UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECION 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;
[ ] Preliminary proxy Statement
[ ] Confidential, for use of the Commission Only (as permitted by
Rule 14a-6(e)(21))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 140.14a-11(c) or 140.14a-12
LINCOLN LOGS LTD.
________________
(Name of Registrant as Specified In Its Charter)
_____________________________________________________
(Name of Persons(s) Filing proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box) ;
{X} No fee required
{ } Fee computed on table below per Exchange Act Rules 140-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction applies:
_______________________________________________________________
(2) Aggregate number of securities to which transaction applies:
_______________________________________________________________
(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):
_______________________________________________________________
(4) Proposed maximum aggregate value of transaction:
_______________________________________________________________
(5) Total fee paid:
_______________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] 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:
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(2) Form, Schedule or Registration No.:
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(3) Filing party:
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(4) Date Filed:
______________________________________________________________
LINCOLN LOGS LTD.
5 Riverside Drive
Chestertown, New York 12817
_____________________
NOTICE OF THE ANNUAL MEETING
OF SHAREHOLDERS
June 26, 2002
Notice is hereby given that the Annual Meeting of Shareholders of Lincoln
Logs Ltd., a New York corporation (the "Company"), will be held at the
Marriott Hotel, 189 Wolf Road, Albany, New York, on Tuesday, July 23, 2002,
at 10:30 a.m., local time, for the following purposes:
1. To elect a Board of Directors to serve until the next Annual Meeting
of Shareholders and until their successors are duly elected and
qualify;
2. To approve the appointment of PricewaterhouseCoopers LLP as
independent accountants for the Company for the fiscal year ending
January 31, 2003;
3. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
The stock transfer books of the Company will not be closed, but only
shareholders of record at the close of business on June 24, 2002, will be
entitled to notice of and to vote at the Meeting.
By Order of the Board of Directors
William J. Thyne
Secretary
June 26, 2002
You are cordially invited to attend the Meeting and vote your shares. In
the event you cannot attend, please fill in, date and sign the enclosed proxy
and mail it promptly in the enclosed self-addressed envelope to ensure that
your shares are represented at the Meeting. A shareholder who executes and
returns a proxy in the accompanying form has the power to revoke such proxy
at any time prior to the exercise thereof.
LINCOLN LOGS LTD.
5 Riverside Drive
Chestertown, New York 12817
___________________
PROXY STATEMENT
___________________
The accompanying proxy is solicited by the Board of Directors of Lincoln
Logs Ltd., a New York corporation (the "Company"), for use at the Annual
Meeting of Shareholders to be held on July 23, 2002, or any adjournment or
adjournments thereof, for the purposes set forth in the attached Notice of
Meeting. It is expected that proxy solicitation materials will be first
mailed or given to shareholders on or about June 28, 2002. The Company
will pay the expense of soliciting proxies.
Proxies in the accompanying form properly executed and received prior to
the Meeting and not revoked, will be voted in the manner directed by the
shareholders executing such proxies. Shares represented by the enclosed proxy
will be voted in accordance with the indicated direction, or, if not directed,
in accordance with the best judgment of the persons named in the enclosed
proxy. A shareholder who executes and returns a proxy in the accompanying
form has the power to revoke such proxy at any time prior to the exercise
thereof either by (i)notice in writing received by the Secretary of the
Company, (ii) signing and delivering a new proxy card bearing a later date,
or (iii) attendance at the Meeting and voting in person.
The Board of Directors does not intend to present at the Meeting any
matters other than those set forth in this Proxy Statement, nor does the
Board of Directors know of any other matters which may come before the
Meeting. If any other matters should properly come before the Meeting,
however, it is the intention of the persons named in the enclosed proxy to
vote all proxies in accordance with their best judgment on such matters.
Only shareholders of record at the close of business on June 24, 2002,
will be entitled to vote at the Meeting. On June 21, 2002, there were
outstanding 7,255,059 shares of the Company's Common Stock, which is the only
outstanding class of voting securities of the Company.
Each share of the Company's Common Stock outstanding on June 24, 2002,
will be entitled to one vote on all matters. In accordance with the Company's
By-Laws and applicable state law, the election of directors will be determined
by a plurality of the votes cast by the holders of shares of Common Stock
present and entitled to the vote thereon, in person or by proxy, at the
Meeting. Shares present which are properly withheld as to voting with respect
to any one or more nominees, and shares present with respect to which a broker
indicates that it does not have authority to vote ("broker non-vote") will not
be counted. Cumulative voting in connection with the election of directors is
not permitted. In accordance with the Company's By-Laws and applicable state
law, the affirmative vote of shares representing a majority of the votes cast
by the holders of the shares present and entitled to vote is required to approve
the other matters to be voted on at the Meeting. Shares which are voted to
abstain and broker non-votes, are not counted as votes cast on any matter to
which they relate.
1
The By-Laws of the Company provide that the majority of the shares of the
Common Stock of the Company issued and outstanding and entitled to vote, present
in person or by proxy, shall constitute a quorum at the Meeting. Shares, which
are voted to abstain, are considered as present at the Meeting for the purposes
of determining a quorum. Broker non-votes are considered as not present at the
Meeting for the purposes of determining a quorum.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's directors are to be elected at each Annual Meeting of
Shareholders. At this Meeting, eight directors are to be elected to serve
until the next Annual Meeting of Shareholders and until their successors are
elected and qualify. The nominees for election as directors at this Meeting
set forth in the table below are all recommended by the Board of Directors of
the Company.
