September 21, 2001 Paul G. Hughes
Also Admitted in New York
203-351-4207, Fax 203-708-3806
phughe@cl-law.com
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Lincoln Snacks Company
Schedule 13E-3; File No. 5-53675
Schedule 14A; File No. 0-23048
Filed on August 6, 2001
Dear Sirs:
By letter dated September 17, 2001 and in a telephone conversation on September
20, 2001 with Michele M. Anderson, we received your comments on the amended
Schedule 13E-3 (file No. 5-53675) filed on September 10, 2001 and the amended
Schedule 14A (file No. 0-23048) filed on September 7, 2001 with respect to the
proposed merger of Lincoln Snacks Company ("Lincoln Snacks") and Lincoln Snacks
Acquisition Corp. ("Lincoln Acquisition"). Along with this letter, Lincoln
Snacks is filing [amended preliminary] proxy material, and Lincoln Snacks,
Lincoln Acquisition, Brynwood Partners III L.P. ("Brynwood"), Brynwood
Management III L.P., Hendrik J. Hartong, Jr. and John T. Gray are filing an
amendment to their Schedule 13E-3 relating to the proposed transaction, the
principal purpose of which is to respond to your comments. "Proxy Statement"
refers to the preliminary proxy statement being filed on the date hereof, and
"Schedule 13E-3" refers to the Schedule 13E-3 filed on August 6, 2001, as
amended by Amendment No. 1 and Amendment No. 2 thereto filed on the date hereof.
The purpose of this letter is to respond to your comments on the amended
Preliminary Proxy Statement and the amendment to the Schedule 13E-3.
SCHEDULE 13E-3/A
SEC Comment No. 1. We note your response to prior comment 1. Please expand your
analysis to quantify the level of each officer's and director's continuing
equity interest (upon the exercise of their options after the merger) and to
specify any changes in their employment packages going forward. We may have
further comment.
Response. In "SUMMARY - Interests of Certain Persons in the Merger," we have
added the following sentence to the end of the second bullet point:
Securities and Exchange Commission -2- September 21, 2001
If all such options are exercised, the directors and executive
officers would own 8.6% of the Lincoln Snacks' common stock
then outstanding.
The following has been added as the second last paragraph of "INTERESTS OF
CERTAIN PERSONS IN THE MERGER - Lincoln Snacks' Stock Options":
The following table shows the total number of options held by
each of the directors and executive officers of Lincoln Snacks
and the percentage of Lincoln Snacks' common stock each would
own assuming such options are exercised in full.
Number of
Name Options Percentage
Ian B. MacTaggart 35,000 0.4%
C. Alan MacDonald 35,000 0.4
Robert Zwartendijk 25,000 0.3
Hendrik J. Hartong III 450,000 4.8
David D. Clarke 200,000 2.1
Joanne W. Prier 60,000 0.6
The following has been added as the final paragraph of "INTERESTS OF CERTAIN
PERSONS IN THE MERGER - Lincoln Snacks' Stock Options":
In connection with the Merger Agreement and the merger, there
will be no change in the employment arrangements for any of
the directors or executive officers of Lincoln Snacks.
SEC Comment No. 2. We have considered your response to our prior comment 3;
however, we do not agree with your assertion that Brynwood's prior purchases of
Lincoln Snacks common stock did not constitute the first steps in your going
private transaction. Please note that a transaction will be considered part of a
series of transactions constituting a Rule 13e-3 transaction if it is effected
as part or in furtherance of a series that taken together, have a reasonable
likelihood or purpose of producing, directly or indirectly, the requisite Rule
13e-3 effects. This may include a transaction effected with "a view to
increasing the probability of success or reducing the aggregate expense of, or
otherwise facilitating" the production of any of the specified effects. Refer to
Question No. 4 in Exchange Act Release No. 34-17719. It appears that Brynwood's
stock purchases may have had a reasonable likelihood or purpose of producing,
directly or indirectly, a going private effect. In this regard, it is not
necessary for
Securities and Exchange Commission -3- September 21, 2001
Brynwood to have formally made a decision or commitment to effect a going
private transaction. Please provide us with further analysis.
