sec document
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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/ / Soliciting Material Pursuant to ss. 240.14a-12
Lynch Corporation
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2
LYNCH CORPORATION
140 GREENWICH AVE, 4TH FLOOR
GREENWICH, CONNECTICUT 06830
NOTICE OF THE 2005 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 26, 2005
April 25, 2005
To the Shareholders of Lynch Corporation:
NOTICE IS HEREBY GIVEN that the 2005 Annual Meeting of Shareholders
of Lynch Corporation, an Indiana Corporation (the "Corporation"), will be held
at The Bruce Museum, One Museum Drive, Greenwich, Connecticut on Thursday, May
26, 2005, at 9:30 a.m. for the following purposes:
1. To elect five directors to serve until the 2006 Annual Meeting
of Shareholders and until their successors are duly elected and
qualify;
2. To approve amendments to the Corporation's 2001 Equity
Incentive Plan, to increase the total number of shares of the
Corporation's Common Stock available for issuance thereunder
from 300,000 shares to 600,000 shares and to add provisions
that require terms and conditions of awards to comply with
Section 409A of the Internal Revenue Code of 1986; and
3. To transact such other business as may properly come before the
2005 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 14, 2005 are entitled
to receive notice of, and to vote at, the 2005 Annual Meeting of Shareholders
and any adjournments thereof.
THE BOARD OF DIRECTORS ENCOURAGES ALL SHAREHOLDERS TO PERSONALLY
ATTEND THE 2005 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 2005 ANNUAL MEETING OF
SHAREHOLDERS. YOUR COOPERATION IS GREATLY APPRECIATED.
By Order of the Board of Directors
EUGENE HYNES
SECRETARY
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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 2005 Annual Meeting of Shareholders to be held at The Bruce
Museum, One Museum Drive, Greenwich, Connecticut on May 26, 2005, 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 April 25, 2005.
Only shareholders of record at the close of business on April 14,
2005 are entitled to notice of, and to vote at, the 2005 Annual Meeting of
Shareholders. As of the close of business on such date, 1,649,834 shares of the
Corporation's Common Stock, $0.01 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 shareholders. Where a specific designation is
made 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 the approval of the amendments to the 2001 Equity
Incentive Plan and in the discretion of the proxies with respect to any other
matter that is properly brought before the 2005 Annual Meeting of Shareholders.
Any shareholder giving a proxy may revoke it at any time before it is voted at
the 2005 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 2005 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. Approval of the amendments to the 2001 Equity
Incentive Plan shall be determined by a majority 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 2005 Annual Meeting of
Shareholders to serve until the 2006 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
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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
as 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.
SERVED AS BUSINESS EXPERIENCE AND PRINCIPAL OCCUPATION FOR
DIRECTOR LAST FIVE YEARS; AND DIRECTORSHIPS IN PUBLIC
NAME AGE FROM CORPORATIONS AND INVESTMENT COMPANIES
-------------- --- --------- -----------------------------------------------
Marc Gabelli 37 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 Gabelli
Group Capital Partners, Inc., the parent
company of Gabelli Asset Management, Inc., a
private corporation which makes investments
for its own account; President of Gemini
Capital Management LLC; President of Venator
Merchant Fund, LP.
E. Val Cerutti 65 1990 Business Consultant (since 1992); President
and Chief Operating Officer (1975 to 1992) of
Stella D'Oro Biscuit Co., Inc., producer of
bakery products; Director of Spinnaker
Industries, Inc.; 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 (since 1999); former Chairman of
Board of Trustees of Fordham Preparatory
School.
John C. Ferrara 53 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 Gabelli
Asset Management Inc. and Lynch Interactive
Corporation.
Avrum Gray 69 1999 Chairman and Chief Executive Officer of G-Bar
Limited Partnership and affiliates (1982 to
present), proprietary computer based
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derivative arbitrage trading companies;
Chairman of the Board, Lynch Systems, Inc.,
(1997 through 2001); Director of Nashua
Corp., a NYSE listed manufacturer of paper
products and labels (2001 to present);
Director of SL Industries, Inc., a NYSE
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);
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, CPA 79 2002 Professor Emeritus, Pace University (2001 to
Present), Professor of Accounting, Pace
University (1965 to 2001), and former
Assistant Chairman, 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 twelve 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 2006 ANNUAL
MEETING OF SHAREHOLDERS.
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CORPORATE GOVERNANCE
The Board of Directors met on 13 occasions during the year ended
December 31, 2004. 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 six times during 2004. 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
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 2004. 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 met twice during 2004. 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.
