SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
LINCOLN SNACKS COMPANY
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $0.01 par value
(2) Aggregate number of securities to which transaction applies:
1,400,486 shares of Common Stock
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$3.50 per share, based on merger consideration
(4) Proposed maximum aggregate value of transaction:
$4,901,701
(5) Total fee paid:
$980.34
[ ] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$793.93
(2) Form, Schedule or Registration Statement No.:
Schedule 14A
(3) Filing Party:
Lincoln Snacks Company
(4) Date Filed:
August 6, 2001
PRELIMINARY COPY
[LETTERHEAD OF LINCOLN SNACKS COMPANY]
September [___], 2001
Dear Stockholders:
With the unanimous approval of our board of directors, including all of
our directors who are not affiliated with Brynwood Partners III L.P., we have
entered into a definitive Agreement and Plan of Merger pursuant to which we
would be acquired by Lincoln Snacks Acquisition Corp., a wholly owned subsidiary
of Brynwood. Under the Merger Agreement, each share of our common stock (other
than the common stock owned by Brynwood and shares the holders of which exercise
appraisal rights under Delaware law) would be converted into the right to
receive $3.50 in cash. Following the merger, Lincoln Snacks would be a wholly
owned subsidiary of Brynwood. If the merger occurs, you would receive cash and
would have no continuing interest in Lincoln Snacks.
For the Merger Agreement to be approved by our stockholders, the
holders of at least a majority of our outstanding common stock must approve it.
We have scheduled a special meeting on October [___], 2001 to take this vote.
Your vote is very important. However, Brynwood, which owns approximately 89.8%
of our common stock, has indicated that it intends to vote its shares in favor
of the Merger Agreement, and its vote alone is sufficient to approve the Merger
Agreement under Delaware law.
Whether or not you plan on attending the special meeting, please take
the time to vote by completing the enclosed proxy card and mailing it to us. A
postage paid envelope is provided for returning your proxy. You may also cast
your vote by telephone by following the instructions on the enclosed form of
proxy. If you sign, date and return your proxy card without indicating how you
want to vote, your proxy will be counted as a vote FOR the merger agreement. If
you fail to return your card and do not vote by telephone or at the meeting,
your action will have the same effect as voting AGAINST the merger.
Only stockholders of record as of the close of business on August 17,
2001 are entitled to vote at the special meeting. The date, time and place of
the special meeting are as follows:
[_______________], October [___], 2001
10:00 A.M.
Lincoln Snacks Company
30 Buxton Farm Road
Stamford, Connecticut 06905
Your board of directors and the Special Committee appointed to evaluate
the proposed merger, including each of the directors who is not an affiliate of
Brynwood, has unanimously determined that the merger is in the best interests of
Lincoln Snacks and its stockholders and is fair to the stockholders of Lincoln
Snacks who are not affiliates of Brynwood. The board unanimously recommends that
you vote FOR the approval of the Merger Agreement. Lincoln Snacks' stockholders
should be aware that, in determining to approve the Merger Agreement, the
directors of Lincoln Snacks had certain potentially conflicting interests. Some
of these potentially conflicting interests could have influenced the board of
directors' approval of the Merger Agreement and its recommendation that Lincoln
Snacks' stockholders vote to approve the Merger Agreement. See "SUMMARY -
Interests of Certain Persons in the Merger" and "INTERESTS OF CERTAIN PERSONS IN
THE MERGER."
The attached Proxy Statement provides you with detailed information
about the proposed merger. Before you vote, we encourage you to read carefully
the entire Proxy Statement, including the documents attached to the Proxy
Statement.
On behalf of your board of directors, we thank you for your continued
support and again we urge you to vote FOR the approval of the Merger Agreement.
Sincerely,
Hendrik J. Hartong III
President
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PRELIMINARY COPY
LINCOLN SNACKS COMPANY
30 BUXTON FARMS ROAD
STAMFORD, CONNECTICUT 06905
(203) 329-4545
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT
October [___], 2001
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
Lincoln Snacks Company will be held on [_______________], October [___], 2001,
at 10:00 A.M. at the offices of Lincoln Snacks Company located at 30 Buxton Farm
Road, Stamford, Connecticut 06905, for the following purposes:
1. to consider and vote on a proposal to approve the Agreement
and Plan of Merger, dated as of August 2, 2001, among
Lincoln Snacks Company, Lincoln Snacks Acquisition Corp. and
Brynwood Partners III L.P., pursuant to which each share of
common stock of Lincoln Snacks (other than shares the
holders of which have exercised appraisal rights under the
Delaware General Corporation Law and shares owned by
Brynwood) would be converted into the right to receive $3.50
in cash; and
2. to transact such other business as may properly come before
the Special Meeting or any adjournment or adjournments
thereof.
A copy of the Merger Agreement is set forth in ANNEX A to this Proxy
Statement.
The board of directors of Lincoln Snacks has fixed August 17, 2001 as
the record date for determination of stockholders entitled to notice of, and to
vote at, the Special Meeting. Accordingly, only holders of record of Lincoln
Snacks' common stock at the close of business on that date will be entitled to
notice of, and to vote at, the Special Meeting.
Approval of the Merger Agreement requires the affirmative vote of the
holders of a majority of the outstanding common stock of Lincoln Snacks as of
the record date. As of the record date, Brynwood owned 7,695,479 shares (or
89.8%) of Lincoln Snacks' common stock. As a result, the affirmative vote of
Brynwood alone will be sufficient to approve the Merger Agreement.
By Order of the Board of Directors of
LINCOLN SNACKS COMPANY
Hendrik J. Hartong III
President
Stamford, Connecticut
September [___], 2001
Neither the Securities and Exchange Commission nor any state securities
commission has: approved or disapproved of the merger; passed upon the merits or
fairness of the merger; or passed upon the adequacy or accuracy of the
disclosure in this Proxy Statement. Any representation to the contrary is a
criminal offense.
IMPORTANT: To ensure that your shares will be represented at the Special
Meeting, you are requested to complete, sign, date and return as promptly as
possible the enclosed proxy in the envelope provided, which requires no postage
if mailed in the United States. You may also vote by telephone by following the
instructions on the enclosed form of proxy. If you attend the meeting and wish
to vote in person, your proxy will be returned to you at the meeting upon
request to the Secretary of the meeting.
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TABLE OF CONTENTS
Page
SUMMARY TERM SHEET.........................................................1
SUMMARY.......................................................................4
Parties to the Merger......................................................4
Lincoln Snacks...........................................................4
Brynwood and Lincoln Acquisition.........................................4
Special Meeting; Record Date...............................................4
The Merger; Exchange Price.................................................4
Vote Required..............................................................5
Effective Time.............................................................5
Recommendation of Lincoln Snacks' Board of Directors.......................5
Opinion of Financial Advisor...............................................5
Appraisal Rights...........................................................5
Interests of Certain Persons in the Merger.................................6
Selected Financial Data....................................................6
INTRODUCTION..................................................................9
SPECIAL FACTORS...............................................................9
Background and Reasons for the Merger; Recommendation of the Lincoln
Snacks' Board............................................................9
Background...............................................................9
Reasons for Approving the Merger........................................11
Recommendation of the Special Committee and the Board of Directors......13
Opinion of Financial Advisor..............................................13
Historical Stock Price Analysis.........................................15
Comparable Transaction Analysis.........................................15
Comparable Company Analysis.............................................15
Discounted Cash Flow Analysis...........................................17
Minority Interest Transactions..........................................18
Conclusion..............................................................18
Other...................................................................19
THE SPECIAL MEETING..........................................................19
General...................................................................19
Proxies and Voting........................................................19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............20
THE MERGER AGREEMENT.........................................................22
General Description.......................................................22
Consideration.............................................................22
Lincoln Snacks' Stock Options.............................................22
Conditions to the Merger..................................................23
Conduct of Business Pending the Merger....................................23
Representations and Warranties............................................24
Conversion of Certificates................................................24
Effective Time; Amendments; Termination...................................25
Fees and Expenses.........................................................25
INTERESTS OF CERTAIN PERSONS IN THE MERGER...................................25
Indemnification Rights....................................................25
Lincoln Snacks' Stock Options.............................................26
Rights as Partners of Brynwood............................................26
MATERIAL FEDERAL INCOME TAX CONSEQUENCES.....................................27
APPRAISAL RIGHTS.............................................................28
SELECTED FINANCIAL DATA......................................................28
MARKET INFORMATION...........................................................30
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WHERE YOU CAN FIND MORE INFORMATION..........................................30
FORWARD LOOKING STATEMENTS...................................................31
PROPOSALS OF STOCKHOLDERS....................................................32
OTHER MATTERS................................................................32
ANNEX A Agreement and Plan of Merger
ANNEX B Opinion of BNY Capital Markets, Inc.
ANNEX C Lincoln Snacks Company Annual Report on Form 10-K for the fiscal
year ended June 30, 2000
ANNEX D Lincoln Snacks Company Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001
ANNEX E Section 262 of the Delaware General Corporation Law
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SUMMARY AND TRANSACTION OVERVIEW
SUMMARY TERM SHEET
Q: When is the stockholder meeting?
A: October [___], 2001 at 10:00 A.M. at the offices of Lincoln Snacks,
30 Buxton Farm Road, Stamford Connecticut 06905.
Q: What will be voted on at the stockholder meeting:
A: We will be voting on a proposal to approve the Merger Agreement
among Lincoln Snacks, Brynwood and Lincoln Acquisition. See "THE SPECIAL
MEETING."
Q: What will the stockholders of Lincoln Snacks receive if the merger
becomes effective?
A: If the merger becomes effective:
o the stockholders of Lincoln Snacks other than stockholders who
properly exercise appraisal rights under Delaware law and other
than Brynwood would receive $3.50 in cash for each share of
Lincoln Snacks they own (see "The Merger Agreement -
Consideration");
o the stockholders of Lincoln Snacks who properly exercise
appraisal rights under Delaware law would be entitled to receive
the "fair value" of their shares determined in accordance with
Delaware law (see "Appraisal Rights"); and
o Brynwood would own 100% of the stock of Lincoln Snacks as the
company surviving the merger (see "SPECIAL FACTORS - Background
and Reasons for the Merger; Recommendation of the Lincoln Snacks'
Board - Recommendation of the Special Committee and the Board of
Directors").
Q: What vote of stockholders is required to approve the Merger Agreement?
A: The Merger Agreement requires approval by the holders of a majority
of the outstanding shares of Lincoln Snacks' common stock. Since approval of the
Merger Agreement requires the affirmative vote of a majority of the shares
entitled to vote rather than a percentage of the votes cast, failure to vote
will have the effect of a vote AGAINST approval of the Merger Agreement.
Brynwood as the owner of 89.8% of the common stock of Lincoln Snacks has the
power, acting alone, to approve the Merger Agreement. See "THE SPECIAL MEETING -
Proxies and Voting" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT."
Q: What should stockholders do now?
A: After carefully reading the information provided in this Proxy
Statement, you should complete, sign, date and mail your proxy card in the
enclosed return envelope as soon as possible so that your shares may be
represented at the Special Meeting. If you prefer to vote by telephone, please
follow the instructions on the enclosed form of proxy. In order to assure that
your shares are represented, please give your proxy by following the
instructions on your proxy card even if you currently plan to attend the Special
Meeting in person. The Board of Directors of Lincoln Snacks recommends that you
vote FOR approval of the Merger Agreement. See "THE SPECIAL MEETING - Proxies
and Voting."