Three meetings of the Board of Directors were held during the fiscal
year ended January 31, 2002. All but one director, Mr. Reginald W. Ray, Jr.,
attended all meetings. Mr. Ray attended two of the three meetings held during
the fiscal year and, therefore, did not attend seventy-five percent of the
total meetings held.
Nominees for Election
Shares represented by the enclosed proxy, unless otherwise directed,
will be voted to elect the eight nominees listed below to serve until the 2003
Annual Meeting of Shareholders and until their successors are duly elected
and qualify. Each of the nominees has consented to being named a nominee
in this Proxy Statement. In the event any nominee should become unable or
unwilling to accept a nomination or election, the persons named in the
enclosed proxy will vote for the election of a nominee designated by the
remaining nominees.
Year first Position with the Company
elected a (other than as a
Name of Director Age Director director)
________________ ____ __________ _________________________
Richard C. Farr 73 1982 Retired Chairman & CEO,
Senior Advisor
Samuel J. Padula 78 1985 Special Administrative
Assistant to the
President
Steven Patlin 61 2000 Special Administrative
Assistant to the
President
Reginald W. Ray, Jr. 72 1982 Special Administrative
Assistant to the
President
John D. Shepherd 56 1982 Chairman of the Board,
President and Chief
Executive Officer
William J. Thyne 52 1999 Executive Vice President,
Chief Financial Officer,
Treasurer, Secretary
Leslie M. Apple 52 2000 Special Administrative
Assistant to the
President
Jeffry J. LaPell 42 2001 Vice President,
Chief Operating Officer
2
Business Experience
___________________
Richard Farr was, until his resignation from those offices on
July 8, 1997, Chairman of the Board of the Company since January 1990 and
President and Treasurer of the Company since December 1991. Mr. Farr was
the Company's Chief Executive Officer from December 1991 to May 1997, at
which time he became a Member of the Office of Chief Executive, which
position he resigned on July 8, 1997. Mr. Farr has also been Chairman and
Chief Executive Officer of Farr Investment Company, a private investment
firm in West Hartford, Connecticut, for more than the past five years.
Mr. Farr is a Director of H. L. Bouton Co., Inc. and several privately owned
companies. From January 1987 to December 1991, Mr. Farr was a Special
Administrative Assistant to the President, a position he has resumed
since his resignation in July 1997.
Samuel J. Padula has been President and Chief Executive Officer of Padula
Construction Corp., a real estate development and construction firm in
Oceanport, New Jersey, for more than the past five years. Since January 1987,
Mr. Padula has been a Special Administrative Assistant to the President. Mr.
Padula was, until his resignation from that office in December 1997, a member
of the Company's Office of the Chief Executive since May 1997.
Steven Patlin has been, and continues to be, an independent dealer of
Lincoln Logs Ltd. since June 1985. Mr. Patlin served as an independent
consultant to the Company on sales and marketing matters from January
1998 through February 1999. From March 1999 through February 2000 Mr.
Patlin served as Vice President of Sales for Lincoln Logs Ltd. at which
time he resigned that position. Mr. Patlin has been Vice President and
Treasurer of Patlin Enterprises Inc. a distributor of home maintenance
products and home building kits, for more than the past five years.
Reginald W. Ray, Jr. has been President of The Hunter Corporation, a
holding company, in Sherborn, Massachusetts, for more than the past
five years. Since January 1987, Mr. Ray has been a Special Administrative
Assistant to the President.
John D. Shepherd has been Chairman of the Board, President and Chief
Executive Officer of the Company since December 1997. From December 1997
through January 2001 Mr. Shepherd was also Treasurer of the Company. Mr.
Shepherd has been President of Sweetbrier Ltd., an equestrian facility, since
June 1992 and a private investor since May 1991. Mr. Shepherd was Co-Chairman
and Treasurer of Aquatherm Products Corporation, a manufacturer and
distributor of health care products for home and institutional use, in Rahway,
New Jersey, from January 1986 to May 1991. From January 1987 until December
1997, Mr. Shepherd has been a Special Administrative Assistant to the
President, and from May 1997 until December 1997 Mr. Shepherd was a member of
the Company's Office of the Chief Executive.
3
William J. Thyne, CPA, has been Chief Financial Officer and Secretary
since January 1998. Mr. Thyne was elected to the additional positions of
Executive Vice President in September 1999 and Treasurer in February 2001.
Prior to joining the Company Mr. Thyne was Chief Financial Officer of John B.
Garret, Inc., a distributor of medical supplies and equipment and a provider of
Medicare Part B services in Guilderland, New York from August 1996 to January
1998. Prior to that position, Mr. Thyne was Vice President, Finance and
Chief Financial Officer of Reliable Racing Supply, Inc., a wholesale and retail
distributor of specialized ski equipment and mail order catalog retailer of ski
equipment and apparel in Glens Falls, New York from July 1995 to August 1996.
Leslie M. Apple has been a Partner and practicing attorney with the Albany,
New York, law firm of Whiteman Osterman & Hanna for more than the past five
years. From 1982 through December 1997 Mr. Apple was a Director of the Company.