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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 2006 Annual Meeting of
Shareholders, the Corporate Secretary must receive this information by December
5, 2005.
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
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
2004, 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 stipend,
payable in equal quarterly installments (of which $27,446 was paid in 2004).
Mario J. Gabelli, formerly the Vice Chairman of the Board of Directors, was
entitled to receive a $50,000 annual stipend in equal quarterly installments (of
which $37,500 was paid in 2004).
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 14, 2004, 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 OF
NAME AND ADDRESS OF BENEFICIAL PERCENT
BENEFICIAL OWNER(1) OWNERSHIP OF CLASS(2)
------------------- ------------ -------------
Marc Gabelli....................................... 337,884(3) 20.5%
Mario J. Gabelli................................... 270,641(4) 16.4%
E. Val Cerutti..................................... 1,000(5) *
John C. Ferrara.................................... 414 *
Avrum Gray......................................... 8,900(6) *
Eugene Hynes....................................... 0 *
Ralph R. Papitto................................... 180,952(7) 9.9%
Anthony R. Pustorino............................... 1,000 *
------------ -------------
All Directors and Executive Officers as
a group (8 in total)............................ 800,791 43.8%
============ =============
----------
* Represents holdings of less than 1%
(1) The address of each holder of more than 5% of the Common Stock is as
follows: Both Mario J. Gabelli and Marc Gabelli -- 401 Theodore Fremd
Ave., Rye, New York 10580-1430, and Ralph Papitto -- Sailfish Point, 6863
S.E. Isle Way, Stuart, Florida 34996.
(2) The applicable percentage of ownership for each beneficial owner is based
on 1,649,834 shares of Common Stock outstanding as of April 14, 2005.
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) 336,884 shares beneficially owned by Venator Merchant Fund, L.P.
("Venator Fund") and Venator Global, LLC ("Venator LLC"). 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 Fund.
(4) Includes (i) 183,541 shares of Common Stock owned directly by Mario J.
Gabelli (including 8,768 held for the benefit of Mario J. Gabelli under
the Lynch Interactive Corporation ("LIC") 401(k) Savings Plan); (ii) 800
shares owned by a charitable foundation of which Mario J. Gabelli is a
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trustee; (iii) 70,000 shares owned by a limited partnership in which Mario
J. Gabelli is the general partner and has an approximate 5% interest; and
(iv) 16,300 shares owned by LIC, of which Mario J. Gabelli is Chairman and
Chief Executive Officer 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) 1,000 shares are jointly owned with his wife, with whom he shares voting
and investment power.
(6) Includes (i) 3,400 shares owned by Mr. Gray; (ii) 500 shares owned by a
partnership of which Mr. Gray is the general partner; (iii) 1,600 shares
owned by a partnership of which Mr. Gray is one of the general partners;
(iv) 1,400 shares owned by Mr. Gray's wife; and (v) 2,000 shares owned by
a partnership of which Mr. Gray's wife is one of the general partners.
(7) Includes 180,000 shares issuable upon the exercise of options held by Mr.
Papitto at a $17.50 per share exercise price.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation received in the
Corporation's last three fiscal years by the Corporation's former and current
Chief Executive Officers and the four most highly compensated executive
officers.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
OTHER ANNUAL
SALARY BONUS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)
--------------------------- ---- ------ ----- -------------
Marc Gabelli................................ 2004 0 0 36,369(2)
Chairman of the Board (1)
John C. Ferrara............................. 2004 79,808 0 0
President and Chief Executive Officer (3)
Eugene C. Hynes............................. 2004 43,269 0 0
Vice President, Secretary and Treasurer (4)
Ralph R. Papitto............................. 2004 187,500 0 0
Chairman of the Board and 2003 250,000 0 0
Chief Executive Officer (5) 2002 270,000 0 0
Raymond H. Keller............................ 2004 67,500 60,000 0
Vice President, Chief Financial Officer 2003 91,000 0 0
and Secretary (6) 2002 70,475 0 0
Richard E. McGrail........................... 2004 67,500 60,000 0
President and Chief Operating Officer (7) 2003 94,000 0 0
2002 73,430 0 0
----------
(1) Marc Gabelli was elected Chairman of the Board of Directors on September
20, 2004.
(2) Includes Chairman's fee of $27,446 and non-employee director's fees of
$8,923.
(3) Mr. Ferrara was elected as President and Chief Executive Officer of the
Corporation on October 1, 2004.
