April 25, 2005
By facsimile to (518) 487-7777 and U.S. Mail
Mr. Benjamin A. Shepherd
Chief Financial Officer
Lincoln Logs Ltd.
5 Riverside Drive
Chestertown, NY 12817
RE: Lincoln Logs Ltd.
Preliminary Information Statement on Schedule 14C
Transaction Statement on Schedule 13E-3
Filed March 24, 2005
File Nos. 0-12172 and 5-37488
Dear Mr. Shepherd:
We reviewed the filings and have the comments below. Where
indicated, we think that you should revise the documents in
response
to the comments. If you disagree, we will consider your
explanation
why a comment is inapplicable or a revision is unnecessary. Be as
detailed as necessary in your explanation. To understand better
your
disclosure, we may ask you in some comments to provide us
supplemental information. We may raise additional comments after
reviewing this information.
Our review`s purpose is to assist you in your compliance with
applicable disclosure requirements and to enhance the overall
disclosure in your documents. We look forward to working with you
to
achieve these objectives. We welcome any questions that you may
have
about comments or any other aspect of our review. You may call us
at
the telephone numbers listed at the end of this letter.
Pre14C
1. We note the information statement is being furnished in
connection
with the special meeting of shareholders of Lincoln Logs, and at
the
meeting Lincoln Logs` securityholders will be asked to consider
the
proposal to amend the Lincoln Logs` restated certificate. Advise
us,
with a view toward disclosure, whether or not unaffiliated
securityholders will be executing a ballot or otherwise giving an
authorization within the meaning of "proxy" as defined in Rule
14a-
1(f) of Regulation 14A at the meeting. To the extent that any
securityholders will be executing a proxy at a special meeting, it
appears Lincoln Logs, by virtue of its public filings, has made a
communication reasonably calculated to produce the procurement or
revocation of a proxy. It appears, therefore, that Lincoln Logs
is
engaged in a solicitation within the meaning of Rule 14a-1(l) of
Regulation 14A and should be filing under cover of Schedule 14A
and
not Schedule 14C. In addition, note that to the extent you
determine
to file a Schedule 14A, you should disclose all additional
disclosure
required under that schedule.
2. Tell us why Mr. John D. Shepherd is not an affiliate "engaging
in
a Rule 13e-3 transaction." It appears that Mr. Shepherd is
engaging
in a Rule 13e-3 transaction and should jointly file and sign the
Schedule 13E-3. Please revise the Schedule 13E-3 and information
statement accordingly or explain supplementally why you are of the
view that Mr. Shepherd is not an affiliate engaging in a Rule 13e-
3
transaction. For help in making this determination, please review
Section II.D.3 of our Current Issues Outline, publicly available
at
our website at www.sec.gov.
3. Each filing person must individually comply with the filing,
dissemination, disclosure and signature requirements of Schedule
13E-
3. Therefore, you will need to include all of the information
required by Schedule 13E-3 and its instructions for any filing
persons added in response to the preceding comment. For example,
include a statement as to whether each person believes the Rule
13e-3
transaction to be substantively and procedurally fair to
unaffiliated
securityholders and an analysis of the material factors upon which
each relied in reaching such a conclusion. See Item 8 of Schedule
13E-3, Item 1014 of Regulation M-A and Question and Answer No. 5
of
Exchange Act Release No. 34-17719 (April 13, 1981). In this
regard,
the reasons for the transaction and the alternatives considered by
these affiliates may be different than those of the company, and
this
fact should be reflected in the disclosure.
4. For notice of any reverse stock split, we direct your attention
to
the requirements of Rule 10b-17 under the Exchange Act.
Notice to Shareholders
5. Please explain in the information statement how you would
arrange
outlets for trading your common stock following the reverse stock
split and corresponding suspension of your reporting obligations.
Summary Term Sheet - Summary of the Transaction, page 1
Summary Term Sheet
6. Please revise the summary term sheet to summarize all conflicts
of
interest of the board and the filing persons. In addition,
consider
combining the summary term sheet and the question and answer
sections
to avoid unnecessary repetition. Refer to Item 1001 of Regulation
M-
A.
7. We note your disclosure that following the reverse stock split
you
will have 8,804,000 shares outstanding. It appears that based on
your stock split ratio of 1:500, the number of your outstanding
shares would be reduced by a factor of 500 and result in a
significantly lower number of shares. Please advise or revise
throughout the information statement, including the number of
shares
available for issuance in the subsection entitled "Effect on the
Aggregate Number of Shares of the Company`s Common Stock" (page
27).