From January 1987 through December 1997 Mr. Apple had been a Special
Administrative Assistant to the President, and from May 1997 until December
1997 Mr. Apple was a member of the Company's Office of the Chief Executive.
Mr. Apple resigned from all positions with the Company in December 1997 and
had no affiliation with the Company from that date until he was appointed to
a vacant seat on the Board of Directors on November 30, 2000. Mr. Apple was
elected a Director of the Company by shareholders on February 8, 2001.
Jeffry J. LaPell had been Vice President - Sales since re-joining the Company
in December 1999, which position he held until February 4, 2002. In August
2001, Mr. LaPell was elected to the additional position of Chief Operating
Officer. Prior to re-joining the Company Mr. LaPell was Director of Sales for
Asperline Log Homes, Inc., a wholly owned subsidiary of Imagineering Services,
Inc., in Lock Haven, Pennsylvania from December 1998 to December 1999. Prior
to that position, and for more than five years, Mr. LaPell was employed by
Lincoln Logs Ltd. in various sales positions, the most recent of which was
National Sales Manager. Mr. LaPell was appointed to a vacant seat on the Board
of Directors on August 22, 2001.
No nominee for director holds any directorship in a company with a class
of securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934 or subject to the requirements of Section 15(d) of such Act.
No nominee for director holds any directorship in a company registered as an
investment company under the Investment Company Act of 1940 other than Mr.
Farr who is a Trustee of the Scottish Widows International Fund.
The Board of Directors has established an Audit Committee, a Compensation
Committee and a Strategy Committee. During the fiscal year ended January 31,
2002, the Audit Committee, whose function is to oversee the Company's
financial reporting systems, consisted of Messrs. Apple, Padula and Ray. During
the fiscal year ended January 31, 2002, the Compensation Committee, whose
function is to review and make recommendations to the Board on executive
compensation, consisted of Messrs. Ray, Padula and Farr. During the fiscal
year ended January 31, 2002, the Strategy Committee, whose function is to make
recommendations to the Board on the future business direction of the Company,
consisted of Messrs. Farr, Apple and Patlin. The Company does not have a
standing nominating committee or any committee performing a similar function.
During the fiscal year ended January 31, 2002, there were four meetings of the
Audit Committee, two meetings of the Strategy Committee and one meeting of the
Compensation Committee.
4
The Board of Directors has approved and adopted a formal written Audit
Committee Charter. This Charter was adopted in accordance with listing
standards promulgated by the National Association of Security Dealers ("NASD").
The Charter was included in the Company's proxy Statement dated January 22,
2001 for the annual meeting of shareholders for the year ended January 31, 2000
as Appendix A. Due to the fact that all of the Company's directors are
employees of the Company, all members of the Audit Committee are not independent
as defined under Rule 4200(a)(14) of the NASD listing standards.
REPORT OF THE AUDIT COMMITTEE ON LINCOLN LOGS LTD.
__________________________________________________
April 26, 2002
To the Board of Directors of Lincoln Logs Ltd:
I have reviewed and discussed with management the Company's audited
consolidated financial statements as of and for the fiscal year ended
January 31, 2002.
I have discussed with the independent accountants the matters required
to be discussed by Statements on Auditing Standards No. 61, Communications
with Audit Committees, as amended, of the Auditing Standards Board of the
American Institute of Certified Public Accountants.
I have received and reviewed the written disclosures and the letter
from the independent accountants required by Independence Standard No.1,
Independence Discussions with Audit Committees, as amended, of the
Independence Standards Board, and have discussed with the accountants the
accountants' independence.
Based on the reviews and discussions referred to above, I recommend to
the Board of Directors that the consolidated financial statements referred
to above be included in the Company's Annual Report on Form 10-KSB for
the fiscal year ended January 31, 2002.
By: /s/ Leslie M. Apple
_____________________
Leslie M. Apple
Chairman, Audit Committee
Audit Committee Members:
Leslie M. Apple
Samuel J. Padula
Reginald W. Ray, Jr.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 1 TO BE IN THE BEST
INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS
A VOTE "FOR" THE ELECTION OF THE NOMINEES NAMED ABOVE.
5
EXECUTIVE OFFICERS
The executive officers of the Company, each of whom was elected by the
Board of Directors of the Company to serve in the capacities set forth below
opposite their names, and, except as otherwise noted, are currently serving a
one-year term to expire on the date of the 2002 Annual Meeting of Shareholders,
are as follows:
Name Age Office(s)
_____ ___ __________
John D. Shepherd 56 President and Chief Executive Officer
Jeffry J. LaPell 42 Vice President and Chief Operating Officer
William J. Thyne 52 Executive Vice President:Chief Financial Officer;
Treasurer, and Secretary
David J. Patton 54 Vice President-Operations
Eric R. Johnson 38 Vice President-Sales
John D. Shepherd has been Chairman of the Board, President and Chief
Executive Officer since December 1997. Mr. Shepherd also served as the
Company's Treasurer from December 1997 until February 2001. Mr. Shepherd has
been President of Sweetbrier Ltd., an equestrian facility, for more than the
past five years. Since January 1987 until his election to his present offices
with the Company, Mr. Shepherd has been a Special Administrative Assistant to
the President, and from May 1997 until December 1997, a member of the Company's
Office of the Chief Executive.