(4) Mr. Hynes was appointed as Vice President, Secretary and Treasurer of the
Corporation on October 1, 2004.
(5) Mr. Papitto resigned as Chairman of the Board of Directors on September
20, 2004 and resigned as Chief Executive Officer of the Corporation on
October 1, 2004.
(6) Mr. Keller resigned as Secretary of the Corporation on October 1, 2004 and
resigned as Vice President and Chief Financial Officer of the Corporation
on November 12, 2004.
(7) Mr. McGrail resigned as President and Chief Operating Officer of the
Corporation on October 1, 2004.
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OPTION GRANTS IN LAST FISCAL YEAR
There were no option grants in 2004.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
The following table presents information regarding the fiscal
year-end value of the named executive officers' unexercised options. There were
no options exercised by the named executive officers during 2004. In 2004, Mr.
Keller and Mr. McGrail resigned from their respective positions with the
Company. As a result, any options that remained unvested at the time of their
respective resignations were cancelled, effective three months after their date
of resignation.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT FISCAL YEAR- THE-MONEY OPTIONS
END AT FISCAL YEAR-END
(#) ($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------
Marc Gabelli........................ 0/0 0/0
John C. Ferrara..................... 0/0 0/0
Eugene Hynes........................ 0/0 0/0
Ralph R. Papitto.................... 180,000/0 0/0
Raymond H. Keller................... 22,000/0 0/0
Richard E. McGrail.................. 22,000/0 0/0
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.
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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.
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. In 2004, bonuses were
paid to Mr. McGrail and Mr. Keller of $60,000 each.
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
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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 not participants in the
401(k) Savings Plan in 2004.
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.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Ralph R. Papitto served as the Chief Executive Officer during the
past fiscal year until he resigned on October 1, 2004. Mr. Papitto was entitled
to receive a base salary of $250,000 per year (of which $187,500 was paid in
2004).
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)
14
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
From December 10, 2001 through March 18, 2004, the members of the
Compensation Committee were Mr. Mario J. Gabelli (Chairman), Mr. Cerutti and Mr.
Papitto. Mr. Papitto served as the Chief Executive Officer of the Corporation
from August 17, 2001 through October 1, 2004. Since 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, 2004, 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, 1999
and that all dividends were reinvested.
INSERT CHART HERE
FISCAL YEAR ENDING
------------------
12/31/1999 12/29/2000 12/31/2001 12/31/2002 12/31/2003 12/31/2004
----------- ---------- ----------- ----------- ----------- -----------
Lynch Corporation................. $100.00 $ 166.59 $ 69.73 $ 30.02 $ 40.48 $ 56.17
AMEX Market Index................ $100.00 $ 98.77 $ 94.22 $ 90.46 $ 123.12 $ 140.99
Peer Group (355, 367)............. $100.00 $ 70.02 $ 63.47 $ 34.61 $ 63.28 $ 49.62
15
TRANSACTIONS WITH CERTAIN AFFILIATED PERSONS
On October 15, 2004, the Corporation entered into a Securities
Purchase Agreement (the "Purchase Agreement") with Venator Fund. Under the
Purchase Agreement, the Corporation sold to Venator Fund, pursuant to Section
4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated
thereunder, 136,643 shares of its Common Stock for $13.173 per share, or an
aggregate purchase price of approximately $1,800,000. Venator Fund is an
investment limited partnership controlled by the Corporation's Chairman of the
Board, Marc Gabelli. The per share purchase price for the Common Stock is equal
to the average of the closing prices of the Common Stock during the 60-trading
day period ended on October 13, 2004. In connection with the transaction, the
Corporation obtained a fairness opinion from Caymus Partners, LLC.
Prior to the Corporation's relocation of its principal executive
offices to Greenwich, Connecticut, such offices were located in Providence,
Rhode Island and shared with Avtek Inc. ("Avtek"), a private holding company
co-owned by Mr. Papitto and Mario Gabelli until November 27, 2002 and now
controlled by Mr. Papitto. Since August 2001, Avtek and the Corporation have
shared, on an approximately equal basis, (i) all occupancy costs of the shared
premises and (ii) the salary expense of certain persons employed by Avtek at the
premises (including Mr. McGrail, the Corporation's President and Chief Operating
Officer until his resignation on October 1, 2004 and Mr. Keller, the
Corporation's Chief Financial Officer until his resignation on November 12,
2004, and other administrative and clerical personnel) whose services were
provided to both the Corporation and Avtek. The Corporation's share of such
occupancy and salary costs in 2004 was $433,625 a portion of which represents
compensation to Mr. McGrail and Mr. Keller that is reported in the Summary
Compensation Table herein.
