabelli was elected Chairman of the Board of Directors on
September 20, 2004.
(2) Annual Chairman's fee.
(3) Includes Chairman's fee of $27,446 and non-employee director's fees of
$8,923.
(4) Mr. Ferrara was elected as President and Chief Executive Officer of the Corporation on October 1, 2004.
(5) Mr. Hynes was elected as Vice President, Secretary and Treasurer of the Corporation on October 1, 2004.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table presents information regarding stock options
granted to named executive officers in 2005:
Potential Realizable
Value At Assumed Annual
Rates of Stock Price
Appreciation for Option
Individual Grants Term
------------------------------------------------------------- ---------------------------
Percent of
Number of Total
Securities Options
Underlying Granted to
Options in Fiscal Exercise Expiration
Name Granted (#) Year (#) Price ($/Sh) Date 5% ($) 10% ($)
- ---------------------------- ---------------- ------------- --------------- ------------- --------------- -----------
Marc Gabelli.............. 20,000 16.7% 13.173 5/25/2010 72,789 160,845
John C. Ferrara........... 75,000 62.5% 13.173 5/25/2010 272,959 603,169
Eugene Hynes.............. 25,000 20.8% 13.173 5/25/2010 90,986 201,056
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
The following table presents information regarding the fiscal year-end
value of the named executive officers' unexercised options. There were no
options exercised by the named executive officers during 2005.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-money Options At
Options At Fiscal Year-End Fiscal Year-End
(#) ($)
Name Exercisable/unexercisable Exercisable/unexercisable
- --------------------------- -------------------------- -------------------------
Marc Gabelli............ 20,000/0 0/0
John C. Ferrara......... 75,000/0 0/0
Eugene Hynes............ 25,000/0 0/0
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COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Compensation 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 Compensation 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.
EXECUTIVE OFFICER COMPENSATION PROGRAM
The objectives of the Corporation's executive compensation program are
to:
o Support the achievement of desired corporate 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; and
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 corporate performance, as well as individual performance.
The Compensation Committee uses its discretion to recommend executive
compensation at levels warranted in its judgment by corporate and individual
performance.
The Corporation's executive officer compensation program comprises base
salary, cash bonus compensation, 401(k) Savings Plan, and other benefits
generally available to employees of the Corporation.
BASE SALARY
Base salary levels for the Corporation's executive officers are
intended to be competitive. In recommending salaries, the Compensation 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 herein. Initial salaries for the Corporation's
executive officers were based upon a variety of factors, including their
respective proposed responsibilities with the Corporation, their background and
experience and the size and nature of the Corporation's business.
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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 the
consolidated pre-tax profits of the Corporation for a calendar year over 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 Compensation
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 breakdown of the bonus pool is not based upon a
formula but upon judgmental factors. For 2005, the Compensation Committee
awarded a discretionary bonus to Mr. Ferrara, President and Chief Executive
Officer, of $100,000 and to Mr. Eugene Hynes, Vice President and Secretary, of
$50,000. The bonuses were awarded for their efforts to position the Corporation
for growth by significantly improving the Corporation's balance sheet and
operating performance.
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 therein) and having reached the
age of 18.
The 401(k) Savings 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 62.5% of the first $800
of the participant's contribution. In addition, the employer may make a
discretionary contribution of up to 37.5% of the first $800 of the participant's
contribution. A participant's interest in both employee and employer
contributions and earnings thereon 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.
The Corporation's executive officers were participants in the 401(k)
Savings Plan in 2005.
OTHER BENEFITS
The Corporation provides medical, life insurance and disability
benefits to the executive officers that are generally available to Corporation
employees.
COMPENSATION OF CHAIRMAN OF THE BOARD
At a meeting of the Board of Directors on September 20, 2004, based
upon the recommendation of the Nominating Committee, the Board unanimously
elected Marc Gabelli Chairman of the Board of Directors. The Committee
recommended a Chairman's fee of $100,000 per year, payable quarterly.
14
COMPENSATION OF CHIEF EXECUTIVE OFFICER
At a meeting of the Board of Directors on October 6, 2004, based upon
the recommendation of the Nominating Committee, the Board unanimously (with Mr.
Ferrara abstaining) elected John C. Ferrara as President and Chief Executive
Officer, effective October 1, 2004. The Committee recommended an annual salary
of $250,000 for Mr. Ferrara.
COMPENSATION COMMITTEE
E. Val Cerutti (Chairman)
Avrum Gray (Member)
Anthony R. Pustorino (Member)
15
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
From March 18, 2004, the Compensation Committee comprises Messrs.
Cerutti, Gray and Pustorino, all of whom are non-employee independent directors.
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, 2005, with the cumulative total return over the same period (i) on the broad
market, as measured by the AMEX Market Value Index, and (ii) 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 two Standard Industrial Classification (SIC) codes within
which the Corporation conducts the bulk of its business operations: SIC Code
355, Special Industry Machinery; and SIC Code 367, Electronic Components
Accessories. 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, 2000
and that all dividends were reinvested.