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Q: Can I vote by telephone or over the internet?
A: While we have made provision for you to vote by telephone, there is
no provision for you to vote over the internet. If you wish to vote, you must
return your proxy card, follow the instructions on the proxy card for voting by
telephone or attend the Special Meeting and vote in person.
Q: What do I do if I want to change my vote?
A: Just send in a later-dated, signed proxy card to our Secretary at 30
Buxton Farm Road, Stamford, Connecticut 06905 so that it reaches her before the
Special Meeting. If you have voted by telephone, you should follow the
instructions on the enclosed form of proxy to change your vote. Or you can
attend the Special Meeting in person and vote. You may also revoke your proxy by
sending a notice of revocation to our Secretary. If you have instructed a broker
to vote your shares, you must follow instructions from your broker to change
your instructions. See "THE SPECIAL MEETING - Proxies and Voting."
Q: If my shares are held in "street name" by my broker, will my broker
vote my shares for me?
A: If you do not provide your broker with instructions on how to vote
your "street name" shares, your broker will not be permitted to vote them on the
proposal to approve the Merger Agreement. You should therefore be sure to
provide your broker with instructions on how to vote your shares. If you do not
give voting instructions to your broker, you will in effect be voting against
approval of the Merger Agreement.
Q: Should I send in my share certificates now?
A: No. A letter of transmittal for use in surrendering your share
certificates and obtaining payment for the shares will be sent to you promptly
after the merger is completed. See "The Merger Agreement - Conversion of
Certificates."
Q: Do I have appraisal rights?
A: If you so choose, you are entitled to exercise appraisal rights in
connection with the merger. To exercise appraisal rights, you would need to
follow carefully the procedures prescribed by the Delaware statute. See
"Appraisal Rights" and ANNEX E.
Q: When will the merger be completed?
A: We are working toward completing the transaction as quickly as
possible. We expect to complete the merger promptly following the Special
Meeting.
Q: How will I be taxed on the transaction?
A: Your receipt of cash in exchange for your shares of Lincoln Snacks'
common stock will be a taxable transaction for United States federal income tax
purposes. You generally will recognize gain or loss in an amount equal to the
difference between (1) the cash you receive and (2) your tax basis in the shares
of Lincoln Snacks' common stock you surrender. The gain or loss will be a
capital gain or loss if you hold your shares of Lincoln Snacks' common stock as
a capital asset. See "Material Federal Income Tax Consequences."
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Q: Who do I call if I need additional materials or assistance in voting
my shares or if I have questions about the merger?
A: Joanne W. Prier, Secretary of Lincoln Snacks at (203) 329-4545. See
"WHERE YOU CAN FIND MORE INFORMATION."
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SUMMARY
The following is a brief summary of the material information relating
to the Merger Agreement and the merger contained elsewhere in this Proxy
Statement. This summary is not intended to be a summary of all material
information relating to the merger and is qualified in its entirety by reference
to the more detailed information contained elsewhere in this Proxy Statement,
including the Annexes hereto and in the documents incorporated by reference in
this Proxy Statement. A copy of the Merger Agreement is attached as ANNEX A to
this Proxy Statement and reference is made to the Merger Agreement for a
complete description of the terms of the merger.
Parties to the Merger
Lincoln Snacks
Lincoln Snacks Company is a Delaware corporation which engages
principally in the manufacture, distribution and sale of prepopped carmelized
popcorn. Lincoln Snacks' products include Poppycock(R), Fiddle Faddle(R) and
Screaming Yellow Zonkers(R).
Brynwood and Lincoln Acquisition
Brynwood Partners III L.P. is a privately held investment partnership
which currently owns 89.8% of the outstanding common stock of Lincoln Snacks.
Lincoln Snacks Acquisition Corp. is a wholly owned subsidiary of Brynwood which
was organized for the purpose of accomplishing the merger. After the merger,
Lincoln Snacks will be a wholly owned subsidiary of Brynwood. The current
stockholders of Lincoln Snacks other than Brynwood will have no continuing
ownership in Lincoln Snacks after the merger. Following the merger, Brynwood's
interest in the net book value and net earnings of Lincoln Snacks would be 100%.
See the financial statements of Lincoln Snacks included in Annex C and Annex D
hereto.
Special Meeting; Record Date
The Special Meeting will be held on [_______________], October [___],
2001 at 10:00 A.M. at the offices of Lincoln Snacks, 30 Buxton Farm Road,
Stamford, Connecticut 06905, for the purpose of considering and voting on the
proposal to approve the Merger Agreement.
The board of directors of Lincoln Snacks has fixed the close of
business on August 17, 2001 as the record date for determining stockholders
entitled to notice of, and to vote at, the Special Meeting. As of the record
date, there were 8,572,565 shares of Lincoln Snacks' common stock issued and
outstanding and entitled to be voted at the Special Meeting. Of these shares,
Brynwood owns 7,695,479 (or 89.8%). See "THE SPECIAL MEETING - Proxies and
Voting" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.'
The Merger; Exchange Price
Under the terms of the Merger Agreement, Lincoln Acquisition would
merge with and into Lincoln Snacks. Upon consummation of the Merger, each
outstanding share of Lincoln Snacks' common stock (other than shares the holders
of which have exercised appraisal rights under Delaware law and shares owned by
Brynwood) would be converted into the right to receive $3.50 in cash.
Stockholders of Lincoln Snacks prior to the merger (other than Brynwood) would
retain no continuing interest in Lincoln Snacks after completion of the merger.
See "The MERGER AGREEMENT - Consideration."
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Vote Required
Under Delaware law, approval of the Merger Agreement requires the
affirmative vote of a majority of the outstanding shares of Lincoln Snacks'
common stock as of the record date.
Brynwood owned, as of the record date, and is entitled to vote at the
Special Meeting, 7,695,479 shares of Lincoln Snacks' common stock, which
represents 89.8% of the Lincoln Snacks' common stock entitled to vote at the
Special Meeting. Brynwood has indicated that it will vote its shares in favor of
approval of the Merger Agreement. As a result, the proposal to approve the
Merger Agreement will be approved without regard to how any stockholder of
Lincoln Snacks other than Brynwood votes. See "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT."
A failure to vote, either by not returning the enclosed proxy or voting
by telephone or by checking the "ABSTAIN" box on the proxy, will have the same
effect as a vote AGAINST approval of the Merger Agreement.
Effective Time
Subject to the terms of the Merger Agreement regarding termination, the
effective time of the merger will be the time of filing all necessary
documentation, together with any required related certificates, with the
Secretary of State of Delaware (or such later date as is set forth in such
documentation). The merger will take place as soon as practicable following the
satisfaction or waiver of all conditions specified in the Merger Agreement.
Lincoln Snacks, Brynwood and Lincoln Acquisition anticipate that the merger will
become effective promptly following approval of the Merger Agreement at the
Special Meeting.
Recommendation of Lincoln Snacks' Board of Directors
Your board of directors and the Special Committee appointed to evaluate
the proposed merger, including each of the directors who is not an affiliate of
Brynwood, has unanimously determined that the merger is in the best interests of
Lincoln Snacks and its stockholders and is fair to the stockholders of Lincoln
Snacks who are not affiliates of Brynwood. See "SPECIAL FACTORS - Background and
Reasons for the Merger; Recommendation of the Lincoln Snacks' Board." Lincoln
Snacks' stockholders should be aware that, in determining to approve the Merger
Agreement, the directors of Lincoln Snacks had certain potentially conflicting
interests. Some of these potentially conflicting interests could have influenced
the board of directors' approval of the Merger Agreement and its recommendation
that the stockholders of Lincoln Snacks vote to approve the Merger Agreement.
See "INTERESTS OF CERTAIN PERSONS IN THE MERGER."
Opinion of Financial Advisor
At the August 1, 2001, meeting of the special committee of the Board of
Directors of Lincoln Snacks appointed to evaluate the merger and the immediately
following meeting of the board of directors of Lincoln Snacks, BNY Capital
Markets, Inc. delivered its opinion to the effect that, as of the date of such
opinion, the merger contemplated by the Merger Agreement was fair, from a
financial point of view, to the stockholders of Lincoln Snacks other than
Brynwood. See "SPECIAL FACTORS - Opinion of Financial Advisor."
Appraisal Rights
Under Delaware law, a stockholder owning shares of Lincoln Snacks'
common stock is entitled to exercise appraisal rights and to receive cash from
Lincoln Snacks as the company surviving the merger equal to the fair value of
such stockholder's shares of Lincoln Snacks' common stock as determined in
accordance with Delaware law. See "APPRAISAL RIGHTS."
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Interests of Certain Persons in the Merger
Stockholders of Lincoln Snacks should be aware that the directors and
executive officers of Lincoln Snacks have interests in the merger that are
different from, and possibly conflicting with, the interests of the stockholders
of Lincoln Snacks generally. These possibly conflicting interests include:
o Brynwood has agreed to cause Lincoln Snacks as the surviving
company to honor Lincoln Snacks' obligations to indemnify and
advance expenses to Lincoln Snacks' present and former directors,
officers and employees.
o Certain directors and executive officers of Lincoln Snacks will
continue to hold options which are or will become exercisable in
accordance with their terms. Accordingly, the directors and
executive officers of Lincoln Snacks will have the right to
acquire an equity interest in Lincoln Snacks after the merger.
o Hendrik J. Hartong, Jr. and John T. Gray are general partners,
and Ian B. MacTaggart is an employee, of the general partner of
Brynwood. As such, they may be deemed to have a continuing
interest in Lincoln Snacks after the merger.
See "INTERESTS OF CERTAIN PERSONS IN THE MERGER."
Selected Financial Data
The following table sets forth certain selected financial information
for Lincoln Snacks for the fiscal years ended June 30, 1996, 1997, 1998, 1999
and 2000 and for the nine months ended March 31, 2000 and 2001. The information
should be read in conjunction with the financial statements of Lincoln Snacks,
including the respective notes thereto, and the other documents incorporated
herein by reference. See "WHERE YOU CAN FIND MORE INFORMATION."
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Lincoln Snacks Company
Selected Financial Data
(In thousands, except per share data)
12 Months 12 Months 12 Months 12 Months 12 Months 9 Months 9 Months
Ended Ended Ended Ended Ended Ended Ended
June 30, June 30, June 30, June 30, June 30, March 31, March 31,
1996 1997 1998 1999 2000 2000 2001
Statement of (audited) (unaudited)
Operations Data:
Net sales $23,846 $23,102 $24,278 $27,081 $29,703 $23,729 $29,932
(1) (1)
Gross profit 6,621 7,576 8,872 9,167 11,174 9,028 13,140
(1) (1)
Income (loss) from 897 1,609 1,668 (1,412) 1,041 963 1,960
operations (2)(3) (4)(5)
Net income (loss) 511 1,443 1,667 (1,378) 1,072 944 2,053
(2)(3) (4)(5)
Basic net income
(loss) per common
share $ 0.08 $ 0.23 $ 0.26 $ (0.22) $ 0.17 $ 0.15 $ 0.32
Diluted net income
(loss) per common
share 0.08 0.23 0.26 (0.22) 0.14 0.12 0.22
Weighted average
number of shares
outstanding
Basic 6,335 6,332 6,332 6,332 6,332 6,332 6,332
Diluted 6,335 6,332 6,342 6,332 9,987 9,988 10,119
June 30, June 30, June 30, June 30, June 30, March 31, March 31,
1996 1997 1998 1999 2000 2000 2001
Balance Sheet Data: (audited) (unaudited)
Working capital
(deficit) $ (237) $ 2,042 $ 3,500 $ 8,356 $ 9,269 $ 9,273 $11,426
Total assets 13,979 13,290 16,073 19,753 20,901 20,901 23,522
Total long term 309 --- --- 5,000 5,000 5,000 5,000
debt
Stockholders' 8,506 9,949 11,616 10,238 11,310 11,183 13,387
equity
(1) The Planters Distribution Agreement was terminated on December 31,
1997. The financial impact of the termination of the Agreement on
fiscal 1998 and fiscal 1999 versus fiscal 1996 and fiscal 1997 was an
increase in revenue and gross profit which were offset by increased
selling, distribution and marketing costs. Reference is made to
Management's Discussion and Analysis of Financial Condition and Results
of Operations in Lincoln Snacks' Annual Report on Form 10-K for the
fiscal year ended June 30, 2000, a copy of which is attached as ANNEX
C.