PROPOSAL NO. 2
APPROVAL OF AMENDMENTS TO THE
CORPORATION'S 2001 EQUITY INCENTIVE PLAN
PROPOSED AMENDMENTS
On March 24, 2005, the Board of Directors approved, subject to
shareholder approval, amendments to the 2001 Equity Incentive Plan (the "Plan")
to increase the total number of shares of the Corporation's Common Stock
available for issuance from 300,000 shares to 600,000 shares and to add
provisions that require terms and conditions of awards to comply with Section
409A of the Internal Revenue Code of 1986 (the "Code"). No other changes are
being made to the Plan.
SUMMARY OF THE PLAN
The purpose of the Plan is to advance the interests of the
Corporation and its subsidiaries by enhancing their ability to attract and
retain employees and other persons or entities who are in a position to make
significant contributions to the success of the Corporation and its
subsidiaries, and to reward participants for such contributions, through
ownership of shares of Common Stock of the Corporation and cash incentives. The
Board of Directors believes that in order to accomplish these goals, it is in
the best interest of the Corporation and its shareholders to provide to such
persons and entities the opportunity to participate in the value and/or
appreciation in value of the shares of Common Stock. The Plan is intended to
accomplish these goals by enabling the Corporation to grant awards in the form
16
of options, stock appreciation rights, restricted stock, unrestricted stock or
deferred stock, or performance awards, or combinations thereof.
The Plan is administered by the Corporation's Compensation
Committee. Under the Plan, the Compensation Committee may grant stock options,
stock appreciation rights, restricted stock, unrestricted stock, deferred stock,
and performance awards (in cash or stock) (collectively, "Awards"), or
combinations thereof, and may waive the terms and conditions of any award. A
total of 300,000 shares of Common Stock are currently reserved for issuance
under the Plan. Each key employee of the Corporation or any of its subsidiaries
(an "Employee") and each other person or entity (including without limitation
non-Employee directors of the Corporation or a subsidiary of the Corporation)
who, in the opinion of the Compensation Committee, is in a position to make a
significant contribution to the success of the Corporation or its subsidiaries
is eligible to receive Awards under the Plan (each such Employee, person or
entity receiving an Award, a "Participant"). A "subsidiary" for purposes of the
Plan is a corporation in which the Corporation owns, directly or indirectly,
stock possessing 50% or more of the total combined voting power of all classes
of stock. There are currently five directors of the Corporation and
approximately 20 employees who are eligible Participants under the Plan.
Section 162(m) of the Code places annual limitations on the
deductibility by public companies of compensation in excess of $1,000,000 paid
to each of the chief executive officer and the other four most highly
compensated officers, unless, among other things, the compensation is
performance-based. For compensation attributable to stock options and stock
appreciation rights to qualify as performance-based, the plan under which they
are granted must state a maximum number of shares with respect to which options
and rights may be granted to an individual during a specified period and must be
approved by the Corporation's shareholders. To comply with these requirements,
the Plan provides that the maximum number of shares as to which awards may be
granted to any Participant in any one calendar year is 200,000.
Section 409A of the Code, added by the American Jobs Creation Act of
2004, imposes interest and additional taxes on certain compensation paid under
nonqualified deferred compensation plans. It is the intention of the Board that
the Plan comply strictly with the provisions of Section 409A of the Code and
Treasury Regulations and other Internal Revenue Service guidance promulgated
thereunder ("Section 409A"). The Compensation Committee is directed to exercise
its discretion in granting Awards under the Plan (and the terms of such Awards)
in compliance with Section 409A. Accordingly, the Plan and any grant of an Award
under the Plan may be amended from time to time (without, in the case of an
Award, the consent of the Participant) as may be necessary or appropriate to
comply with Section 409A.
STOCK OPTIONS. The exercise price of an incentive stock option
("ISO") granted under the Plan or an option intended to qualify as
performance-based compensation under Section 162(m) of the Code shall not be
less than 100% of the fair market value of the Common Stock at the time of
grant. The exercise price of a non-ISO granted under the Plan is determined by
the Compensation Committee. Options granted under the Plan will expire and
terminate 10 years from the date of grant. The exercise price may be paid in
cash or by check, bank draft or money order payable to the order of the
Corporation. Subject to certain additional limitations, the Compensation
Committee may also permit the exercise price to be paid by tendering shares of
Common Stock, by delivery to the Corporation of an undertaking by a broker to
deliver promptly sufficient funds to pay the exercise price, or a combination of
the foregoing.