Response. Based on the information contained in Lincoln Snacks' Annual Reports
on Form 10-K for the fiscal years ended June 30, 2000, 1999, 1998 and 1997 and
the number of record holders as of the record date for the special meeting, the
maximum number of record holders of Lincoln Snacks' common stock was 38. Based
on this, it appears that for the entire period since Brynwood's original
acquisition of Lincoln Snacks' common stock, this class of securities was held
of record by fewer than 300 persons. No purchases by Brynwood could have had the
reasonable liklihood or purpose of reducing the number of record holders below
300.
In December 1999, the Lincoln Snacks' common stock was delisted from The Nasdaq
SmallCap Market because Lincoln Snacks was unable to establish that there were
at least 300 beneficial round lot shareholders, one of the criteria for
continued listing on The Nasdaq SmallCap Market. Lincoln Snacks has been advised
by its transfer agent that, as of August 17, 2001, the record date for the
special meeting, there were 29 stockholders of record and 191 beneficial
stockholders. Even if each of the record holders and each of the beneficial
owners owns a round lot (which we believe is highly unlikely), the total number
of beneficial round lot owners would be approximately 220. We submit that, in
light of these numbers and Lincoln Snacks' inability in 1999 to establish the
number of beneficial round lot owners, it would be reasonable to believe that,
since Brynwood's original purchase in 1998, there were never more than 300
beneficial round lot owners. As a result, none of Brynwood's purchases could
have created a reasonable likelihood or been made for the purpose of reducing
the number of beneficial round lot owners to fewer than 300.
REVISED PRELIMINARY PROXY MATERIALS
INTERESTS OF CERTAIN PERSONS IN THE MERGER, PAGE 6
SEC Comment No. 3. Revise the first bullet point to clarify that the advancement
of expenses relates to any future indemnification claims. Consider adding that
you currently do not expect such payments to be made, as indicated in your
response to prior comment 10.
Response. The first bullet point has been revised to read as follows:
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 with respect to future
claims for indemnification. Lincoln Snacks is not aware of any
potential claims for such indemnification payments.
The first sentence under "INTERESTS OF CERTAIN PERSONS IN THE MERGER -
Indemnification Rights" has been revised to add "with respect to future claims
for indemnification" at the end, and the following has been added to the end of
that paragraph:
Securities and Exchange Commission -4- September 21, 2001
Lincoln Snacks is not aware of any potential claims for such
indemnification.
Special Factors
Background and Reasons for the Merger; Recommendation of the Lincoln Snacks' Board
Background page 9
SEC Comment No. 4. We note your revisions in response to prior comment 12. It
appears that you did not insert the new disclosure in the appropriate locations
in your Background section. For example, you added a new sentence at the end of
the last full paragraph on page 10, but that paragraph does not relate to a
meeting between Mr. MacDonald and BNY Capital Markets. Did you intend to add
this sentence to the carryover paragraph on pages 10 and 11, where you discuss
the content of the July 17 meeting? Please revise.
Response. The sentence referred to has been moved to become the fourth sentence
of the eighth paragraph under "SPECIAL FACTORS - Background and Reasons for the
Merger; Recommendation of the Lincoln Snacks' Board - Background."
SEC Comment No. 5. You continue to state that BNY Capital Markets distributed a
preliminary summary of its analyses at the July 31 meeting. It appears that this
preliminary summary is a written report that should be filed as an exhibit
pursuant to Item 9 of Schedule 13E-3. Revise to summarize the content of the
preliminary summary and file the document as an exhibit with your next
amendment.
Response. The last sentence of the eighth paragraph under "SPECIAL FACTORS -
Background and Reasons for the Merger; Recommendation of the Lincoln Snacks'
Board - Background" has been deleted. On July 31, 2001, BNY Capital Markets
provided one of the directors with an advance copy of the materials it prepared
for its August 1, 2001 presentation to the Special Committee and the board of
directors. This copy was provided to the director because that director was
unable to be present physically on August 1, 2001. Because this was done only to
be sure the director had the materials when BNY Capital Markets made its
presentation, we do not believe the fact of providing the advance copy is
material to the background of the merger.
REASONS FOR APPROVING THE MERGER, PAGE 11
SEC Comment No. 6. Revise to state whether or not each filing person believes
that the Rule 13e-3 transaction is "substantively" fair to unaffiliated
shareholders. See prior comment 21.