INSERT CHART HERE
FISCAL YEAR ENDING
- --------------------------------------------------------------------------------------------------------------------
12/31/2000 12/31/2001 12/31/2002 12/31/2003 12/31/2004 12/31/2005
- ------------------------------------- --------------- --------------- --------------- --------------- --------------
Lynch Corporation..... $ 100.00 $ 41.86 $ 18.02 $ 24.30 $ 33.72 $ 19.19
AMEX
Market Index.......... $ 100.00 $ 95.39 $ 91.58 $ 124.66 $ 142.75 $ 157.43
Peer Group
(355, 367)............ $ 100.00 $ 91.57 $ 50.43 $ 92.07 $ 72.27 $ 78.69
16
TRANSACTIONS WITH CERTAIN AFFILIATED PERSONS
On May 12, 2005, Venator Fund made a loan to the Corporation in the
amount of $700,000 due September 11, 2005 or within seven days after demand by
Venator Fund. On September 8, 2005, the Corporation entered into a Letter
Agreement extending the maturity date of its Promissory Note in the principal
amount of $700,000 to Venator Fund. The maturity date of the Promissory Note,
which was to have been September 11, 2005 or within seven days after demand by
Venator Fund, was changed to November 10, 2005 or within seven days after demand
by Venator Fund. The loan was paid by the Corporation on December 22, 2005.
Venator Fund is an investment limited partnership controlled by the
Corporation's Chairman of the Board, Marc Gabelli. The loan was approved by the
Audit Committee of the Board of Directors of Lynch.
INDEPENDENT AUDITORS
Ernst & Young LLP audited the consolidated financial statements of the
Corporation for the year ended December 31, 2005 and has reported the results of
its audit to the Audit Committee of the Board of Directors. A representative of
Ernst & Young LLP is expected to be present at the 2006 Annual Meeting of
Shareholders, will have the opportunity to make a statement if the
representative desires to do so and will be available to respond to appropriate
questions from shareholders
AUDIT FEES
The aggregate audit fees billed for each of the last two fiscal years
by Ernst & Young LLP were $342,500 for 2005 and $463,000 for 2004. Audit fees
include services relating to auditing the Corporation's annual financial
statements, reviewing the financial statements included in the Corporation's
quarterly reports on Form 10-Q and certain accounting consultations. The amount
for 2004, has been changed from the amount shown in the Corporation's 2004 proxy
statement to include $125,000 of audit fees associated with the 2004 audit that
finalized after the 2004 proxy was filed.
AUDIT RELATED FEES
The aggregate audit related fees billed for each of the last two fiscal
years by Ernst & Young LLP totaled $22,000 for 2005 and $156,812 for 2004. Audit
related fees include services relating to employee benefit plans and the
Corporation's acquisition of Piezo Technology, Inc., in 2004.
TAX FEES
The aggregate tax fees billed for each of the last two fiscal years by
Ernst & Young LLP totaled $32,000 for 2005 and $75,233 for 2004. Tax fees
include services performed relating to tax compliance and customs services.
17
ALL OTHER FEES
The Corporation was not billed for any other services by Ernst & Young
LLP during 2005 or 2004.
REPORT OF THE AUDIT COMMITTEE
The members of the Audit Committee are Messrs. Pustorino, Cerutti and
Gray. The Board of Directors has determined that all Audit Committee members are
financially literate and independent under the current AMEX standards. Mr.
Pustorino serves as Chairman and qualifies as an "audit committee financial
expert." The Audit Committee operates under a revised written charter adopted by
the Board of Directors on February 5, 2004.
The Audit Committee has met and held discussions with management and
the independent auditors. In our discussion, management has represented to the
Audit Committee that the Corporation's consolidated financial statements were
prepared in accordance with Generally Accepted Accounting Principles. The Audit
Committee has reviewed and discussed the consolidated financial statements with
both management and Ernst & Young LLP, the Corporation's independent auditors.
The Audit Committee meets with our independent auditors, with and without
management present, to discuss the results of their examinations, the
evaluations of the Corporation's internal controls and the overall quality of
the Corporation's financial reporting. There were 7 such meetings in 2005. The
Audit Committee discussed with the independent auditors, matters required to be
discussed by Codification of Statements on Auditing Standards No. 61
(Communication with Audit Committees).
The Corporation's independent auditors also provided to the Committee
the written disclosures and the letter required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees), and the Audit
Committee has considered and discussed with Ernst & Young the firm's
independence and the compatibility of the non-audit services provided by the
firm with its independence.
Based on the Audit Committee's review of the audited financial
statements and the various discussions noted above, the Audit Committee
recommended that the Board of Directors include the audited consolidated
financial statements in the Corporation's Annual Report on Form 10-K for the
year ended December 31, 2005, and the Board has approved this recommendation.