(2) Amount includes a non-recurring charge of $484,000 (or $.08 per share)
which represents severance and other compensation costs in connection
with the resignation of the Company's former Chairman and Chief
Executive Officer. All amounts were paid as of June 30, 1998.
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(3) Amount includes Net Planters Other Income of $1.4 million (or $.22 per
share) which represents Planters compensation of $1.9 million to the
Company for failing to achieve certain sales levels during the calendar
year ended December 31, 1997 which was partially offset by
approximately $.5 million in non-recurring charges associated with
initial efforts to rebuild the Fiddle Faddle brand.
(4) Amount includes a non-recurring charge of $287,000 (or $.05 per share)
which represents $177,000 of severance related to the Company's former
President and Chief Operating Officer, $50,000 of costs incurred during
the relocation of the Company's new Chief Executive Officer, and
$60,000 of severance related to former employees. All amounts were paid
as of June 30, 1999.
(5) Amount includes a non-cash write down of $590,000 (or $.09 per share)
of nut division assets.
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INTRODUCTION
The board of directors of Lincoln Snacks is providing this Proxy
Statement to the stockholders of Lincoln Snacks for the purpose of soliciting
proxies to be voted at the Special Meeting of Lincoln Snacks' stockholders being
held to vote on the proposal to approve the Merger Agreement. Information about
the Special Meeting is set forth under "THE SPECIAL MEETING."
This Proxy Statement and the accompanying form of proxy are first being
sent to the stockholders of Lincoln Snacks on or aboutSeptember [___], 2001. The
principal executive offices of Lincoln Snacks are at 30 Buxton Farm Road,
Stamford, Connecticut 06905, and its telephone number is (203) 329-4545.
SPECIAL FACTORS
Background and Reasons for the Merger; Recommendation of the Lincoln Snacks' Board
Background
Brynwood is a private investment partnership which was organized in
1996. In 1998, Brynwood made its initial investment in Lincoln Snacks when it
purchased the stock then owned by Lincoln Snacks' largest stockholder, thereby
becoming the controlling stockholder of Lincoln Snacks. Thereafter, through open
market and negotiated purchases and the conversion of a portion of a Convertible
Subordinated Debenture, Brynwood increased its ownership of Lincoln Snacks.
These purchases included purchases made from Lincoln Snacks' stockholders who
contacted Brynwood directly soliciting Brynwood to buy their shares. As of the
date hereof, Brynwood owns 89.8% of the outstanding Lincoln Snacks' common
stock.
Over time, Brynwood examined various options relating to its investment
in Lincoln Snacks, including the possibility of selling Lincoln Snacks to a
third party and the acquisition by Brynwood of the portion of Lincoln Snacks
which it did not already own. Brynwood had indicated to the board of directors
of Lincoln Snacks that it would, as promptly as practicable consistent with
Delaware law, like to be the sole stockholder of Lincoln Snacks. Mr. Hartong,
Jr. and Mr. Gray, as the general partners of the general partner of Brynwood,
negotiated the terms of the Merger Agreement and the transactions contemplated
by it on behalf of Brynwood.
In December 2000, the President of Lincoln Snacks was approached on an
unsolicited basis by a representative of a company indicating an interest in
acquiring Lincoln Snacks. The board of directors of Lincoln Snacks was advised
of this overture. Over the next several months, there were intermittent contacts
among Lincoln Snacks, Brynwood and the interested company to find a mutually
acceptable time to meet for further discussions. In mid-May 2001, Lincoln Snacks
and the interested company entered into a confidentiality agreement, and the
interested company conducted preliminary due diligence about the business of
Lincoln Snacks. Both Lincoln Snacks and Brynwood believed that, based on the
relative businesses of Lincoln Snacks and the interested company, the interested
company would be willing to pay a higher price than others who might consider
buying Lincoln Snacks.
In early June 2001, Lincoln Snacks told the interested company that,
before additional due diligence would be permitted, the interested company would
need to indicate its preliminary indication of the price it might be willing to
pay for Lincoln Snacks. The preliminary price indicated on a fully diluted basis
was approximately $2.70 per share of Lincoln Snacks. However, the interested
company also told Lincoln Snacks and Brynwood that the amount of goodwill that
would be created if it acquired Lincoln Snacks might require it to offer less
than $2.70 per share, assuming it decided to make any offer. Lincoln Snacks and
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Brynwood indicated that this price was inadequate, and the other party did not
respond with an increased price. This marked the end of discussions between
Lincoln Snacks and the interested company.
Brynwood believed that the price indicated by the interested party was
inadequate. Brynwood also believed that that party was the entity most likely to
be interested in acquiring Lincoln Snacks and most willing to pay the highest
price that any third party could reasonably be expected to pay. Since three
years has passed since Brynwood's initial acquisition of Lincoln Snacks' common
stock, Brynwood decided to review its options relating to Lincoln Snacks. Among
the choices which were then available to Brynwood was to propose a going private
transaction. Because Brynwood was willing to propose a transaction pursuant to
which the other stockholders would receive value greater than Brynwood believed
could reasonably be expected from an unaffiliated third party, determined that
it would be in its best interests, as well as the best interests of Lincoln
Snacks and its other stockholders, for Lincoln Snacks to become a wholly owned
subsidiary of Brynwood with the stockholders of Lincoln Snacks other than
Brynwood receiving cash in an amount to be determined. At a meeting of the board
of directors of Lincoln Snacks on June 26, 2001, a committee of the Lincoln
Snacks board consisting of C. Alan MacDonald and Robert Zwartendijk, the
independent directors of Lincoln Snacks (the "Special Committee"), was appointed
for the purpose of evaluating any recommendation that Brynwood might make. The
Special Committee thereafter retained BNY Capital Markets, Inc. to act as its
financial advisor. The board of directors of Lincoln Snacks was aware of the
strategic alternatives which were periodically reviewed by Brynwood with respect
to its investment in Lincoln Snacks, including the possibility of the sale of
Lincoln Snacks to an unaffiliated third party. Based on the price that the
unaffiliated interested person indicated it might be willing to pay for Lincoln
Snacks which Brynwood deemed to be inadequate, Brynwood told the board of
directors of Lincoln Snacks that it wished to become the sole stockholder of
Lincoln Snacks. Since the board of directors of Lincoln Snacks believed that the
price indicated by the interested price was the highest price which could
reasonably be expected in a transaction with an unaffiliated third party and any
transaction alternative to the proposed merger would require the affirmative
vote of Brynwood as the owner of 89.8% of the Lincoln Snacks' common stock, the
board of directors of Lincoln Snacks and the Special Committee determined that,
under the circumstances, the consideration of other alternative transactions
would not be productive.
In early July 2001, Brynwood proposed that Lincoln Snacks become a
wholly owned subsidiary of Brynwood pursuant to a merger of Lincoln Snacks and
Lincoln Acquisition. Brynwood proposed that each share of Lincoln Snacks' common
stock not owned by it be converted into the right to receive $3.50 in cash.
Brynwood also proposed that holders of options to buy shares of Lincoln Snacks
exercisable at the effective time of the merger would be offered the right to
surrender such options and receive a cash payment equal to $3.50 minus the
option exercise price per share. Any options not so surrendered or not eligible
for surrender would remain outstanding after the effective time of the merger
and be or become exercisable in accordance with their terms. The preliminary
analyses summarized for Mr. MacDonald at this meeting were substantially
consistent with the final analyses which were included in BNY Capital Markets'
presentations to the Special Committee and the board of directors.
Members of the Special Committee remained in frequent contact with
representatives of BNY Capital Markets while BNY Capital Markets performed its
analysis of the proposed merger. Mr. MacDonald had various telephone
conversations followed by a meeting with representatives of BNY Capital Markets
on July 17, 2001 to discuss BNY Capital Markets' preliminary analyses of the
proposed transaction. BNY Capital Markets' preliminary analyses indicated that
the proposed transaction was fair to the stockholders of Lincoln Snacks other
than Brynwood although the analysis of the premium to market value was lower
than the premium paid in certain comparable transactions. Based on BNY Capital
Markets' preliminary analysis of the premium to market value of the proposed
transaction, the Special Committee negotiated with Brynwood to determine if it
would approve an increased price per share. Because Brynwood believed that the
premium to market value analysis should not be the only one considered and the
other preliminary analyses indicated that the proposed price was fair, Brynwood
indicated that it would not approve a higher
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price per share. On July 31, 2001, BNY Capital Markets distributed a preliminary
summary of its analyses to the members of the Special Committee.
On August 1, 2001, the Special Committee met with representatives of
BNY Capital Markets. At that meeting, the representatives of BNY Capital Markets
presented a summary of their analyses of the fairness of the merger to the
stockholders of Lincoln Snacks other than Brynwood. BNY Capital Markets
delivered to the Special Committee its oral opinion (subsequently confirmed in
writing) to the effect that the merger was fair, from a financial point of view,
to the stockholders of Lincoln Snacks other than Brynwood. Members of the
Special Committee asked questions of, and received answers from, the
representatives of BNY Capital Markets. The Special Committee voted unanimously
to approve the Merger Agreement and the transactions contemplated thereby and to
recommend its approval by the board of directors and stockholders of Lincoln
Snacks.
After the meeting of the Special Committee, the board of directors met
on August 1, 2001 and, following a presentation by representatives of BNY
Capital Markets, received the opinion of BNY Capital Markets that the merger was
fair, from a financial point of view, to the stockholders of Lincoln Snacks
other than Brynwood.
The board of directors of Lincoln Snacks met on August 2, 2001 to
consider further the opinion of BNY Capital Markets and the recommendation of
the Special Committee. The board of directors of Lincoln Snacks voted
unanimously to approve the Merger Agreement and the transactions contemplated
thereby and to recommend approval of the Merger Agreement by the stockholders of
Lincoln Snacks. Lincoln Snacks, Brynwood and Lincoln Acquisition executed the
Merger Agreement, and Lincoln Snacks announced the proposed merger on August 3,
2001. While all of the directors of Lincoln Snacks attended each of the board
meetings described and voted at them, only the members of the Special Committee
attended the meetings of the Special Committee.