Response. The first paragraph following the bullet points under "SPECIAL FACTORS
- Background and Reasons for the Merger; Recommendation of the Lincoln Snacks'
Board - Reasons for Approving the Merger" to read as follows:
Securities and Exchange Commission -5- September 21, 2001
Based on these factors and the recommendation of the Special
Committee, 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, which were
expressly adopted by the Special Committee, the board of
directors, Brynwood, Brynwood Management III L.P. (Brynwood's
general partner), Mr. Hartong, Jr., Mr. Gray and Lincoln
Acquisition also formed the basis for the determination by the
Special Committee, the board of directors, Brynwood, Brynwood
Management III L.P., Mr. Hartong, Jr., Mr. Gray and Lincoln
Acquisition that the merger will be substantively fair to the
stockholders of Lincoln Snacks other than Brynwood.
SEC Comment No. 7. As stated in prior comments 2 and 20, each filing person must
individually make a fairness determination in accordance with Item 1004(a) of
Regulation M-A and provide disclosure in conjunction with Item 1004(b). We are
unable to locate any disclosure relating to the fairness determinations made by
Lincoln Snacks Acquisition Corp. and Brynwood Management III. Furthermore, if
one party relied on the analysis of another to fulfill this disclosure
obligation, the relying party must expressly adopt the conclusion and analyses
of the party that performed the Item 1014(b) analysis. Please note the following
examples and make the appropriate revisions:
o the first bullet on page 12 does not contain an affirmative statement
adopting BNY Capital Markets' analyses and conclusions;
o it is not clear whether the board expressly adopts both the underlying
analyses of the financial advisor or the special committee and their
fairness determinations; and
o you do not clearly indicate whose analyses and conclusions Brynwood, Mr.
Hartong and Mr. Gray adopt, if any.
Response. Language has been added indicating that each of the filing parties
expressly adopted the analyses performed by BNY Capital Markets. See response to
SEC Comment No. 6.
SEC Comment No. 8. We note that the special committee and the board did not seek
or receive a going concern or liquidation valuation for Lincoln Snacks. Disclose
why these parties did not think that going concern and liquidation value were
relevant to their fairness determinations and provide the basis for this belief.
Refer to prior comment 20 and Question No. 20 of Exchange Act Release No.
34-17719. In addition, clearly state that the parties did not consider any firm
offers made by an unaffiliated entity during the past two years because they
were not aware of any such offers, as indicated in your response to prior
comment 20.
Securities and Exchange Commission -6- September 21, 2001
Response. The following language has been added to the second last paragraph
under "SPECIAL FACTORS - Background and Reasons for the Merger; Recommendation
of the Lincoln Snacks' Board - Reasons for Approving the Merger":
No going concern valuation was sought because the Special
Committee and the board of directors believed that the price
indicated by the interested party with whom Lincoln Snacks had
preliminary discussions would be the highest price that an
unaffiliated party could reasonably be expected to pay. Based
on their knowledge of Lincoln Snacks, the interested party and
the snack foods industry, the Special Committee believed that
the interested party would be willing to pay a higher price
than other logical purchasers. Because the $3.50 per share
merger consideration substantially exceeded the $2.70 per
share indicated by the interested party, the Special Committee
and the board of directors concluded that a going concern
valuation would not provide significant additional
information. No firm offer from an unaffiliated person to
acquire Lincoln Snacks was received by Lincoln Snacks or
Brynwood during the two years preceding the Merger Agreement.
In addition, based on the nature of Lincoln Snacks' assets
which do not include significant assets with a value exceeding
their book value, the Special Committee and the board of
directors concluded that the liquidation value of Lincoln
Snacks would not exceed the book value of the Lincoln Snacks'
common stock ($2.08 as of March 31, 2001).
See also the response to SEC Comment No. 11.
SEC Comment No. 9. If Brynwood Partners III, Mr. Hartong, Mr. Gray, Lincoln
Snacks Acquisition Corp. and Brynwood Management III intend to adopt the
fairness determinations and underlying analyses of the special committee and the
board, please note from the preceding comment that those parties did not
adequately address the factors listed in Instruction 2(iv), (v) and (viii) of
Item 1014 of Regulation M-A. A filing person cannot insulate itself from
liability by relying upon another's analyses, which, by their terms, do not
comply with the specific disclosure requirements of Schedule 13E-3. See Item
1014(b) of Regulation M-A and Question Nos. 5 and 21 of Exchange Act Release No.