Special Factors
Elimination of costs, page 9
8. Please explain how your estimated costs of being a reporting
company would rise from $210,000 in the first year subsequent to
the
reverse stock split to $300,000 in subsequent years.
9. We note your statement that following the suspension of
reporting
obligations, you will no longer have to comply with federal
securities laws (page 10). Please revise to identify the federal
securities laws to which Lincoln Logs will no longer be subject.
Other Valuation Methods Considered, page 15
10. The substantive fairness determination produced by all filing
parties must address specifically Lincoln Logs` going concern and
liquidation value and identify any reason why the values were
considered irrelevant if dismissed in the fairness analysis. If
the
parties to the proposed transaction relied upon the findings of
the
independent valuation consultant to reach their fairness
determination, then the parties to the transaction should adopt
expressly the independent valuation consultant`s analyses and
conclusions. See Q&A 20 in Release 34-17719, April 13, 1981, and
revise.
Procedural Fairness, page 16
11. Expand the disclosure to identify the seven members of Lincoln
Logs` board of directors who are:
* Officers of Lincoln Logs.
* A partner with the law firm engaged to provide Lincoln Logs
counsel
on the reverse split transaction.
* Employed by or serve as independent contractors to Lincoln Logs.
12. Discuss how in light of the negative factors concerning
procedural fairness, the board decided to approve the reverse
split.
March 17, 2005 Meeting of the Board of Directors, page 18
13. Specify the "wide range of possible repurchase prices"
provided
by management for the board to consider.
Opinion of Value, page 19
14. Disclose the compensation of Empire Valuation Consultants, LLC
or
Empire for its service as independent valuation consultant.
Further,
disclose Empire`s compensation for any other services to Lincoln
Logs
in the most recent two years. Alternatively, confirm to us that
there was none. See Item 1 of Schedule 14C, Item 9 of Schedule
13E-
3, and Item 1015(b)(4) of Regulation M-A.
15. Disclose whether Empire is under any obligation to update its
opinion.
Summary of the Opinion of Value, page 19
16. Describe briefly the "exacting internal review process."
17. Briefly describe the guidelines established by the IRS with
respect to Empire`s appraisal of your company.
18. Please explain why Empire prepared a "Limited Report."
19. Disclose the fiscal year 2006 projections provided to Empire.
20. Please expand your explanation of the "rule of thumb" used by
Empire in its analysis and how it applied specifically to Lincoln
Logs.
21. Disclosure indicates that Empire determined all of the values,
except adjusted book value, derived for Lincoln Logs "fell well
within the appropriate range." For each methodology used by
Empire,
specify where within the range the value derived for Lincoln Logs
fell. Further, for adjusted book value, specify what the range
was
in which Lincoln Logs did not fall.
22. For its capitalization of income analysis, disclosure
indicates
that Empire made adjustments for "certain non-recurring items."
Identify the items, and specify the amount of each adjustment.
Further, explain how the adjusted results were weighted and what
the
results reviewed on a pre-tax and post-tax basis were.
23. For its capitalization of income analysis, disclose the growth
rate and capitalization rate used by Empire. Further, explain why
Empire selected the specific growth rate and capitalization rate.
24. For its capitalization of income analysis using a debt free
approach, disclosure indicates that Empire added back Lincoln
Logs`
interest expense and subtracted Lincoln Logs` outstanding debt.
State the amounts of Lincoln Logs` interest expense and
outstanding
debt used in the analysis.
25. For its adjusted book value calculation, disclosure indicates
that Empire "adjusted" Lincoln Logs` assets and liabilities to
reflect their fair market values. For each asset and liability
adjusted, specify the adjustment amount. Further, briefly explain
how Empire determined the fair market values of the adjusted asset
and liability.
26. Disclosure indicates that Empire reviewed Lincoln Logs`
trading
history from June 2, 2004 through March 18, 2005. Explain why
June
2, 2004 was selected as the starting date for Empire`s review.
27. Disclosure indicates that Empire concluded Lincoln Logs`
limited
trading history implies that it was "not a true reflection" of
fair
value. Clarify how Empire considered Lincoln Logs` trading
history
in reaching its conclusion of Lincoln Logs` fair value. We note
the
disclosure in the last paragraph on page 4 of appendix C that
Empire
"considered" Lincoln Logs` trading history in arriving at its
conclusion of fair value.
28. Disclosure indicates that Empire concluded the aggregate fair
value of Lincoln Logs as of March 18, 2005 is $4 million. Absent
additional disclosure, it is unclear why Empire reached that
conclusion since the $4 million is $30,000 and $60,000 below the
values derived by Empire in its capitalization of income analyses.