Reasons for Approving the Merger
In determining to approve the Merger Agreement and to recommend its
approval by the board of directors and stockholders of Lincoln Snacks, the
Special Committee considered a number of factors including:
o the relative illiquidity of an investment in Lincoln Snacks'
common stock, including the fact that, solely because Lincoln
Snacks did not have 300 stockholders owning 100 share lots, the
Lincoln Snacks' common stock was delisted from the NASDAQ Small
Cap Market and now trades only on the NASDAQ Bulletin Board;
o the absence of coverage of Lincoln Snacks by securities analysts
which the board of directors believed could not be attracted
because of the size and market value of Lincoln Snacks' common
stock, its share ownership distribution and the lack of readily
available public quotations for the Lincoln Snacks' common stock;
o the opinion it received from BNY Capital Markets and the analyses
underlying such opinion;
o the historical prices at which Lincoln Snacks' common stock has
traded as described under "MARKET INFORMATION" compared to the
price offered in the Merger Agreement;
o the $3.50 per share provided for in the Merger Agreement
substantially exceeds the approximate $2.70 per share which an
independent third party indicated it might be willing to pay for
Lincoln Snacks;
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o the substantial ongoing expenses incurred by Lincoln Snacks as a
publicly reporting company ;
o the $3.50 per share provided for in the Merger Agreement
substantially exceeded the book value of $2.08 as of March 31,
2001;
o the trading price per share of Lincoln Snacks' common stock
during the 52-week period ended July 27, 2001 ranged from a low
of $1.50 to a high of $3.10; and
o the purchase price per share paid by Brynwood for shares acquired
in arms' length transactions during the two years preceding the
Merger Agreement ranged from a low of $1.13 to a high of $2.25.
Based on these factors, the board of directors determined to approve
the Merger Agreement and to recommend its approval by the stockholders of
Lincoln Snacks. These factors, including the analyses performed by BNY Capital
Markets, also formed the basis for the evaluation by the Special Committee, the
board of directors, including Mr. Hartong, Jr. and Mr. Gray, and Brynwood of the
fairness of the merger to the stockholders of Lincoln Snacks other than
Brynwood.
None of the Special Committee, the board of directors, including Mr.
Hartong, Jr. and Mr. Gray, or Brynwood assigned any relative weight to any of
the factors considered. Rather, taking into account all of the factors
considered, each determined that the merger was fair to the stockholders of
Lincoln Snacks other than Brynwood. The Special Committee determined that the
merger would be in the best interests of Lincoln Snacks and its stockholders
other than Brynwood and recommended that it be approved by the board of
directors and stockholders of Lincoln Snacks.
Neither the Special Committee nor the board of directors sought nor
received a going concern or liquidation valuation for Lincoln Snacks.
Approval of the Merger Agreement is not structured to require the
affirmative vote of the holders of a majority of the Lincoln Snacks' common
stock not owned by Brynwood. In addition, a majority of the non-employee
directors did not retain an unaffiliated representative to act solely on behalf
of the unaffiliated stockholders for the purpose of negotiating the terms of the
Merger Agreement. Notwithstanding the foregoing, the Special Committee and the
board of directors believe that the merger is procedurally fair to the
stockholders of Lincoln Snacks other than Brynwood both because of the rights
afforded to them under Delaware law, including the right to seek an appraisal of
their Lincoln Snacks' common stock and to access to certain business records of
Lincoln Snacks and because of the substantial business experience and knowledge
of the snack food industry of Mr. MacDonald and Mr. Zwartendijk, the members of
the Special Committee.
Recommendation of the Special Committee and the Board of Directors
Your board of directors and the Special Committee appointed to evaluate
the proposed merger, including each of the directors who is not an affiliate of
Brynwood, has unanimously determined that the merger is in the best interests of
Lincoln Snacks and its stockholders and is fair to the stockholders of Lincoln
Snacks who are not affiliates of Brynwood.
Opinion of Financial Advisor
At the August 1, 2001 meeting of the Special Committee and the
immediately following meeting of the board of directors of Lincoln Snacks, BNY
Capital Markets delivered its opinion (the "Opinion") to the effect that, as of
the date of such opinion, the merger contemplated by the Merger Agreement was
fair, from a financial point of view, to the stockholders of Lincoln Snacks
other than Brynwood.
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The summary of the Opinion set forth herein is qualified in its
entirety by reference to the full text of the Opinion, a copy of which is
attached to this Proxy Statement as ANNEX B. Holders of Lincoln Snacks' common
stock are urged to read carefully the Opinion in its entirety.
The Opinion is expressly intended for the benefit and use of the
Special Committee and the board of directors of Lincoln Snacks and does not
constitute a recommendation to the Special Committee, the board of directors or
any holders of shares of Lincoln Snacks' common stock as to whether to vote
their shares in favor of approval of the Merger Agreement. BNY Capital Markets
was not requested to opine as to, and its opinion does not address, the Lincoln
Snacks' underlying business decision to proceed with or effect the merger.
In the course of performing its review and analyses for rendering the
Opinion, BNY Capital Markets:
o reviewed the Merger Agreement, the Notice of Annual Meeting and
Proxy Statement, the form of Proxy and the form of Notice to
Stock Option Holders and Stock Option Surrender Form;
o reviewed Lincoln Snacks' Annual Reports on Form 10-K for the
fiscal years ended June 30, 1997 through 2000, and its Quarterly
Report on Form 10-Q for the period ended March 31, 2001;
o reviewed certain operating and financial information, including
budgets and other financial and operating data concerning Lincoln
Snacks, provided to BNY Capital Markets by management relating to
Lincoln Snacks' business and prospects;
o discussed the past and current operations and the prospects of
Lincoln Snacks with senior executives of Lincoln Snacks;
o reviewed current and historical market prices of Lincoln Snacks'
common stock;
o reviewed precedent transactions selected for comparative
purposes;
o reviewed publicly available financial data, stock market
performance data and valuation parameters of companies which BNY
Capital Markets selected for comparative purposes;
o performed a discounted cash flow analysis;
o reviewed precedent transactions in which the controlling
shareholder acquired the remaining minority interest; and
o performed such other analyses and considered such other factors
as BNY Capital Markets deemed relevant and appropriate.
BNY Capital Markets relied upon and assumed without independent
verification the accuracy and completeness of all information about Lincoln
Snacks that BNY Capital Markets reviewed. With respect to the budgets, BNY
Capital Markets assumed that such budgets had been prepared on bases reflecting
the best currently available estimates and judgments of the management of the
Lincoln Snacks as to expected future performance. BNY Capital Markets did not
assume any responsibility for the information or budgets provided to it. BNY
Capital Markets relied upon assurance of the management that they are unaware of
any facts that would make the information or budgets provided to BNY Capital
Markets incomplete or misleading. BNY Capital Markets did not perform or obtain
an independent evaluation or appraisal of the assets or liabilities (contingent
or otherwise) of Lincoln Snacks, nor was BNY Capital Markets furnished with any
such appraisals.
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BNY Capital Markets noted that Brynwood owns a majority of Lincoln
Snacks' common stock. BNY Capital Markets also noted that Brynwood has
represented to BNY Capital Markets and to the Special Committee that it has no
intention of selling any shares. Accordingly, neither BNY Capital Markets nor
the Special Committee solicited, nor was BNY Capital Markets asked to solicit,
third party acquisition interest in Lincoln Snacks or its assets in liquidation.
BNY Capital Markets assumed that the representations and warranties made in the
Merger Agreement were true and that the merger will be completed in accordance
with the Merger Agreement. The Opinion was necessarily based upon financial
market, economic and other conditions, and information made available to BNY
Capital Markets, as they existed on, and could be evaluated as of, the date of
such Opinion.
In connection with preparing and rendering the Opinion, BNY Capital
Markets performed a variety of valuation, financial and comparative analyses.
BNY Capital Markets made numerous assumptions with respect to Lincoln Snacks, as
well as to industry performance, general business, financial, market and
economic conditions and other matters, which, though considered reasonable by
BNY Capital Markets, are inherently subject to significant business, economic,
regulatory and competitive uncertainties and contingencies, many of which are
beyond the control of Lincoln Snacks and BNY Capital Markets and are subject to
change.
The summary of such analyses, as set forth below, does not purport to
be a complete description of the analyses underlying the Opinion. The
preparation of a fairness opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances at hand. Accordingly, a fairness opinion is not readily
susceptible to summary description. BNY Capital Markets believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without considering all analyses and
factors, could create an incomplete view of the processes underlying the
analysis conducted by BNY Capital Markets and the Opinion. The analyses which
BNY Capital Markets performed are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by the analyses. The analyses are not appraisals and the estimates of
values of companies do not reflect the prices at which a company might actually
be sold or the prices at which any securities may trade at the present time or
at any time in the future. Accordingly, such estimates are inherently subject to
substantial uncertainties.
Historical Stock Price Analysis
BNY Capital Markets reviewed the historical closing prices for Lincoln
Snacks' common stock. Over the twelve months ended July 27, 2001, Lincoln
Snacks' common stock traded between a high of $3.10 on May 16, 2001 and a low of
$1.50 on December 26, 2000. BNY Capital Markets also noted that the Lincoln
Snacks' common stock traded at $3.15 on July 31, 2001. BNY Capital Markets
observed that Lincoln Snacks' common stock does not trade on all trading days,
and volume of trading transactions is relatively low.
Comparable Transaction Analysis
BNY Capital Markets reviewed certain publicly-available financial
information related to three merger and acquisition transactions involving snack
food companies completed over the prior five years that it deemed generally
comparable to Lincoln Snacks. For each of the comparative transactions, BNY
Capital Markets reviewed certain publicly-available financial information for
the acquired companies including revenue and earnings before interest, taxes,
depreciation and amortization ("EBITDA"), as adjusted for certain extraordinary
and non-recurring items.
These transactions were selected by screening transactions in which the
target had a primary SIC code of 2052 (cookies and crackers), 2064 (candy &
other confectionary products), 2066 (chocolate and cocoa products), 2068 (salted
and roasted nuts & seeds) or 2096 (potato chips). Transactions were screened
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further to eliminate transactions in which the target had sales of greater than
$500 million, the target exhibited significant differences in distribution
channels from those of Lincoln Snacks (such as a significant retail presence),
the target had significant differences in product focus, or for transactions in
which valuation data were unavailable. The targets in the ultimately selected
transactions were Delicious Brands, Inc., Lincoln Snacks (Brynwood's initial
purchase of Lincoln Snacks shares) and Wortz Company.
No transaction used in the comparative transaction analyses summarized
above is identical to the merger contemplated by the Merger Agreement.
Accordingly, any analysis of the fairness of the consideration to be received by
the holders of Lincoln Snacks' common stock in the merger involves complex
considerations and judgments concerning differences in the potential financial
and operating characteristics of the comparative transactions and other factors
in relation to the acquisition values of the comparative companies. BNY Capital
Markets noted that of the three comparative transactions, none of the
comparative companies was truly comparable to Lincoln Snacks, in that many of
their products and services did not overlap with those provided by Lincoln
Snacks or general operating or financial performance of the acquisition targets
at the time of acquisition was not similar to that of Lincoln Snacks at the time
of the Merger Agreement. Accordingly, BNY Capital Markets excluded its analysis
of comparable transactions in reaching its valuation conclusions.