34-17719. If Brynwood Partners III, Mr. Hartong, Mr. Gray, Lincoln Snacks
Acquisition Corp. and Brynwood Management III did not consider the factors
material or relevant to its determination, state that and explain why the
factors were not deemed important or relevant.
Response. See response to SEC Comment No. 6.
Securities and Exchange Commission -7- September 21, 2001
SEC Comment No. 10. You indicate that the special committee and board believe
that the merger is "procedurally fair." Revise to disclose whether each filing
person, including Brynwood Partners III, Mr. Hartong, Mr. Gray, Lincoln Snacks
Acquisition Corp. and Brynwood Management III, believes that the transaction is
procedurally fair and the bases for their belief.
Response. The last sentence of the final paragraph under "SPECIAL FACTORS -
Background and Reasons for the Merger; Recommendation of the Lincoln Snacks'
Board - Reasons for Approving the Merger" has been revised to read as follows:
Notwithstanding the foregoing, the Special Committee, the
board of directors, Brynwood, Brynwood Management III L.P.,
Mr. Hartong, Jr., Mr. Gray and Lincoln Acquisition 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.
SEC Comment No. 11. Clearly state in the document that the special committee and
board did not believe there were any negative factors relating to the
transaction, as noted in your response to prior comment 22. Disclose that these
parties had such a belief despite the results of the financial advisor's
premiums paid analysis and the existence of possibly conflicting interests. In
addition, clarify whether any of the other filing persons evaluated any negative
factors relating to the transaction.
Response. The following language has been added to the second last paragraph
under "SPECIAL FACTORS - Background and Reasons for the Merger; Recommendation
of the Lincoln Snacks' Board - Reasons for Approving the Merger":
None of the Special Committee, the board of directors,
Brynwood, Brynwood Management III L.P., Mr. Hartong, Jr., Mr.
Gray and Lincoln Acquisition believed that, in light of the
terms of the Merger Agreement, there were any negative factors
relating to the transactions. This conclusion was reached
notwithstanding that the premiums to market values represented
by the merger were less than the median premiums to market
values in the minority interest transactions identified by BNY
Capital Markets (which was only a portion of the BNY Capital
Markets' overall evaluation of the fairness of the merger) and
the possibly conflicting interests
Securities and Exchange Commission -8- September 21, 2001
described under "INTERESTS OF CERTAIN PERSONS IN THE MERGER."
SEC Comment No. 12. We reissue prior comment 23. The discussion in the
Background section is not specific enough to address the disclosure requirements
of Item 1013 of Regulation M-A. Consider including a separate section that
discusses in detail each filing persons' purpose for engaging in the
transaction, and the reasons for undertaking the transaction at this time, as
opposed to any other time in Lincoln Snacks' operating history.
Response. The following subsection has been added to the Proxy Statement
following "SPECIAL FACTORS - Background and Reasons for the Merger;
Recommendation of the Lincoln Snacks' Board - Background":
Timing of the Merger
Brynwood, Brynwood Management III L.P., Mr. Hartong, Jr. and
Mr. Gray regularly review the strategic alternatives available
to Brynwood with respect to its investments. Following the
determination by Brynwood that the price indicated by the
unaffiliated entity that expressed an interest in acquiring
Lincoln Snacks was inadequate and taking into account the
substantially higher price Brynwood was willing to recommend,
the savings Lincoln Snacks could realize by not being a
publicly reporting company, the expiration of certain
procedural limitations under Delaware law and the additional
operating efficiencies that Lincoln Snacks could achieve as a
wholly owned subsidiary of Brynwood, Brynwood, Brynwood
Management III L.P., Mr. Hartong, Jr. and Mr. Gray determined
to recommend that Lincoln Snacks consider the merger. Lincoln
Acquisition was formed just before the Merger Agreement was
entered into specifically for the purpose of accomplishing the
merger.