Jeffry J. LaPell had been Vice President-Sales since re-joining the
Company in December 1999 until February 4, 2002. Mr. LaPell was elected to the
additional position Chief Operating Officer in August 2001. Prior to re-joining
the Company, Mr. LaPell was Director of Sales for Asperline Log Homes, Inc., a
wholly owned subsidiary of Imagineering Services, Inc., in Lock Haven,
Pennsylvania from December 1998 to December 1999. Prior to that position, and
for more than five years, Mr. LaPell was employed by Lincoln Logs Ltd, in
various sales positions, the most recent prior to his departure being National
Sales Manager.
William J. Thyne, CPA, has been Chief Financial Officer and Secretary
since January 1998. Mr. Thyne was also elected to the additional positions of
Executive Vice President in September 1999 and Treasurer in February 2001.
Prior to joining the Company Mr. Thyne was Chief Financial Officer of John B.
Garret, Inc., a distributor of medical supplies and equipment and a provider of
Medicare Part B services in Guilderland, New York from August 1996 to January
1998. Prior to that position, Mr. Thyne was Vice President, Finance and Chief
Financial Officer of Reliable Racing Supply, Inc., a wholesale and retail
distributor of specialized ski equipment and mail order catalog retailer of ski
equipment and apparel in Glens Falls, New York from July 1995 to August 1996.
6
David J. Patton has been Vice President-Operations since December 1999.
Prior to becoming Vice President-Operations, Mr. Patton was Product Manager,
a position he held since joining the Company in April 1996. Prior to joining
the Company, Mr. Patton was a self-employed general contractor specializing
in the construction of log homes.
Eric R. Johnson joined the Company on February 4, 2002 as Vice President -
Sales. Prior to joining the Company, Mr. Johnson was Show and Seminar Manager
for Home Buyer Publications, Inc., publishers of Log Home Living and Timber
Frame Homes magazines, in Chantilly, Virginia from June 1998 to January 2002.
Prior to that position, Mr. Johnson was Regional Manager for Nationwide Homes,
Inc., a manufacturer of modular homes in Martinsville, Virginia, from May 1997
to May 1998. Prior to that Mr. Johnson was the Regional Training Manager for
Lindal Cedar Homes, Inc. based in Fairfax, Virginia from September 1993 to
April 1997. From July 1989 to August 1993, Mr. Johnson held the position of
General Manager for Alpine Cedar Homes, and independent distributor for
Lindal Cedar Homes, Inc. in South Glens Falls, New York.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers and directors and persons who beneficially own more than ten
percent (10%) of the Company's Common Stock to file initial reports of
ownership and reports of changes in ownership with the Securities and
Exchange Commission. Executive officers, directors and greater than
ten percent (10%) beneficial owners are required by Commission regulations
to furnish the Company with copies of all Section 16(a) forms they file.
The Company believes that its executive officers and directors complied
with all applicable Section 16(a) filing requirements during and with respect
to the fiscal year ended January 31, 2002.
EXECUTIVE COMPENSATION
The following table sets forth all annual and long-term compensation paid
by the Company to the Chief Executive Officer of the Company and to all
executive officers of the Company who received total annual salary and bonus
in excess of $100,000 for services rendered in all capacities to the Company
and its subsidiaries during the fiscal years ended January 31, 2002,
January 31, 2001 and January 31, 2000.
7
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION - ANNUAL COMPENSATION AWARDS
Long-term Compensation
Annual Compensation Awards
____________________ _______________________
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted All Other
Name and Annual Stock Options/ LTIP Compen-
Principal Year Salary Bonus Compensation Award(s) SAR's Payouts Sation
Position ($) ($) ($) ($) (#) ($) ($)
- ---------------------------------------------------------------------------------------------------------------
John D. Shepherd, 2002 91,327.00 0.00 6,000.00 (5) 0.00 0 0.00 22,155.00 (2)
Chief Executive 2001 78,000.00 0.00 5,000.00 (5) 0.00 0 0.00 9,877.00 (3)
Officer (1) 2000 78,000.00 0.00 5,000.00 (5) 0.00 0 0.00 7,501.00 (4)
Jeffry J. LaPell, 2002 84,841.00 22,805.00 1,667.00 (5) 0.00 0 0.00 3,541.00 (7)
Chief Operating 2001 77,500.00 7,500.00 0.00 0.00 0 0.00 3,133.00 (8)
Officer (6) 2000 10,432.69 0.00 0.00 0.00 0 0.00 0.00
William J. Thyne, 2002 84.841.00 0.00 6,000.00 (5) 0.00 0 0.00 9,812.00 (10)
Chief Financial 2001 77,500.00 9,000.00 5,000.00 (5) 0.00 0 0.00 6,405.00 (11)
Officer (9) 2000 72,500.00 0.00 1,250.00 (5) 0.00 0 0.00 4,478.00 (12)
(1) Mr. Shepherd was elected Chief Executive Officer in December 1997. From
May 1997 until December 1997, Mr. Shepherd was a member of the Office of
Chief Executive. Prior to May 1997, and since June 1982, Mr. Shepherd has
been a director of the Company.
(2) This amount consists of $4,250 paid for directors' meeting fees, $2,867 of
matching funds contributed to the Company's 401(k) Plan, $352 paid for
term life insurance, $13,836 for interest paid on amounts advanced to
the Company and $850 paid for interest on Series B Convertible Subordinated
Debentures.