BNY Capital Markets then compared the total enterprise value to revenue
and EBITDA. Total enterprise value for a given company was defined as the equity
value of the announced acquisition plus total debt assumed and preferred stock,
less cash and cash equivalents, plus the value of any minority stakes in
consolidated businesses. The results were as follows: Delicious Brands, Inc.
(0.6 times LTM revenue); Lincoln Snacks Company (0.4 times LTM revenue, 3.8
times LTM EBITDA) and Wortz Company (0.6 times LTM revenue). The high and low
multiples of LTM revenue were 0.4 and 0.6 times LTM revenue. The mean and median
multiples of LTM revenue were 0.5 and 0.6 times LTM revenue. The high and low
multiples of LTM EBITDA were 3.8 and 3.8 times LTM EBITDA. The mean and median
multiples of LTM EBITDA were 3.8 and 3.8 times LTM EBITDA.
Comparable Company Analysis
BNY Capital Markets compared certain ratios and multiples of Lincoln
Snacks to the corresponding ratios and multiples of certain publicly-traded
companies that BNY Capital Markets considered to have operations similar to the
operations of Lincoln Snacks (the "Comparable Companies").
The Comparable Companies were selected by screening publicly-traded
companies that have a primary SIC code of 2052 (cookies and crackers), 2064
(candy & other confectionary products), 2066 (chocolate and cocoa products),
2068 (salted and roasted nuts & seeds) or 2096 (potato chips). The companies
were screened further to eliminate companies which had a total enterprise value
of greater than $500 million, significant differences in distribution channels
from those of Lincoln Snacks (such as a significant retail presence) or
significant differences in product focus.
The Comparable Companies for Lincoln Snacks included Lance, Inc., J&J
Snack Foods Corp., John B. Sanfilippo & Son, Inc., Poore Brothers, Inc., Golden
Enterprises, Inc., and Sherwood Brands, Inc. The multiples and ratios were
calculated based on publicly available financial information and research
reports, and were adjusted for certain extraordinary and non-recurring items.
BNY Capital Markets compared the total enterprise value to revenue, EBITDA and
earnings before interest and taxes ("EBIT"). Total enterprise value for a given
company was defined as the equity market value plus total debt and preferred
stock, less cash and cash equivalents, plus the value of any minority stakes in
consolidated businesses. BNY Capital Markets also compared the current trading
price of publicly-traded stock to per share earnings from the prior twelve
months, and expected earnings for the twelve-month period ending June 2002. All
multiples were based on closing prices as of July 27, 2001.
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BNY Capital Markets also noted that a portion of Lincoln Snacks' cash
balance may be additive to the per share value of Lincoln Snacks' common stock.
BNY Capital Markets analyzed estimated monthly financial statements for the
fiscal year ended June 30, 2001, and monthly budgets for the fiscal year ending
June 30, 2002, to determine the cash amount that may be deemed excess cash. BNY
Capital Markets added the excess cash component to values determined by the
application of the multiples to Lincoln Snacks' results.
The multiples of total enterprise value / LTM revenue, total enterprise
value / LTM EBIT, total enterprise value / LTM EBITDA, Price / LTM Earnings and
Price / June 2002 Earnings (where available) were calculated for the comparable
companies: Lance, Inc. (total enterprise value of 0.8 times LTM revenue, 11.9
times LTM EBIT and 6.7 times LTM EBITDA; and a price of 18.3 times LTM earnings
and 13.9 times June 2002 earnings), J&J Snack Foods Corp. (total enterprise
value of 0.7 times LTM revenue, 14.9 times LTM EBIT and 7.3 times LTM EBITDA;
and a price of 23.5 times LTM earnings), John B. Sanfilippo & Son, Inc. (total
enterprise value of 0.4 times LTM revenue, 7.3 times LTM EBIT and 5.2 times LTM
EBITDA; and a price of 6.3 times LTM earnings and 5.7 times June 2002 earnings),
Poore Brothers, Inc. (total enterprise value of 1.6 times LTM revenue, 14.8
times LTM EBIT and 10.8 times LTM EBITDA; and a price of 17.1 times LTM
earnings), Golden Enterprises, Inc. (total enterprise value of 0.5 times LTM
revenue, 10.4 times LTM EBIT and 6.9 times LTM EBITDA; and a price of 15.4 times
LTM earnings) and Sherwood Brands, Inc. (total enterprise value of 0.3 times LTM
revenue, 5.4 times LTM EBIT and 5.0 times LTM EBITDA; and a price of 8.5 times
LTM earnings). Total enterprise value/LTM revenue ranged from 0.3 to 1.6 times,
with a mean of 0.7 times and a median of 0.5 times LTM revenue. Total enterprise
value/LTM EBIT ranged from 5.4 to 14.8 times, with a mean of 10.8 times and a
median of 10.4 times LTM EBIT. Total enterprise value/LTM EBITDA ranged from 5.0
to 10.8 times, with a mean of 7.0 times and a median of 6.8 times LTM EBITDA.
Price/LTM earnings ranged from 6.3 to 23.5 times, with a mean of 14.9 times and
a median of 16.3 times LTM earnings. Price/ June 2002 expected earnings ranged
from 5.7 to 13.9 times, with a mean of 9.8 times and a median of 9.8 times June
2002 expected earnings.
BNY Capital Markets noted that the consideration to be received by the
stockholders of Lincoln Snacks other than Brynwood was greater than the
consideration implied by the application of the multiples of the comparative
companies plus the excess cash and, therefore, that these analyses of multiples
supported a fairness determination concerning the merger. Excess cash was
calculated as the amount of cash on the balance sheet at the time at which
working capital is greatest. This is projected to occur in October of 2001, when
the cash balance is budgeted to be $3.56 million, which was rounded to $4
million. This approach was necessary to accurately take into account seasonality
and fluctuations in working capital inherent in Lincoln Snacks' business. Excess
cash was deemed to be additive to the value of Lincoln Snacks because of its
debt-free capital structure
The per share values of Lincoln Snacks' common stock implied by the
application of the median comparable company multiples, plus the excess cash per
share of $0.44 as calculated by BNY Capital Markets, ranged from $1.47 to $2.77.
BNY Capital Markets applied a weighting of 75% to the valuation range computed
by the comparative company analysis in its valuation of Lincoln Snacks.
Discounted Cash Flow Analysis
BNY Capital Markets performed a discounted cash flow analysis
(estimating the present value of the future free cash flows for Lincoln Snacks'
business plus the present value of the terminal value) as a reference to the
valuation obtained from the comparative company approach. Due to the fact that
Lincoln Snacks does not prepare budgets for more than 12 months ahead, BNY
Capital Markets incorporated Lincoln Snacks' budget for fiscal 2002 and
developed projected base, downside and upside cases for the fiscal years
2003-2006. These projected cases were based on certain assumptions regarding
revenue growth, margins and required investment for Lincoln Snacks over the
course of the projections. As with the comparative company approach, BNY Capital
Markets added the excess cash to the discounted cash flow approach in its
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valuation. BNY Capital Markets focused on the base case, which was consistent
with recent historical results and the expectations of management.
The fiscal 2002 budget prepared by Lincoln Snacks contemplates revenues
of approximately $41.7 million (estimated 9% growth from fiscal 2001 estimate),
gross profit of $18.0 million (43% gross margin) and EBITDA of $3.1 million.
This budget was used intact for all cases of the discounted cash flow analysis.
BNY Capital Markets made certain assumptions regarding Lincoln Snacks
financial performance for fiscal 2003-2006. BNY Capital Markets' base case grew
revenues at a level consistent with revenues budgeted for fiscal 2002 (9%
revenue growth). The upside case grew revenues at 15% per year (a 10% increase
to average historical revenue growth rate); the downside case contemplated 0%
revenue growth. The base and upside cases maintained a gross margin consistent
with fiscal 2002 budgeted levels. The downside case reflects a 15% increase in
key raw materials (nuts and butter), which results in a decrease in gross margin
to 41% from 43%. All cases grow the fixed portion of SG&A (fixed warehouse,
fixed marketing, selling and G&A) at 3% to reflect inflation. The remaining
variable portion of SG&A is maintained as a percentage of sales (2002 budgeted
level). The base and upside cases contemplated capital expenditures of $500,000
per year (management's estimate of maintenance and capital expenditures); while
the downside case forecasts $300,000 per year to reflect lower capital
investment to maintain 0% revenue growth. Similarly, annual depreciation under
the downside case is approximately $100,000 lower than fiscal 2002 budgeted
levels. A tax rate of 40% and net operating loss carryforwards of $664,000 in
2002 and $539,000 in 2003 are applied under all cases (based on discussions with
management).
The discount rate for the free cash flows was determined by the Capital
Asset Pricing Model. A Beta of 1.0 was used after the actual Beta of 0.1 was
deemed inappropriate, given the limited and sporadic trading of Lincoln Snacks'
common stock. The Capital Asset Pricing Model calculated a discount rate of
approximately 15%. BNY Capital Markets, based on its valuation and investment
banking experienced, determined this figure to be more appropriate as the low
end of discount rates given the relatively small size of Lincoln Snacks and
business risks outlined by management. BNY Capital Markets selected a range of
discount rates of 15% to 25% to be more appropriate for use in a discounted cash
flow analysis for Lincoln Snacks. A range of 5.0 to 7.5 times projected 2006
EBITDA was used to determine the terminal value, which was consistent with the
median comparable company multiple of 6.8 times LTM EBITDA.
Focusing on the base case, the implied per share values of Lincoln
Snacks common stock, adjusted for excess cash, ranged from $2.45 (with a 6.5
times terminal EBITDA multiple and a 21% discount rate) to $3.06 (with a 7.5
times terminal EBITDA multiple and a 17% discount rate).
BNY Capital Markets noted that the consideration to be received by the
stockholders of Lincoln Snacks other than Brynwood in the merger was greater
than the consideration implied by the discounted cash flow approach plus the
excess cash and therefore, that this analysis supported a fairness determination
concerning the merger.
Minority Interest Transactions
The median premiums offered in these transactions were 38%, 29% and 22%
for four weeks, one week and one day prior to announcement, respectively. The
premiums offered for Lincoln Snacks' common stock are 27%, 27% and 17% for four
weeks, one week and one day prior to announcement, respectively. BNY Capital
Markets compared the premium to recent prices for Lincoln Snacks' common stock
to be paid in the merger with the median premiums paid for domestic transactions
involving a majority shareholder purchasing a remaining minority interest
announced and closed since January 1, 2000. BNY Capital Markets noted that the
premiums offered were consistent with recent minority interest premiums,
although lower than the median. However, the limited trading volume and lack of
liquidity of Lincoln Snacks' common stock makes precise determination of the
premium difficult. BNY Capital Markets further noted that while
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premium analyses are an indication of value, such analyses by themselves were
not sufficient to reach conclusions as to financial fairness.
Conclusion
In weighing the results of the analyses, BNY Capital Markets applied a
weighting of 75% to the valuation range computed by the comparative company
analysis in its valuation of Lincoln Snacks. The comparable company approach was
relied upon most heavily because it was based on a more full complement of data
(including that of many comparative companies) and did not require any further
assumptions on behalf on BNY Capital Markets. The remaining weighting of 25% was
reserved for the discounted cash flow approach, which was performed only as a
secondary measure of Lincoln Snacks' value, given that Lincoln Snacks only
prepares a budget for one fiscal year forward. The lower weighting of the DCF
was due to the short timeframe of Lincoln Snacks' budget provided by management
and the requirement that BNY Capital Markets establish further assumptions to
complete the DCF. If projections were available for additional years, the DCF
might have received greater weighting. As the comparable transaction approach
was excluded from BNY Capital Markets' valuation analysis, it received 0%
weighting.