The Special Committee and the board of directors believed it
would be appropriate to consider the recommendation made by
Brynwood. Considering the price to be paid to the stockholders
of Lincoln Snacks other than Brynwood, the opinion and
analyses of BNY Capital Markets and the relative illiquidity
of an investment in Lincoln Snacks' common stock, the Special
Committee and the board concluded that the recommendation for
the merger should be accepted. The Special Committee and the
board of directors believe that the merger represents an
opportunity for the stockholders of Lincoln Snacks other than
Brynwood to realize a
Securities and Exchange Commission -9- September 21, 2001
value for their Lincoln Snacks' common stock which would not
likely be matched within a reasonable time.
Security Ownership of Certain Beneficial Owners and Management, page 20
SEC Comment No. 13. Include a table disclosing the number of options each
executive officer and director will hold in the surviving entity after the
merger and the number of shares that they would have the right to acquire upon
exercise of the options.
Response. The following paragraph has been added at the end of "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT":
For information concerning equity interests which the
directors and executive officers of Lincoln Snacks might
acquire in Lincoln Snacks upon exercise of options which will
remain outstanding, see "INTERESTS OF CERTAIN PERSONS IN THE
MERGER - Lincoln Snacks' Stock Options."
The Merger Agreement
Lincoln Snacks' Stock Options, page 22
SEC Comment No. 14. We note that you amended the merger agreement to eliminate
the right of option holders to surrender their options in exchange for cash.
Please revise the document to delete any references to the surrender program,
such as the second sentences in the first and second paragraphs.
Response. The third sentence of the seventh paragraph under "SPECIAL FACTORS -
Background and Reasons for the Merger; Recommendation of the Lincoln Snacks'
Board - Background" has been revised to read as follows:
All options to purchase Lincoln Snacks' common stock
outstanding at the effective time would remain outstanding
after the effective time of the merger and be or become
exercisable in accordance with their terms.
The first bullet point under "SPECIAL FACTORS - Opinion of Financial Advisor"
has been revised to read as follows:
o reviewed the Merger Agreement, the Notice of Annual
Meeting and Proxy Statement and the form of Proxy;
The second sentence under "THE MERGER AGREEMENT - Consideration" has been
revised to delete "and the number of shares subject to options to purchase
Lincoln Snacks' common stock that are surrendered as provided in the Merger
Agreement" at the end.
Securities and Exchange Commission -10- September 21, 2001
The phrase "which will be eligible for surrender" has been replaced by "after
consummation of the merger" at the end of the second sentence of the first
paragraph under "THE MERGER AGREEMENT - Lincoln Snacks' Stock Options."
SEC Comment No. 15. You indicate in your response to prior comment 36 that any
program allowing option holders to surrender their options in exchange for cash
after the merger would not be subject to the tender offer rules because the
registration of Lincoln Snacks common stock under the Exchange Act will be
terminated. Please note that the provisions of Section 14(e) of the Exchange Act
and Regulation 14E apply to all tender offers, including offers for both
registered and unregistered securities. Please confirm your understanding.
Response. The second paragraph under "THE MERGER AGREEMENT - Lincoln Snacks'
Stock Options" has been revised to read as follows:
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 opption
holders upon exercise of options would be illiquid and subject
to substantial restrictions on resale, Lincoln Snacks may
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. Any such program
would be subject to compliance with applicable laws and
regulations.
We have been authorized by Lincoln Snacks to acknowledge that any tender offer
or request or invitation for tenders that might be made by Lincoln Snacks after
consummation of the merger would be subject to compliance with Section 14(e) of
the Securities Exchange Act of 1934, as amended and Lincoln Snacks would comply
with such Section.
Additional Changes
Please note that certain of the language which was included in the revised
preliminary proxy material filed on September 7, 2001 under "SPECIAL FACTORS -
Opinion of Financial Advisor - Comparable Transaction Analysis," "- Comparable
Company Analysis" and "-Minority Interest Transactions" has been moved within
the sections.
Securities and Exchange Commission -11- September 21, 2001
Lincoln Snacks is very anxious to distribute the proxy material to its
stockholders and to schedule its special meeting of stockholders. If you have
any questions or need additional information, please call either Martin A.
Clarke (telephone 203-351-4238) or me.
Very truly yours,
/s/ PAUL G. HUGHES
Paul G. Hughes