17
STOCK APPRECIATION RIGHTS (SARS). Stock appreciation rights ("SARs")
may be granted either alone or in tandem with stock option grants. Each SAR
entitles the holder on exercise to receive an amount in cash or Common Stock or
a combination thereof (such form to be determined by the Compensation Committee)
determined in whole or in part by reference to appreciation in the fair market
value of a share of Common Stock. SARs may be based solely on appreciation in
the fair market value of Common Stock or on a comparison of such appreciation
with some other measure of market growth. The date as of which such appreciation
or other measure is determined shall be the exercise date unless another date is
specified by the Compensation Committee. If an SAR is granted in tandem with an
option, the SAR will be exercisable only to the extent the option is
exercisable. To the extent the option is exercised, the accompanying SAR will
cease to be exercisable, and vice versa.
STOCK AWARDS; DEFERRED STOCK. The Plan provides for awards of
nontransferable shares of restricted Common Stock subject to forfeiture
("Restricted Stock"), as well as unrestricted shares of Common Stock. Shares of
Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated until the end of the applicable period and the
satisfaction of any other conditions or restrictions established by the
Compensation Committee. Except as the Compensation Committee may otherwise
determine, if a Participant dies or ceases to be an employee or ceases to
continue the consulting or other similar relationship engaged in by such
Participant with the Corporation for any reason during the restricted period,
the Corporation may purchase the shares of Restricted Stock subject to certain
restrictions and conditions. Other awards under the Plan may also be settled
with Restricted Stock. The Plan also provides for deferred grants entitling the
recipient to receive shares of Common Stock in the future at such times and on
such conditions as the Compensation Committee may specify.
PERFORMANCE AWARDS. The Plan provides for performance awards
entitling the recipient to receive cash or Common Stock following the attainment
of performance goals determined by the Compensation Committee. Performance
conditions and provisions for deferred stock may also be attached to other
awards under the Plan. In the case of any performance award intended to qualify
for the performance-based remuneration exception described in Section 162(m) of
the Code (an "Exempt Award"), the Compensation Committee will in writing
pre-establish specific performance goals that are based upon any one or more
operational, result or event-specific goals. The maximum Exempt Award payable to
an individual in respect of any performance goal for any year cannot exceed
$2,500,000. Payment of performance awards based upon a performance goal for
calendar years 2008 and thereafter is conditioned upon re-approval by the
shareholders of the Corporation no later than the first meeting of shareholders
in 2007.
TERMINATION. Except as otherwise provided by the Compensation
Committee, if a Participant dies, options and SARs exercisable immediately prior
to death may be exercised by the Participant's executor, administrator or
transferee during a period of one year following such death (or for the
remainder of their original term, if less). Options and SARs not exercisable at
a Participant's death terminate. Outstanding awards of Restricted Stock must be
transferred to the Corporation upon a Participant's death, and deferred stock
grants, performance awards and supplemental awards to which a Participant is not
irrevocably entitled will be terminated unless otherwise provided. In the case
of termination for reasons other than death, options and SARs remain
exercisable, to the extent they were exercisable immediately prior to
termination, for three months (or for the remainder of their original term, if
less), shares of Restricted Stock must be sold to the Corporation, and other
awards terminate, except as otherwise provided.
18
In the case of certain mergers, consolidations or other transactions
in which the Corporation is acquired or is liquidated, all outstanding awards
will terminate. The Compensation Committee may, however, in its discretion cause
unvested awards to vest or become exercisable, remove performance or other
conditions on the exercise of or vested right to an award, or in certain
circumstances provide for replacement awards.
AMENDMENT. The Compensation Committee may amend the Plan or any
outstanding award at any time, provided that no such amendment will, without the
approval of the shareholders of the Corporation, effectuate a change for which
shareholder approval is required in order for the Plan to continue to qualify
for the award of ISOs under Section 422 of the Code or for the award of
performance-based compensation under Section 162(m) of the Code. In addition,
the Plan and any grant of an Award under the Plan may be amended from time to
time (without, in the case of an Award, the consent of the Participant) as may
be necessary or appropriate to comply with Section 409A.