(3) This amount consists of $1,250 paid for directors' meeting fees, $2,340
of matching funds contributed to the Company's 401(k) Plan, $271 paid for
term life insurance, and $6,016 paid for interest paid on amounts advanced
to the Company.
(4) This amount consists of $3,750 paid for directors' meetings fees, $3,480
of matching funds contributed to the Company's 401(k) Plan and $271
paid for term life insurance.
(5) These amounts represent an annual salary paid to the directors of the
Company. For fiscal year 2001 and 2000 the annual salary was $5,000.
During the fiscal year 2002 the annual salary was increased to $8,000.
The amounts shown for fiscal year 2002 represent pro-rata amounts paid.
Mr. LaPell was appointed to a vacant seat on the Board of Directors in
August 2001. Mr. Thyne was appointed to a vacant seat on the Board of
Directors in November 2000.
(6) Mr. LaPell was elected Vice President and Chief Operating Officer in
August 2001, and appointed to a vacant seat on the Board of Directors
in August 2001. From December 1999 until January 2002, Mr. LaPell was
Vice President - Sales.
(7) This amount consists of $3,225 of matching funds contributed to the
Company's 401(k) Plan, and $316 paid for term life insurance.
(8) This amount consists of $2,863 of matching funds contributed to the
Company's 401(k) Plan, and $270 paid for term life insurance.
(9) Mr. Thyne was elected Chief Financial Officer and Secretary in January
1998, Executive Vice President in September 1999 and Treasurer in February
2001.
(10) This amount consists of $4,250 paid for directors' meeting fees, $2,837
of matching funds contributed to the Company's 401(k) Plan, $325 paid
for term life insurance, and $2,400 paid for interest on Series B
Convertible Subordinated Debentures.
(11) This amount consists of $1,250 paid for directors' meeting fees, $2,468
of matching funds contributed to the Company's 401(k) Plan, $287 paid
for term life insurance, and $2,400 paid for interest on Series B
Convertible Subordinated Debentures.
(12) This amount consists of $2,117 of matching funds contributed to the
Company's 401(k) Plan, $261 paid for term life insurance, and $2,100 paid
for interest on Series B Convertible Subordinated Debentures.
8
Employee Savings Plan
_____________________
The Company maintains a defined contribution salary reduction plan (the
"Plan") pursuant to Section 401(k) of the Internal Revenue Code of 1986 (as
amended from time to time, the "Internal Revenue Code") for all employees who
have completed one year of service with the Company. Thirty-nine of the
Company's employees are currently eligible to participate in the Plan, twenty-
eight of whom have elected to participate. Employees participating in the
Plan may elect to defer compensation up to a maximum permitted by the Internal
Revenue Code. The Company contributes on behalf of each participating
employee a percentage, determined annually by the Company based upon the
profits of the Company, of compensation (as defined by the Plan) to the Plan.
Aggregate annual additions on behalf of any employee may not exceed the
lesser of 25% or such employee's compensation for any given year or $7,000
(as adjusted for increases in the cost of living as prescribed by regulations
by the Secretary of the Treasury, $10,500 for the 2001 calendar year).
Contributions to the Plan made by the Company are 20% vested after a
participating employee completes three years of service with the Company
and continues to vest at the rate of an additional 20% over each of the
following four years of employment.
During the fiscal years ended January 31, 2002, 2001 and 2000, $22,494,
$56,653, and $104,814, respectively, were paid to employees of the Company upon
their separation from service to the Company pursuant to the Plan.
Stock Option Plan
_________________
The Company has in effect a Stock Option Plan (the "Plan") which permits
the granting of incentive stock options to key employees to purchase up to
235,000 shares of the Company's Common Stock in accordance with the
requirements imposed by the Internal Revenue Code. The Plan permits the
Board of Directors of the Company, or a committee of the Board of Directors
consisting of at least three directors, to grant incentive stock options to
key employees of the Company. All of the Company's Directors, as key
employees of the Company, are eligible to receive incentive stock options
as are all such officers, division managers, department heads, and any other
management or supervisory employees or others who are designated as key
employees. As required by the applicable provisions of the Internal Revenue
Code, the exercise price of incentive stock options granted under the Plan
must be equal to or greater than the fair market value of the shares which
are subject to an option on the date the option is granted.
All employees are considered "key employees" of the Company, and there
are currently approximately fifty persons eligible to receive incentive stock
options under the Plan. During fiscal year ended January 31, 2002, no incentive
stock options to purchase shares of the Company's Common Stock were granted to
any key employees, and no incentive stock options previously granted under the
Plan have been exercised through the date hereof.
In addition to granting options to key employees intended to qualify as
incentive stock options under the Internal Revenue Code, the Plan also permits
the Board of Directors (or the committee which administers the Plan) to grant
stock options (the "Non-qualified Stock Options") which do not qualify as
incentive stock options to key employees of the Company and directors who are
not employees of the Company. Up to 250,000 options are currently designated
by the Plan for issuance as non-qualified stock options. The Board, or the
committee that administers the Plan, has the authority to decide to whom
non-qualified stock options are granted, as well as the number of shares of
the Company's Common Stock that may be purchased under each such option, and
the other terms, conditions and restrictions (if any) of such options (which
need not be the same for each non-qualified stock option granted).