Based on weighting of 75% for the comparative company approach and 25%
for the DCF approach, shares of Lincoln Snacks' common stock representing a
minority interest have a fair market value in the range of $1.98 to $2.84. BNY
Capital Markets noted that the consideration to be received by the stockholders
of Lincoln Snacks other than Brynwood in the merger was greater than the
consideration implied by the above range, and that this analysis supported a
fairness determination concerning the merger. The minority interest transactions
were not used directly to determine per share values of Lincoln Snacks, but
rather to determine that the premium being paid was consistent with those data.
Other
BNY Capital Markets was engaged by Lincoln Snacks and the Special
Committee to act as the financial advisor to the Special Committee based on BNY
Capital Markets' experience and expertise. BNY Capital Markets is a nationally
recognized investment banking firm that is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions. The
Bank of New York, an affiliate of BNY Capital Markets, is an investor in
Brynwood Partners IV L.P., an affiliate of Brynwood, and has previously provided
various banking and financial services to Lincoln Snacks, for which it received
customary fees.
Pursuant to the terms of its engagement letter dated July 3, 2001, the
Special Committee agreed to have Lincoln Snacks pay BNY Capital Markets a total
fee of $150,000 in connection with the delivery of the Opinion, to reimburse BNY
Capital Markets for reasonable out-of-pocket expenses (including fees and
disbursements of counsel) and to indemnify BNY Capital Markets against
liabilities and expenses in connection with its engagement.
During 1999 and 2000, Lincoln Snacks paid Bank of New York $15,236 and
$49,489, respectively, for fees relating to its revolving credit agreement. In
addition, Brynwood and certain of its affiliates paid Bank of New York $777,609
and $923,054 during 1999 and 2000, respectively, for interest on loans
outstanding and other fees.
THE SPECIAL MEETING
General
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This Proxy Statement is being furnished by Lincoln Snacks to its
stockholders in connection with the solicitation of proxies by the board of
directors of Lincoln Snacks for use at the Special Meeting to be held onOctober
[___], 2001, and any adjournment or adjournments thereof, to consider and vote
upon:
1. a proposal to approve the Merger Agreement; and
2. such other business as may properly come before the Special
Meeting or any adjournment or adjournments thereof.
Proxies and Voting
We want all stockholders' votes to be represented at the Special
Meeting either in person or by proxy. Each proxy will be voted as directed by
the stockholder. Signed proxies that are returned and do not contain contrary
instructions will be voted FOR approval of the Merger Agreement.
A proxy may be revoked at any time before such proxy is voted by
delivering a written notice of revocation to the Secretary of Lincoln Snacks, by
delivering an executed proxy bearing a later date to the Secretary of Lincoln
Snacks, by following the instructions on the enclosed form of proxy with respect
to votes cast by telephone or by appearing at the Special Meeting and voting in
person.
Each share of Lincoln Snacks' common stock entitles the holder thereof
to one vote on the proposal to approve the Merger Agreement and on each other
item of business properly presented at the Special Meeting. At the close of
business on August 17, 2001, the record date for determining the stockholders
entitled to notice of, and to vote at, the Special Meeting, there were 8,572,565
shares of Lincoln Snacks' common stock issued and outstanding and entitled to be
voted at the Special Meeting. Of these shares, Brynwood owns 7,695,479 (or
89.8%). Approval of the Merger Agreement requires the affirmative vote of the
holders of a majority of the shares entitled to vote at the Special Meeting.
The vote required to approve the Merger Agreement is based on the total
number of votes entitled to be cast on the proposal. Broker nonvotes occur when
a broker nominee does not vote on a matter at a meeting because it has not
received instructions from the beneficial owner to vote and does not have
discretionary authority to vote on such matter. Failures to vote, abstentions or
broker nonvotes with respect to the proposal to approve the Merger Agreement
will have the same effect as a vote AGAINST that proposal.
In addition to solicitation by mail, directors, officers and certain
management employees of Lincoln Snacks may solicit proxies from Lincoln Snacks'
stockholders, either personally or by telephone, telegraph or other form of
communication. Such persons will receive no additional compensation for such
services.
Because it owns 89.8% of the Lincoln Snacks' common stock entitled to
vote at the Special Meeting, Brynwood will have the power acting alone to
approve the Merger Agreement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth certain information as of August 17, 2001
regarding the beneficial ownership of Lincoln Snacks' common stock by (i) each
person known by Lincoln Snacks to own beneficially more than 5% of the issued
and outstanding shares, (ii) each director, (iii) each named executive officer
(as defined in applicable SEC regulations) and (iv) all directors and executive
officers as a group.
Name and Address of Beneficial Owner Number of Shares (1) Percentage (2)
5% Stockholders
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Brynwood Partners III L.P. (3) 7,695,479 89.8%
2 Soundview Drive
Greenwich, Connecticut 06830
Directors
Hendrik J. Hartong, Jr. 7,695,479 (3) 89.8%
John T. Gray 7,695,479 (3) 89.8%
Ian B. MacTaggart 35,000 (4) *
C. Alan MacDonald 40,000 (5) *
Hendrik J. Hartong III 250,000 (6) 2.8%
Robert Zwartendijk 25,000 (7) *
Named Executive Officers
Hendrik J. Hartong III 250,000 (6) 2.8%
David D. Clarke 97,000 (8) 1.1%
Joanne W. Prier 24,000 (9) *
Directors and Executive Officers as a Group 8,166,479 (10) 90.4%
(8 persons)
* Less than 1%
(1) Unless otherwise indicated, each of the parties listed has sole voting
and investment power over the shares of Lincoln Snacks owned. The
number of shares listed includes, in each case, the number of shares
issuable upon exercise of outstanding stock options to the extent that
such options are exercisable within 60 days of August 17, 2001.
(2) Based on 8,572,565 shares issued and outstanding on August 17, 2001. In
addition, treated as outstanding for the purpose of computing the
percentage ownership of each director, each named executive officer and
all directors and executive officers as a group are shares issuable to
such individual or group upon exercise of options to purchase Lincoln
Snacks' common stock that are exercisable within 60 days of August 17,
2001.
(3) Consists of 7,695,479 shares owned by Brynwood. Mr. Hartong, Jr. and
Mr. Gray are general partners of Brynwood Management III L.P., which
serves as general partner of Brynwood Partners III L.P. Mr. Hartong,
Jr. and Mr. Gray share voting and investment power over the shares
owned of record by Brynwood.
(4) Consists of 35,000 shares issuable upon exercise of options to purchase
Lincoln Snacks' common stock.
(5) Consists of 5,000 shares held by Mr. MacDonald directly and 35,000
shares issuable upon exercise of options to purchase Lincoln Snacks'
common stock.
(6) Consists of 250,000 shares issuable upon exercise of options to
purchase Lincoln Snacks' common stock, including options to purchase
30,000 shares which become exercisable within 60 days of August 17,
2001.
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(7) Consists of 25,000 shares issuable upon exercise of options to purchase
Lincoln Snacks' common stock.
(8) Consists of 97,000 shares issuable upon exercise of options to purchase
Lincoln Snacks' common stock, including options to purchase 12,000
shares which become exercisable within 60 days of August 17, 2001.
(9) Consists of 24,000 shares issuable upon exercise of options to purchase
Lincoln Snacks' common stock, including options to purchase 12,000
shares which become exercisable within 60 days of August 17, 2001.
(10) Includes 466,000 shares issuable upon exercise of options to purchase
Lincoln Snacks' common stock, including options to purchase 54,000
shares which become exercisable within 60 days of August 17, 2001 and
7,695,479 shares owned by Brynwood.
-21-
THE MERGER AGREEMENT
The following information relating to the merger is a summary and is
qualified by reference to the more detailed information contained in the rest of
this Proxy Statement and the information in the Annexes to this Proxy Statement
and the documents incorporated into this Proxy Statement by reference. A copy of
the Merger Agreement is set forth in ANNEX A to this Proxy Statement.
Stockholders of Lincoln Snacks are urged to read the Merger Agreement carefully.
General Description
The Merger Agreement provides that, at the effective time of the
merger, Lincoln Acquisition will be merged into Lincoln Snacks, with Lincoln
Snacks as the surviving corporation. The separate identity and existence of
Lincoln Snacks will cease upon consummation of the merger and all property,
rights, powers and franchises of each of Lincoln Snacks and Lincoln Acquisition
will vest in Lincoln Snacks as the surviving corporation. After the merger,
Lincoln Snacks will be wholly owned by Brynwood, and the stockholders of Lincoln
Snacks other than Brynwood will retain no continuing interest in Lincoln Snacks
(other than the right to receive payment of cash in accordance with the Merger
Agreement or to exercise appraisal rights under Delaware law, if applicable).
Following the merger, Brynwood's interest in the net book value and net earnings
of Lincoln Snacks would be 100%. See the financial statements of Lincoln Snacks
included in Annex C and Annex D hereto.
Consideration
At the effective time of the merger, each share of Lincoln Snacks'
common stock outstanding immediately prior to the effective time, except for
shares owned by Brynwood and shares, if any, as to which appraisal rights under
Delaware law are perfected and preserved, will be converted into the right to
receive $3.50 in cash. The shares of Lincoln Acquisition will be converted into
a number of shares of common stock of Lincoln Snacks as the surviving
corporation equal to the sum of the number of shares of Lincoln Snacks
outstanding immediately before the effective time of the merger and the number
of shares subject to options to purchase Lincoln Snacks' common stock that are
surrendered as provided in the Merger Agreement. If all of the shares of Lincoln
Snacks' Common Stock outstanding on the record date and not owned by Brynwood
are converted into cash in the merger approximately $4,000,000 in cash will be
paid upon consummation of the merger.
Lincoln Snacks' Stock Options
Any options that are not exercised by the effective time of the merger
will remain outstanding as options to purchase shares of Lincoln Snacks, as the
surviving corporation, in accordance with their terms. Certain directors and
executive officers of Lincoln Snacks hold options which will be eligible for
surrender. See "INTERESTS OF CERTAIN PERSONS IN THE MERGER - Lincoln Snacks'
Stock Options."
After the effective time of the merger, there will be no public market
for the Lincoln Snacks' common stock. In recognition that any shares thereafter
acquired by option holders upon exercise of options which are not surrendered
prior to the effective time of the merger or which are not eligible for
surrender would be illiquid and subject to substantial restrictions on resale,
Lincoln Snacks anticipates that it will develop a program which would allow the
holders of such options (other than its directors and executive officers) to
realize the value of their options in cash.
Conditions to the Merger
The obligations of Lincoln Snacks, Brynwood and Lincoln Acquisition to
consummate the merger are subject to satisfaction of certain conditions. Such
conditions are:
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o no temporary restraining order, preliminary or permanent
injunction or other court order or legal restraint preventing
consummation of the merger is in effect, no litigation by a
governmental entity seeking any of the foregoing has been
commenced and no statute, rule, regulation or order making
consummation of the merger illegal has been enacted, entered,
enforced or deemed applicable to the merger; and
o the stockholders of Lincoln Snacks have approved the Merger
Agreement by the necessary vote.