NEW PLAN BENEFIT
The future benefits or amounts that would be received under the Plan
by the executive officers, the non-executive officer directors and the
non-executive officer employees are discretionary and are therefore not
determinable at this time.
FEDERAL TAX EFFECTS
The following discussion summarizes certain federal income tax
consequences of the issuance and receipt of options under the Plan. The summary
does not purport to cover federal employment tax or other federal tax
consequences that may be associated with the Plan, nor does it cover state,
local or non-U.S. taxes.
INCENTIVE STOCK OPTIONS. In general, an optionee realizes no taxable
income upon the grant or exercise of an ISO. However, the exercise of an ISO may
result in an alternative minimum tax liability to the optionee. With certain
exceptions, a disposition of shares purchased under an ISO within two years from
the date of grant or within one year after exercise produces ordinary income to
the optionee (and a deduction to the Corporation) equal to the value of the
shares at the time of exercise less the exercise price. Any additional gain
recognized in the disposition is treated as a capital gain for which the
Corporation is not entitled to a deduction. If the optionee does not dispose of
the shares until after the expiration of these one- and two-year holding
periods, any gain or loss recognized upon a subsequent sale is treated as a
long-term capital gain or loss for which the Corporation is not entitled to a
deduction.
NONSTATUTORY (NON-ISO) OPTIONS. In general, in the case of a
non-ISO, the optionee has no taxable income at the time of grant but realizes
income in connection with exercise of the option in an amount equal to the
excess (at the time of exercise) of the fair market value of the shares acquired
upon exercise over the exercise price. A corresponding deduction is available to
the Corporation. Upon a subsequent sale or exchange of the shares, appreciation
or depreciation after the date of exercise is treated as capital gain or loss
for which the Corporation is not entitled to a deduction.
In general, an ISO that is exercised more than three months after
termination of employment (other than termination by reason of death) is treated
as a non-ISO. ISOs are also treated as non-ISOs to the extent they first become
exercisable by an individual in any calendar year for shares having a fair
market value (determined as of the date of grant) in excess of $100,000.
19
Under the so-called "golden parachute" provisions of the Code, the
vesting or accelerated exercisability of awards in connection with a change in
control of the Corporation may be required to be valued and taken into account
in determining whether Participants have received compensatory payments,
contingent on the change in control, in excess of certain limits. If these
limits are exceeded, a substantial portion of amounts payable to the
Participant, including income recognized by reason of the grant, vesting or
exercise of awards under the Plan, may be subject to an additional 20% federal
tax and may be nondeductible to the Corporation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENTS TO THE
CORPORATION'S 2001 EQUITY INCENTIVE PLAN.
INDEPENDENT AUDITORS
Ernst & Young LLP audited the consolidated financial statements of
the Corporation for the year ended December 31, 2004 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 2005 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. The Corporation has not yet selected an independent
auditor for the fiscal year ending on December 31, 2005, because it wanted to
finalize the 2004 audit before considering auditors for 2005.
AUDIT FEES
The aggregate audit fees billed for each of the last two fiscal
years by Ernst & Young LLP were $338,000 for 2004 and $262,450 for 2003. 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.
AUDIT RELATED FEES
The aggregate audit related fees billed for each of the last two
fiscal years by Ernst & Young LLP totaled $156,812 for 2004 and $20,000 in 2003.
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 $75,233 for 2004 and $39,958 for 2003. Tax fees
include services performed relating to tax compliance and customs services.
ALL OTHER FEES
The Corporation was not billed for any other services by Ernst &
Young LLP during 2004 or 2003.
20
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 six such meetings in 2004. 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, 2004, 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 Stock and other equity securities of the Corporation. 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, 2004, its officers,
directors, and 10% shareholders are in compliance with all Section 16(a) filing
requirements applicable to them.
21
PROPOSALS OF SHAREHOLDERS
Proposals of shareholders intended to be presented at the 2006
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 16, 2005, for inclusion in the Corporation's
proxy statement and form of proxy relating to the 2006 Annual Meeting of
Shareholders.
The date after which notice of a shareholder proposal intended to be
submitted for the 2006 Annual Meeting of Shareholders outside the processes of
Rule 14a-8 will be considered untimely is March 1, 2006. 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 which are likely to
come before the 2005 Annual Meeting of Shareholders. If any other matters should
properly come before the 2005 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., 445
Park Avenue, 5th Floor, New York, New York, 10022 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, 2004, has been sent herewith to each shareholder. Such Annual
Report, however, is not to be regarded as part of the proxy soliciting material.
22