9
There are currently approximately fifty-three persons eligible to receive
non-qualified stock options under the Plan. During the fiscal year ended
January 31, 2002, there were no "non-qualified stock options" issued to any
key employees or directors and no "non-qualified stock options" previously
granted under the Plan have been exercised through the date hereof.
Compensation of Directors
_________________________
Each director is compensated for his services in the amount of
$8,000 per year, plus $1,500 for each meeting of the Board of Directors
attended. Each member of the Audit, Compensation and Strategy Committees
is compensated in the amount of $500 for each Committee meeting attended.
Health insurance is available to the directors at the Company's expense.
Long-Term Incentive Plan Awards
_______________________________
Other than its Stock Option Plan, the Company does not maintain any
long-term incentive plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Description of certain transactions and agreements to which the Company
and certain of the officers and directors of the Company are parties are set
forth below.
During the fiscal years ended January 31, 2002 and 2001, the following
transactions with officers, directors and shareholders occurred:
During fiscal 2001, the Company repaid Mr. Richard C. Farr $103,000 of
advances he had made to the Company in prior years. The amount paid to Mr. Farr
reduced the outstanding amount of advances to $97,000. Also during fiscal 2001,
the Company made interest payments to Mr. Farr related to the aforementioned
advances of $18,350.46. The advances bear interest at the annual rate of 12%.
On December 8, 2000, Mr. John D. Shepherd advanced to the Company $83,349
for the purpose of placing a deposit for the purchase of a new milling machine.
The advance is evidenced by a Note bearing interest at 12% and is due August 15,
2002. On March 14, 2001, the Company repaid Mr. Shepherd $33,349 of the total
amount advanced to the company. Related to this Note, the Company has paid Mr.
Shepherd interest payments in the amount of $2,926.
On December 28, 2000, Mr. John D. Shepherd advanced to the Company
$100,000 for the purpose of purchasing real property in Kingston, NY. The
advance is evidenced by a Note bearing interest at 12% and is due August 15,
2003. Related to this Note, the Company has paid Mr. Shepherd interest payments
in the amount of $3,090.
During fiscal 2002, the Company repaid Mr. Richard C. Farr $97,000 of
advances he had made to the Company in prior years. These payments reduced the
amount of the advances made by Mr. Farr to zero. Also during fiscal 2002, the
Company made interest payments to Mr. Farr related to the aforementioned
advances totaling $7,151. The advances bore interest at the annual rate of 12%.
10
In May 2001, Mr. John D. Shepherd purchased $10,000 of Series B
Convertible Subordinated Debentures at face value from an unrelated shareholder
of the Company.
During fiscal 2002, the Company repaid Mr. John D. Shepherd $83,349, which
amount was evidenced by a Note and was for the purpose of purchasing a new
milling machine. The amount repaid reduced the amount advanced by Mr. Shepherd
to purchase the milling machine to zero. Related to this Note, the Company made
interest payments to Mr. Shepherd totaling $4,356. The Note bore interest at
the annual rate of 12%.
During fiscal 2002, the Company repaid Mr. John D. Shepherd $100,000,
which amount was evidenced by a Note and was for the purpose of purchasing
real property in Kingston, NY. The amount repaid reduced the amount advanced
by Mr. Shepherd to purchase the real property to zero. Related to this Note,
the Company made interest payments to Mr. Shepherd totaling $9,480. The Note
bore interest at the annual rate of 12%.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
_______________________________________________
The following table identifies each person known to the Company to be the
beneficial owner of more than five percent of the Company's Common Stock and
sets forth the number of shares of the Company's Common Stock beneficially
owned by each such person and the percentage of the shares of the Company's
outstanding Common Stock owned by each such person.
Number of Shares Percent of Out-
of Common Stock standing Common
of the Company Stock of the Company
Name and Address Beneficially Owned Beneficially Owned
Of Beneficial Owner as of June 21, 2002 as of June 21, 2002
___________________ _______________________ _____________________
Richard C. Farr 1,423,302 (1) 14.94%
40 Colony Road
W. Hartford CT 06117
John D. Shepherd 6,253,961 (2) 65.64%
1020 Sport Hill Road
Easton, CT 06612
(1) Includes (i) 75,000 shares subject to options which are exercisable
within 60 days and (ii) 312,500 shares subject to warrants which are
exercisable within 60 days.
(2) Includes (i) 50,000 shares of the Company's Series B Convertible
Subordinated Debentures which are convertible within 60 days, (ii)
250,000 shares subject to the Company's Series B Convertible
Subordinated Debentures owned by Mrs. Susan Shepherd, his wife, which
are convertible within 60 days, as to which Mr. Shepherd disclaims
beneficial ownership, (iii) 125,000 shares subject to warrants owned
by Mrs. Susan Shepherd which are exercisable within 60 days, as to
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which Mr. Shepherd disclaims beneficial ownership, (iv) 125,000 shares
subject to the Company's Series B Convertible Subordinated Debentures
owned by Mr. Herman R. Shepherd and Mrs. Carol R. Shepherd, his father
and mother, which are convertible within 60 days, as to which Mr.