Other than capitalization of income and adjusted book value, it is
unclear what other valuation methodologies, if any, Empire used to
reach its conclusion. Please revise to explain.
Directors, Officers and the Affiliated Shareholders, page 26
29. In the first paragraph, specify the amount of the reduction in
directors` fees.
Conflicts of Interest, page 28
30. If members of Lincoln Logs` board and Lincoln Logs` executive
officers have interests in the intended or anticipated action that
are in addition to those of other shareholders` interests,
describe
and quantify their additional interests. For example, we note the
disclosure under (ii) in this subsection.
31. Include the information required by instruction 3 to Item 1013
of
Regulation M-A. Also, disclose the payments to be received by
each
director and officers as a result of the reverse stock split.
Documents Incorporated by Reference, page 44
32. Include the Commission`s filing number for filings by Lincoln
Logs under the Exchange Act.
33. As discussed by telephone with your counsel, since Lincoln
Logs
has had a loss in one of its two most recent fiscal years and does
not anticipate that it will finish the full fiscal year ended
January
31, 2005 without a loss, Lincoln Logs must have updated audited
financial statements in the filings within 45 rather than 90 days
from the end of the fiscal year ended January 31, 2005. As
appropriate, revise also the disclosure in the first paragraph on
page 18 and elsewhere in the information statement.
34. Revise this section`s third paragraph to indicate that
amendments
to the Schedule 13E-3 will be filed to incorporate by reference
any
Exchange Act documents filed after the date of the information
statement and before the date of the special meeting.
35. Please include the pro forma financial statements required by
Item 1010(b) of Regulation M-A or tell us your basis for not
including them.
36. We note that you have incorporated by reference the financial
statements for the year ended November 1, 2003 and the nine months
ended July 31, 2004. Where you incorporate by reference financial
statements found in other documents filed with the SEC, we require
you to include in the document disseminated to investors the
summary
financial statements required by Item 1010(c) of Regulation M-A.
See
Instruction 1 to Item 13 of Schedule 13E-3 and Q&A 7 in Section
I.H.7
of the Division of Corporation Finance`s Manual of Publicly
Available
Telephone Interpretations (July 2001). The pro forma data for
the
summarized financial information specified in paragraph (c)(1)
through (c)(5) of Item 1010(c) is also required, if material.
Please
revise to include the summary financial statements in the Schedule
14C filed in connection with this going private transaction.
Appendix C
37. Revise the last sentence under "Methodology" on page 1 because
disclaimers of responsibility that in any way state or imply that
investors are not entitled to rely on the opinion or other
limitations on whom may rely on the opinion are unacceptable. See
Section II.D.1 of our Current Issues Outline, publicly available
at
our website at www.sec.gov.
38. File exhibits A through H to the opinion as exhibits to the
13E-
3.
Closing
As appropriate, file a revised Pre14C and an amendment to the
13E-3 in response to these comments. To expedite our review, you
may
wish to provide us three marked courtesy copies of the filings.
Include with the filings a cover letter tagged as correspondence
that
keys the responses to the comments and any supplemental
information
requested. If you think that compliance with any of the comments
is
inappropriate, provide the basis in the letter. We may have
additional comments after review of the filings, the responses to
the
comments, and any supplemental information.
We urge all persons responsible for the accuracy and adequacy
of
the disclosures in the filings reviewed by us to make certain that
they have provided all information that investors require for an
informed decision. Since Lincoln Logs and its management are in
possession of all facts relating to the disclosures in the
filings,
they are responsible for the adequacy and accuracy of the
disclosures
that they have made.
When responding to our comments, provide a written statement
from Lincoln Logs acknowledging that:
* Lincoln Logs is responsible for the adequacy and accuracy of the
disclosures in the filings.
* Our comments or changes to disclosures in response to our
comments
do not foreclose the Commission from taking any action on the
filings.
* Lincoln Logs may not assert our comments as a defense in any
proceedings initiated by the Commission or any person under the
United States` federal securities laws.
The Commission`s Division of Enforcement has access to all
information that you provide us in our review of the filings or in
response to our comments on the filings.
You may direct questions on comments and other disclosure
issues to Edward M. Kelly, Senior Counsel, at (202) 942-1978 or me
at
(202) 942-2864
Very truly yours,
Jennifer R. Hardy
Legal
Branch Chief
cc: Leslie M. Apple, Esq.
Whiteman Osterman & Hanna LLP
1 Commerce Plaza
Albany, NY 12260
Mr. Benjamin A. Shepherd
April 25, 2005
Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF
CORPORATION FINANCE