The obligations of Brynwood and Lincoln Acquisition to consummate the
merger are subject to the satisfaction or waiver of additional conditions,
including:
o the continued accuracy of the representations and warranties
of Lincoln Snacks made in the Merger Agreement;
o the performance by Lincoln Snacks in all material respects of
its obligations under the Merger Agreement;
o the obtaining of material consents relating to consummation of
the merger;
o the absence of a material adverse effect on the business,
assets, financial condition or results of operation of Lincoln
Snacks; and
o the deposit by Lincoln Snacks of sufficient money with an
independent paying agent to pay the cash payable upon
consummation of the merger to the stockholders of Lincoln
Snacks.
The obligation of Lincoln Snacks to consummate the merger is subject to
the satisfaction or waiver of additional conditions, including:
o the continued accuracy of the representations and warranties
of Brynwood and Lincoln Acquisition made in the Merger
Agreement;
o the performance by Brynwood and Lincoln Acquisition in all
material respects of their obligations under the Merger
Agreement; and
o the obtaining of material consents relating to consummation of
the merger.
While Lincoln Snacks has not yet deposited any funds with the
independent paying agent, it has sufficient cash on hand to meet this condition
without the need to borrow funds for such purpose.
Conduct of Business Pending the Merger
During the period prior to the effective time of the merger, Lincoln
Snacks is required to conduct its business only in the ordinary course
consistent with past practices, unless Brynwood otherwise agrees. During this
period, Lincoln Snacks has also agreed to use its reasonable best efforts to
preserve intact its business organization, to keep available the services of its
present officers and key employees, to preserve the goodwill of its customers,
suppliers and other persons having a business relationship with it and to pay
its obligations to creditors in the ordinary course of business consistent with
past practices.
Representations and Warranties
The Merger Agreement contains customary representations and warranties
by Lincoln Snacks. The representations by Lincoln Snacks include representations
as to:
-23-
o its organization and qualification;
o its authority relating to the Merger Agreement;
o the accuracy of its periodic reports filed with the Securities
and Exchange Commission;
o the absence of material adverse changes, undisclosed liabilities
and litigation;
o the accuracy of the information provided by it for use in this
Proxy Statement and the compliance of this Proxy Statement with
applicable law and regulations; and
o its use of BNY Capital Markets as its financial advisor.
The Merger Agreement contains customary representations and warranties
by Brynwood and Lincoln Acquisition. The representations by Brynwood and Lincoln
Acquisition include representations as to:
o their organization and qualification;
o their authority relating to the Merger Agreement; and
o the accuracy of the information provided by them for use in this
Proxy Statement.
Conversion of Certificates
At the effective time, holders of certificates formerly representing
shares of Lincoln Snacks' common stock (other than certificates held by Lincoln
Snacks' stockholders who have exercised appraisal rights under Delaware law and
other than Brynwood) will cease to have any rights as Lincoln Snacks'
stockholders, and their certificates automatically will represent the right to
receive the $3.50 per share into which their shares of Lincoln Snacks' common
stock will have been converted in the merger. Promptly after the effective time
of the merger, Lincoln Snacks (as the corporation surviving the merger) will
instruct the payment agent selected by it to send written instructions and a
letter of transmittal to each holder of record of Lincoln Snacks' common stock
(other than holders who have exercised appraisal rights under Delaware law),
indicating the method for exchanging such holder's stock certificates for cash.
Holders of Lincoln Snacks' common stock should not send in their certificates
until they receive instructions from the payment agent.
Holders of outstanding certificates for Lincoln Snacks' common stock,
upon proper surrender of such certificates to the payment agent, will be
entitled to receive cash in an amount equal to $3.50 per share multiplied by the
number of shares of Lincoln Snacks' common stock previously represented by the
surrendered certificates (after giving effect to any required tax withholding)
without interest.
Effective Time; Amendments; Termination
The closing of the merger will occur as promptly as practicable after
the satisfaction or waiver of the conditions to the merger specified in the
Merger Agreement. The effective time of the merger will be the time when
appropriate documents are filed with the Secretary of State of Delaware (unless
a later time is specified therein). Lincoln Snacks and Brynwood currently expect
that the merger will be completed promptly following the Special Meeting.
The Merger Agreement may be amended by the mutual consent of Brynwood,
Lincoln Acquisition and Lincoln Snacks at any time prior to the effective time
of the merger. However, after approval of the Merger Agreement at the Special
Meeting, no amendment can be made which requires further approval by the Lincoln
Snacks' stockholders without such further approval.
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The Merger Agreement may be terminated:
o by the mutual consent of Lincoln Snacks and Brynwood;
o by either Lincoln Snacks or Brynwood if the merger is not
consummated by December 31, 2001 unless the failure to close is
due to the failure of the party seeking to terminate to fulfill
any of its obligations under the Merger Agreement; or
o by Lincoln Snacks or Brynwood if a vote of the stockholders of
Lincoln Snacks to approve the Merger Agreement is taken and the
stockholders of Lincoln Snacks fail to approve the Merger
Agreement.
Lincoln Snacks and Brynwood are obligated to give the other notice of
any event which could reasonably be expected to make any of their respective
representations and warranties inaccurate or of any failure to comply with any
of its covenants, conditions or agreements in the Merger Agreement.
Fees and Expenses
All fees and expenses incurred by Lincoln Snacks, Brynwood or Lincoln
Acquisition in connection with the Merger Agreement and the transactions
contemplated by it are to be paid by the party incurring such expenses if the
merger is not consummated. If the merger is consummated, the surviving
corporation will pay all such fees and expenses.
While the foregoing summary of the Merger Agreement describes all
provisions thereof which would be material to a stockholder of Lincoln Snacks in
determining whether or not to vote to approve the Merger Agreement, it is
qualified in its entirety by reference to the Merger Agreement (a copy of which
is included as ANNEX A to this Proxy Statement).
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Indemnification Rights
The Merger Agreement provides that Brynwood will cause the surviving
company to honor Lincoln Snacks' obligations under its certificate of
incorporation, bylaws or any indemnification agreement of Lincoln Snacks in
effect on the date of the Merger Agreement. These obligations cover any acts or
omissions occurring at or prior to the effective time of the merger. The persons
who must be indemnified in accordance with these provisions include present and
former directors, officers and employees of Lincoln Snacks. The obligation to
indemnify requires indemnification (including indemnification for expenses) to
the fullest extent permitted under applicable law and Lincoln Snacks'
certificate of incorporation and bylaws. In the event of a merger, consolidation
or sale of all or substantially all of the assets of Lincoln Snacks (as the
company surviving the merger), provision must be made so that Lincoln Snacks'
successors and assigns assume these indemnification obligations.
Lincoln Snacks' Stock Options
To the extent any of the directors and executive officers hold options
which remain outstanding, they will remain exercisable in accordance with their
terms. Accordingly, the directors and executive officers of Lincoln Snacks will
have the right to acquire equity interests in Lincoln Snacks after the merger.
Rights as Partners of Brynwood
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Mr. Hartong, Jr. and Mr. Gray are general partners of Brynwood
Management III L.P., which in turn is the sole general partner of Brynwood. Mr.
MacTaggart is an employee of Brynwood Management III L.P. In such capacities,
Mr. Hartong, Jr., Mr. Gray and Mr. MacTaggart may have conflicts of interest
with the stockholders of Lincoln Snacks other than Brynwood and may be deemed to
have a continuing interest in Lincoln Snacks after the merger. Mr. Hartong III
is the son of Mr. Hartong, Jr.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax
consequences of the merger to holders whose shares of Lincoln Snacks' common
stock are converted to cash in the merger (including pursuant to the exercise of
dissenter's rights). The discussion applies only to holders of shares of Lincoln
Snacks' common stock who hold the shares as capital assets and may not apply to
shares of Lincoln Snacks' common stock received pursuant to the exercise of
employee stock options or otherwise as compensation or to holders of shares of
Lincoln Snacks' common stock who are in special tax situations (such as
insurance companies, tax-exempt organizations or non U.S. persons).
The federal income tax consequences set forth below are based upon
current law. Because individual circumstances may differ, each holder of Lincoln
Snacks' common stock should consult such holder's own tax advisor to determine
the applicability of the rules discussed below to such stockholder and the
particular tax effects of the merger, including the application and effect of
foreign, state, local and other income and other tax laws.
The receipt of cash for Lincoln Snacks' common stock pursuant to the
merger (including pursuant to the exercise of appraisal rights) will be a
taxable transaction for federal income tax purposes (and also may be a taxable
transaction under applicable foreign, state, local and other income and other
tax laws). In general, for federal income tax purposes, a holder of Lincoln
Snacks' common stock will recognize gain or loss equal to the difference between
its adjusted tax basis in the shares converted to cash in the merger and the
amount of cash received therefor. Gain or loss must be determined separately for
each block of shares of Lincoln Snacks' common stock (i.e., shares of Lincoln
Snacks' common stock acquired at the same cost in a single transaction)
converted into cash in the merger. Such gain or loss will be capital gain or
loss and will be long-term gain or loss if, on the date of sale (or, if
applicable, the date of the merger), the shares of Lincoln Snacks' common stock
were held for more than one year. With respect to stockholders exercising
appraisal rights, amounts, if any, which are or are deemed to be interest for
federal income tax purposes will be taxed as ordinary income.
Payments in connection with the merger may be subject to "backup
withholding" at a rate of 31%. Backup withholding generally applies if a
stockholder:
o fails to furnish to the payment agent the stockholder's social
security number or taxpayer identification number;
o furnishes an incorrect tax identification number;
o fails properly to include a reportable interest or dividend
payment on such stockholder's federal income tax return; or
o under certain circumstances, fails to provide a certified
statement, signed under penalties of perjury, that the tax
identification number provided is such stockholder's correct
number and that such stockholder is not subject to backup
withholding.
Backup withholding is not an additional tax but merely an advance
payment, which may be refunded to the extent it results in an overpayment of
tax. Certain persons generally are entitled to exemption
-26-
from backup withholding, including corporations and financial institutions.
Certain penalties apply for failure to furnish correct information and for
failure to include reportable payments in income. Each stockholder should
consult with such stockholder's own tax advisor as to qualification for
exemption from backup withholding and the procedure for obtaining such
exemption.
There will be no federal income tax consequences of the merger to
either Brynwood, Lincoln Acquisition or the directors and executive officers of
Brynwood except to the extent that any of such directors and executive officers
individually own shares of Lincoln Snacks' common stock which are converted into
the right to receive cash in the merger. The federal income tax consequences to
any director or executive officer owning Lincoln Snacks' common stock converted
in the merger will be the same as the consequences described above to the
holders of Lincoln Snacks' common stock generally.
APPRAISAL RIGHTS
Under Delaware law, stockholders owning Lincoln Snacks' common stock
are entitled to exercise appraisal rights and to receive cash from Lincoln
Snacks as the surviving corporation of the merger equal to the fair value of
such stockholder's shares of Lincoln Snacks' common stock.
Pursuant to Section 262 of the Delaware General Corporation Law (a copy
of which is attached hereto as ANNEX E), a holder of Lincoln Snacks' common
stock who complies with the statutory provisions thereof will be entitled to an
appraisal by the Delaware Court of Chancery of the fair value of its Lincoln
Snacks' common stock and to receive payment of such amount in lieu of the
consideration provided for in the Merger Agreement. Such amount may be more or
less than the cash provided for in the Merger Agreement. Any holder of Lincoln
Snacks' common stock desiring to exercise appraisal rights should refer to the
statute in its entirety and should consult with legal counsel prior to taking
action to ensure that such holder complies strictly with the applicable
statutory provisions.