Shepherd disclaims beneficial ownership, (v) 62,500 shares subject
to warrants owned jointly by Mr. Herman R. Shepherd and Mrs. Carol
R. Shepherd which are exercisable within 60 days, as to which
Mr. Shepherd disclaims beneficial ownership, (vi) 7,000 shares
owned by Mrs. Carol R. Shepherd, his mother, as to which Mr. Shepherd
disclaims beneficial ownership, (vii) 125,000 shares subject to the
Company's Series B Convertible Subordinated Debentures owned by Mrs.
Carol R. Shepherd, his mother, which are convertible within 60 days,
as to which Mr. Shepherd disclaims beneficial ownership, (viii) 62,500
shares subject to warrants owned by Mrs. Carol R. Shepherd which are
exercisable within 60 days, as to which Mr. Shepherd disclaims
beneficial ownership, (ix) 50,000 shares subject to the Company's
Series B Convertible Subordinated Debentures owned by Mr. Jason Tunick,
his son, which are convertible within 60 days, as to which Mr. Shepherd
disclaims beneficial ownership, (x) 25,000 shares subject to warrants
owned by Mr. Jason Tunick which are exercisable within 60 days, as to
which Mr. Shepherd disclaims beneficial ownership, and (xi) 312,500
shares subject to the Company's Series C Convertible Subordinated
Debentures owned by Mr. Herman R. Shepherd and Mrs. Carol R. Shepherd,
his father and mother, which are convertible within 60 days, as to
which Mr. Shepherd disclaims beneficial ownership.
Security Ownership of Management
________________________________
The following table sets forth the number of shares of the Company's
Common Stock beneficially owned by each director of the Company and all
directors and officers of the Company as a group and the percentage of
the shares of the Company's outstanding Common Stock owned by each director
of the Company and all directors and officers of the Company as a group.
Except as otherwise noted, the named individual has sole voting power and
sole investment power over the securities.
Number of Shares Percent of Out-
of Common Stock standing Common
of the Company Stock of the Company
Beneficially Owned Beneficially Owned
Name as of June 21, 2002 as of June 21, 2002
______________ ________________________ ________________________
Richard C. Farr 1,423,302 (4) 14.94%
Samuel J. Padula 373,743 (1)(2) 3.92%
Reginald W. Ray, Jr. 221,504 (1)(3) 2.32%
John D. Shepherd 6,253,961 (5) 65.64%
William J. Thyne 296,085 (6) 3.11%
David Patton 34,400 (7) .36%
Steven Patlin 85,100 (8) .89%
Jeffry LaPell 15,400 .16%
Leslie M. Apple 75,000 (9) .79%
Eric R. Johnson 0
All officers and
directors as a group
(10 persons) 8,778,495 (10) 92.14%
12
(1) Includes 30,000 shares subject to options which are exercisable within
60 days.
(2) Includes (i) 2,100 shares owned jointly by Mr. Padula with his wife,
Mrs. Eleanor Padula, with whom Mr. Padula shares voting and investment
power, (ii) 263,603 shares held by Mrs. Padula as to which
Mr. Padula disclaims beneficial ownership, and (iii)75,000 shares
subject to warrants owned by Mrs. Padula which are exercisable within
60 days as to which Mr. Padula disclaims beneficial ownership.
(3) includes 12,702 shares owned by Mr. Ray's wife as to which Mr. Ray
disclaims beneficial ownership.
(4) Includes (i) 75,000 shares subject to options which are exercisable
within 60 days and (iii) 312,500 shares subject to warrants which are
exercisable within 60 days.
(5) Includes (i) 50,000 shares subject to the Company's Series B
Convertible Subordinated Debentures which are convertible within 60
days, (ii) 250,000 shares subject to the Company's Series B Convertible
Subordinated Debentures owned by Mrs. Susan Shepherd, his wife, which
are convertible within 60 days, as to which Mr. Shepherd disclaims
beneficial ownership, (iii) 125,000 shares subject to warrants owned by
Mrs. Susan Shepherd which are exercisable within 60 days, as to which
Mr. Shepherd disclaims beneficial ownership, (iv) 125,000 shares
subject to the Company's Series B Convertible Subordinated Debentures
owned jointly by Mr. Herman R. Shepherd and Mrs. Carol R. Shepherd, his
father and mother, which are convertible within 60 days, as to which Mr.
Shepherd disclaims beneficial ownership, (v) 62,500 shares subject to
warrants owned jointly by Mr. Herman R. Shepherd and Mrs. Carol R.
Shepherd which are exercisable within 60 days, as to which Mr. Shepherd
disclaims beneficial ownership, (vi) 7,000 shares owned by Mrs. Carol R.
Shepherd, his mother, as to which Mr. Shepherd disclaims beneficial
ownership; (vii) 125,000 shares subject to the Company's Series B
Convertible Subordinated Debentures owned by Mrs. Carol R. Shepherd, his
mother, which are convertible within 60 days, as to which Mr. Shepherd
disclaims beneficial ownership, (viii) 62,500 shares subject to warrants
owned by Mrs. Carol R. Shepherd which are exercisable within 60 days, as
to which Mr. Shepherd disclaims beneficial ownership, (ix) 50,000
shares subject to the Company's Series B Convertible Subordinated
Debentures owned by Mr. Jason Tunick, his son, which are convertible
within 60 days, as to which Mr. Shepherd disclaims beneficial ownership,
(x) 25,000 shares subject to warrants owned by Mr. Jason Tunick which
are exercisable within 60 days, as to which Mr. Shepherd disclaims
beneficial ownership, and (xi) 312,500 shares subject to the Company's
Series C Convertible Subordinated Debentures owned by Mr. Herman R.