AUDIT COMMITTEE
Anthony R. Pustorino (Chairman)
E. Val Cerutti (Member)
Avrum Gray (Member)
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Corporation's directors, executive officers and holders of more
than 10% of the Corporation's Common Stock to file with the SEC and the AMEX
initial reports of ownership and reports of changes in the ownership of Common
18
Stock and other equity securities of the Corporation. Such persons are required
to furnish the Corporation with copies of all Section 16(a) filings. Mr. Marc
Gabelli, Mr. Ferrara and Mr. Hynes each failed to file one Form 4 on a timely
basis during the year ended December 31, 2005. The Forms 4 related to grants of
stock options to the relevant officer on May 26, 2005. The details of each of
these stock option grants were subsequently reported on Form 5s.
19
PROPOSAL NO. 2
AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY TO THE LGL GROUP, INC.
The Corporation's Board of Directors has adopted, and recommends that
shareholders approve at the 2006 Annual Meeting, a proposal to amend the
Corporation's Restated Articles of Incorporation to change the name of the
Corporation to The LGL Group, Inc. This proposal will be approved if a majority
of the votes entitled to be cast vote in favor of the proposal.
The Corporation was incorporated under the name "Lynch Corporation" in
1928. The Corporation believes that the name "Lynch Corporation" does not
optimally reflect the current scope of the Corporation's activities as these
activities are currently less identified with those of its subsidiary, Lynch
Systems, Inc. In addition, although six years have passed since the spin-off of
Lynch Interactive Corporation from the Corporation, there continues to be some
confusion between the two by investors, shareholders and unrelated parties. The
Board of Directors believes that the Corporation's interest is better served by
the proposed name, "The LGL Group, Inc."
If this proposal is adopted, the change of name will not affect in any
way the validity or transferability of currently outstanding shares of the
Corporation's Common Stock. Stock certificates will continue to represent the
same number of shares, remain authentic, and it will not be necessary for
shareholders to surrender stock certificates. Instead, when certificates are
presented for transfer, new certificates bearing the name "The LGL Group, Inc."
will be issued.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
ARTICLES OF AMENDMENT TO THE CORPORATION'S RESTATED ARTICLES OF INCORPORATION TO
EFFECT THE PROPOSED NAME CHANGE.
20
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors has appointed Ernst &
Young LLP as the Corporation's independent auditors for the fiscal year ending
December 31, 2006. Although the selection of independent auditors does not
require ratification, the Board of Directors has directed that the appointment
of Ernst & Young LLP be submitted to stockholders for ratification due to the
significance of their appointment to the Corporation. If stockholders do not
ratify the appointment of Ernst & Young LLP as the Corporation's independent
auditors, the Audit Committee of the Board of Directors will consider the
appointment of other certified public accountants. A representative of Ernst &
Young LLP will be present at the Meeting, will be available to respond to
appropriate questions and will have the opportunity to make a statement if they
desire. The approval of the proposal to ratify the appointment of Ernst & Young
LLP requires the affirmative vote of a majority of the votes cast by all
stockholders represented and entitled to vote thereon.
The Audit Committee reviews audit and non-audit services performed by
Ernst & Young LLP as well as the fees charged by Ernst & Young LLP for such
services. In its review of non-audit service fees, the Audit Committee
considers, among other things, the possible effect of the performance of such
services on the auditor's independence.
PRE-APPROVAL POLICIES AND PROCEDURES
All audit and non-audit services to be performed by the Corporation's
independent accountant must be approved in advance by the Audit Committee.
Consistent with applicable law, limited amounts of services, other than audit,
review or attest services, may be approved by one or more members of the Audit
Committee pursuant to authority delegated by the Audit Committee, provided each
such approved service is reported to the full Audit Committee at its next
meeting. All of the engagements and fees for the Corporation's fiscal year ended
December 31, 2005 were approved by the Audit Committee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS THE CORPORATION'S INDEPENDENT AUDITORS FOR
THE FISCAL YEAR ENDING DECEMBER 31, 2006.
21
PROPOSALS OF SHAREHOLDERS
Proposals of shareholders intended to be presented at the 2007 Annual
Meeting of Shareholders must be received by the Office of the Secretary, Lynch
Corporation, 140 Greenwich Avenue, 4th Floor, Greenwich, Connecticut 06830, by
no later than December 29, 2006, for inclusion in the Corporation's proxy
statement and form of proxy relating to the 2007 Annual Meeting of Shareholders.
The date after which notice of a shareholder proposal intended to be
submitted for the 2007 Annual Meeting of Shareholders outside the processes of
Rule 14a-8 will be considered untimely is March 21, 2007. If not received by
that date, the persons named in the form of proxy accompanying the notice of
meeting may vote on any such proposal in their discretion.
MISCELLANEOUS
The Board of Directors knows of no other matters that are likely to
come before the 2006 Annual Meeting of Shareholders. If any other matters should
properly come before the 2006 Annual Meeting of Shareholders, 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., 470 West Avenue, 3rd
Floor, Stamford, Connecticut, 06902 to assist in this solicitation at a cost of
$4,000, 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,
personal interviews and the telephone.
ANNUAL REPORT
The Corporation's Annual Report to Shareholders for the fiscal year
ended December 31, 2005 is being sent herewith to each shareholder. Such Annual
Report, however, is not to be regarded as part of the proxy soliciting material.