To exercise appraisal rights, a holder of Lincoln Snacks' common stock
must:
o hold Lincoln Snacks' common stock on the date of the making of a
demand for payment for appraisal of such shares and continuously
hold such shares through the effective time of the Merger;
o before the taking of the vote on approval of the Merger
Agreement, deliver to Lincoln Snacks written demand for the
appraisal of its shares;
o not vote in favor of the Merger Agreement; and
o make a demand to Lincoln Snacks for appraisal of such shares in
writing within twenty days after the mailing of a notice by
Lincoln Snacks to such holder, which notice by Lincoln Snacks
will state the effective time of the merger, that appraisal
rights are available and be accompanied by a copy of Section 262
of the Delaware General Corporation Law.
While a failure to vote against approval of the Merger Agreement will
not be a waiver of a stockholder's appraisal rights, a vote against approval of
the Merger Agreement will not be deemed to satisfy the notice requirements of
Delaware law.
SELECTED FINANCIAL DATA
The following table sets forth certain selected financial information
for Lincoln Snacks for the fiscal years ended June 30, 1996, 1997, 1998, 1999
and 2000 and for the nine months ended March 31, 2000 and
-27-
2001. The information should be read in conjunction with the financial
statements of Lincoln Snacks, including the respective notes thereto, and the
other documents incorporated herein by reference. See "WHERE YOU CAN FIND MORE
INFORMATION."
-28-
Lincoln Snacks Company
Selected Financial Data
(In thousands, except per share data)
12 Months 12 Months 12 Months 12 Months 12 Months 9 Months 9 Months
Ended Ended Ended Ended Ended Ended Ended
June 30, June 30, June 30, June 30, June 30, March 31, March 31,
1996 1997 1998 1999 2000 2000 2001
Statement of (audited) (unaudited)
Operations Data:
Net sales $23,846 $23,102 $24,278 $27,081 $29,703 $23,729 $29,932
(1) (1)
Gross profit 6,621 7,576 8,872 9,167 11,174 9,028 13,140
(1) (1)
Income (loss) from 897 1,609 1,668 (1,412) 1,041 963 1,960
operations (2)(3) (4)(5)
Net income (loss) 511 1,443 1,667 (1,378) 1,072 944 2,053
(2)(3) (4)(5)
Basic net income
(loss) per common
share $ 0.08 $ 0.23 $ 0.26 $ (0.22) $ 0.17 $ 0.15 $ 0.32
Diluted net income
(loss) per common
share 0.08 0.23 0.26 (0.22) 0.14 0.12 0.22
Weighted average
number of shares
outstanding
Basic 6,335 6,332 6,332 6,332 6,332 6,332 6,332
Diluted 6,335 6,332 6,342 6,332 9,987 9,988 10,119
June 30, June 30, June 30, June 30, June 30, March 31, March 31,
1996 1997 1998 1999 2000 2000 2001
Balance Sheet Data: (audited) (unaudited)
Working capital $ (237) $ 2,042 $ 3,500 $ 8,356 $ 9,269 $ 9,273 $11,426
(deficit)
Total assets 13,979 13,290 16,073 19,753 20,901 20,901 23,522
Total long term debt 309 --- --- 5,000 5,000 5,000 5,000
Stockholders' equity 8,506 9,949 11,616 10,238 11,310 11,183 13,387
(1) The Planters Distribution Agreement was terminated on December 31,
1997. The financial impact of the termination of the Agreement on
fiscal 1998 and fiscal 1999 versus fiscal 1996 and fiscal 1997 was an
increase in revenue and gross profit which were offset by increased
selling, distribution and marketing costs. Reference is made to
Management's Discussion and Analysis of Financial Condition and Results
of Operations in Lincoln Snacks' Annual Report on Form 10-K for the
fiscal year ended June 30, 2000, a copy of which is attached as ANNEX
C.
(2) Amount includes a non-recurring charge of $484,000 (or $.08 per share)
which represents severance and other compensation costs in connection
with the resignation of the Company's former Chairman and Chief
Executive Officer. All amounts were paid as of June 30, 1998.
(3) Amount includes Net Planters Other Income of $1.4 million (or $.22 per
share) which represents Planters compensation of $1.9 million to the
Company for failing to achieve certain sales levels
-29-
during the calendar year ended December 31, 1997 which was partially
offset by approximately $.5 million in non-recurring charges associated
with initial efforts to rebuild the Fiddle Faddle brand.
(4) Amount includes a non-recurring charge of $287,000 (or $.05 per share)
which represents $177,000 of severance related to the Company's former
President and Chief Operating Officer, $50,000 of costs incurred during
the relocation of the Company's new Chief Executive Officer, and
$60,000 of severance related to former employees. All amounts were paid
as of June 30, 1999.
(5) Amount includes a non-cash write down of $590,000 (or $.09 per share)
of nut division assets.
MARKET INFORMATION
Lincoln Snacks' common stock is traded on the OTC Bulletin Board under
the symbol "SNAX." The range of high and low reported sales prices as reported
by NASDAQ for fiscal 1999 and the first and second quarters of fiscal 2000 and
as reported by the OTC Bulletin Board for the third and fourth quarters of
fiscal 2000 and 2001 were as follows:
Fiscal Year Ended Fiscal Year Ended Twelve Months Ended
June 30, 1999 June 30, 2000 June 30, 2001
High Low High Low High Low
Quarter ended
September 30 $ 2.44 $ 1.09 $ 2.13 $ 1.03 $ 2.19 $ 2.00
Quarter ended
December 31 . 1.88 1.19 1.75 0.50 2.25 1.50
Quarter ended
March 31 .... 1.50 0.88 1.88 0.13 2.75 1.75
Quarter ended
June 30 ..... 1.38 1.00 2.13 0.44 3.10 2.20
The public market for the Lincoln Snacks' common stock is limited, and
the foregoing quotations should not be taken as necessarily reflective of prices
which might be obtained in actual market transactions or in transactions
involving substantial numbers of shares.
On August 17, 2001, as reported by Lincoln Snacks' transfer agent,
shares of Lincoln Snacks' common stock were held by [______] persons, based on
the number of record holders. These record holders include several holders who
are nominees for an undetermined number of beneficial owners.
Lincoln Snacks has not declared or paid a cash dividend since its
inception. Its present policy is to retain any earnings for use in its business.
Payment of dividends is dependent upon the earnings and financial condition of
Lincoln Snacks and other factors which its board of directors may deem
appropriate. Lincoln Snacks does not expect to pay any dividends on its common
stock prior to the effective time of the merger.
WHERE YOU CAN FIND MORE INFORMATION
Lincoln Snacks files annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information Lincoln
Snacks files at the SEC's public reference rooms in Washington, D.C., New York,
New
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York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Lincoln Snacks' SEC filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the SEC at "http://www.sec.gov."
The SEC allows Lincoln Snacks to "incorporate by reference" information
into this Proxy Statement, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
Proxy Statement, except for any information superseded by information in, or
incorporated by reference into, this Proxy Statement. This Proxy Statement
incorporates by reference the documents set forth below that Lincoln Snacks has
previously filed with the SEC. These documents contain important information
about Lincoln Snacks and its finances.
o Lincoln Snacks' Annual Report on Form 10-K for the fiscal year
ended June 30, 2000;
o Lincoln Snacks' Quarterly Reports on Form 10-Q for the periods
ended September 30, 2000, December 31, 2000 and March 31, 2001;
o Lincoln Snacks' Proxy Statement dated October 26, 2000
distributed in connection with its Annual Meeting of Stockholders
held November 30, 2000; and
o Lincoln Snacks' Current Reports on Form 8-K dated June 25, 2001
and August 2, 2001.
Copies of Lincoln Snacks' Annual Report on Form 10-K for the fiscal
year ended June 30, 2000 and its Quarterly Report on Form 10-Q for the period
ended March 31, 2001 are attached to this Proxy Statement as ANNEXES C and D.
A copy of the documents incorporated by reference but not attached to
this Proxy Statement (other than certain exhibits thereto) is available without
charge to each person, including a beneficial owner, to whom a Proxy Statement
is delivered. A request for any such document must be made in writing or orally
directed to:
Lincoln Snacks Company
30 Buxton Farm Road
Stamford, Connecticut 06905
Attention: Joanne W. Prier, Secretary
Telephone: (203) 329-4545
FORWARD LOOKING STATEMENTS
This Proxy Statement and the other documents incorporated by reference
contain, in addition to historical information, certain forward looking
statements regarding future financial conditions and results of operations. The
words "expect," "estimate," "anticipate," "predict," "believe" and similar
expressions identify forward looking statements. These forward looking
statements are based on expectations at the time they were made and are subject
to a number of risks and uncertainties. We caution readers that the factors
listed below, among others, sometimes have affected and, in the future could
affect, Lincoln Snacks' actual results and could cause the future results to
differ materially from those contained in or indicated by any such forward
looking statements. There may be additional factors not enumerated which could
have a similar impact, including factors which affect business generally, such
as economic conditions.
These factors include:
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o Lincoln Snacks' business has historically been subject to
pronounced seasonal fluctuations;
o Lincoln Snacks is significantly dependent on sales to its largest
customer, Wal-Mart, which accounted for 40%, 33% and 12% of
Lincoln Snacks' sales for the fiscal years ended June 30, 2000,
1999 and 1998; and
o The competitive nature of Lincoln Snacks' business.
PROPOSALS OF STOCKHOLDERS
Lincoln Snacks will hold an Annual Meeting of Stockholders in 2001 only
if the merger is not consummated before the time of such meeting. In order for
stockholder proposals to be eligible for inclusion in Lincoln Snacks' proxy
statement for the 2001 Annual Meeting of Stockholders, if one is held, they must
have been received by Lincoln Snacks at its principal office, 30 Buxton Farm
Road, Stamford, Connecticut 06905, by June 28, 2001. Since no such stockholder
proposals were received by that date, no stockholder proposal is eligible for
inclusion in the proxy statement for the 2001 Annual Meeting of Stockholders,
should one be held.
If any stockholder proposes to make any proposal at the 2001 Annual
Meeting of Stockholders, if one is held, which proposal will not be included in
Lincoln Snacks' proxy statement for such meeting, such proposal must have been
received by September 11, 2001 to be considered timely for purposes of Rule
14a-4(c) under the Securities Exchange Act of 1934. The form of proxy
distributed by the board of directors for any such meeting will confer
discretionary authority to vote on any such proposal not received by such date.
If any such proposal is received by such date, the proxy statement for the
meeting will provide advice on the nature of the matter and how Lincoln Snacks
intends to exercise its discretion to vote on each such matter.
OTHER MATTERS
As of the date of this Proxy Statement, the board of directors of
Lincoln Snacks knows of no matters which will be presented for consideration at
the special meeting other than the proposal to approve the Merger Agreement.
However, if any other matters shall come before the meeting or any adjournment
thereof and be voted upon, the enclosed proxy shall be deemed to confer
discretionary authority to the individuals named as proxies therein to vote the
shares represented by such proxy as to any such matters. The enclosed proxy will
not, however, be voted on any proposal to adjourn the meeting to a later date.
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