Shepherd and Mrs. Carol R. Shepherd, his father and mother, which are
convertible within 60 days, as to which Mr. Shepherd disclaims
beneficial ownership.
(6) Includes (i) 10,000 shares subject to options which are exercisable
within 60 days, (ii) 100,000 shares subject to the Company's Series
B Convertible Subordinated Debentures which are convertible within 60
days, and (iii) 50,000 shares subject to warrants which are exercisable
within 60 days, (iv) 50,000 shares subject to the Company's
Series B Convertible Subordinated Debentures owned by Mrs. Glenn E.
Thyne, his wife, which are convertible within 60 days, as to which
Mr. Thyne disclaims beneficial ownership, and (v) 25,000 shares subject
to warrants owned by Mrs. Glenn E. Thyne which are exercisable within
60 days, as to which Mr. Thyne disclaims beneficial ownership.
13
(7) Includes 4,000 shares subject to options which are exercisable
within 60 days.
(8) Includes (i) 10,000 shares subject to options which are exercisable
within 60 days, (ii) 50,000 shares subject to the Company's Series B
Convertible Subordinated Debentures, owned jointly with his wife,
Leslie Patlin, which are convertible within 60 days, and (iii) 25,000
shares subject to warrants which are exercisable within 60 days.
(9) Includes (i) 25,000 shares subject to options which are exercisable
within 60 days.
(10) Includes (i) 184,000 shares subject to options which are exercisable
within 60 days, (ii) 8000,000 shares subject to the Company's Series
B Convertible Subordinated Debentures which are convertible within
60 days, (iii) 762,500 shares subject to warrants which are exercisable
within 60 days, and (iv) 315,500 shares subject to the Company's
Series C Convertible Subordinated Debentures which are convertible
within 60 days.
There are no arrangements known to the Company the operation of which may at a
subsequent date result in a change in control of the Company.
PROPOSAL NO. 2
APPROVAL OF INDEPENDENT AUDITORS
Subject to approval of the Company's shareholders, the Board of Directors
has decided that PricewaterhouseCoopers LLP, which firm has been the
independent certified public accountants of the Company for the fiscal year
ended January 31, 2002, be continued as independent accountants for the
Company. The shareholders are being asked to approve the Board's decision to
retain PricewaterhouseCoopers LLP for the fiscal year ending January 31, 2003.
A representative of PricewaterhouseCoopers LLP is expected to be present
at the Meeting and will have the opportunity to make a statement if he desires
to do so and to respond to appropriate questions from shareholders.
ACCOUNTANT'S FEES
For the fiscal year ended January 31, 2002, fees for services provided
by PricewaterhouseCoopers LLP are categorized as follows:
(a) Audit Fees. For the fiscal year ended January 31, 2002 the
aggregate fees billed for professional services rendered for the audit of the
Company's annual financial statements and for the reviews of the Company's
quarterly financial statements was $80,600.00.
(b) Financial Information Systems Design and Implementation Fees. For
the fiscal year ended January 31,2002, no work performed by the Company's
principal independent accountant for financial information systems design and
implementation and, therefore, no fees were incurred for this category of
service.
(c) All Other Fees. For the fiscal year ended January 31, 2002 the
aggregate fees billed for services rendered other than the services covered
in paragraphs (a) and (b) above was $8,405.00.
14
The Audit Committee of the Board of Directors considers the provision of
the services covered in paragraph (b) and (c) above, and the fees paid
therefore, to be compatible with maintaining PricewaterhouseCoopers LLP's
independence.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT ACCOUNTANTS FOR
THE COMPANY FOR THE FISCAL YEAR ENDING JANUARY 31, 2003.
ANNUAL REPORT
A copy of the Company's Annual Report for the fiscal year ended
January 31, 2002 was mailed to the Company's shareholders on June 28, 2002
and July 1, 2002, respectively, and does not constitute a part of the proxy
solicitation materials. Financial statements of the Company are contained in
the Annual Report and are incorporated herein by reference.
ANY PERSON FROM WHOM PROXIES FOR THIS MEETING ARE SOLICITED MAY
OBTAIN FROM THE COMPANY, WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT
TO THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-KSB FOR THE
FISCAL YEAR ENDED JANUARY 31, 2002, INCLUDING THE FINANCIAL STATEMENTS
THEREIN, BY WRITTEN REQUEST ADDRESSED TO WILLIAM J. THYNE, SECRETARY,
LINCOLN LOGS LTD., 5 RIVERSIDE DRIVE, CHESTERTOWN, NEW YORK 12817.
ANY SUCH REQUEST FROM A BENEFICIAL OWNER OF STOCK NOT REGISTERED IN HIS
NAME MUST CONFIRM THAT HE/SHE WAS A BENEFICIAL OWNER OF SUCH STOCK ON
JUNE 24, 2002.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the next annual
meeting of shareholders to be held in 2003 must have been received by the
Company at 5 Riverside Drive, Chestertown, New York 12817 on or before
March 15, 2003.
15