SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ----------------- to ----------------------
Commission file number 0-23048
LINCOLN SNACKS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 47-0758569
(State of incorporation) (I.R.S. Employer Identification No.)
4 High Ridge Park, Stamford Connecticut 06905
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 329-4545
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
None Not applicable
Securities registered pursuant to Section 12(g) of the Act
Common Stock, $.01 par value per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant on September 8, 1997, was approximately $3,025,419. On such date,
the closing price of registrant's common stock was $1.50 per share. Solely
for the purposes of this calculation, shares beneficially owned by directors,
executive officers and stockholders of the registrant that beneficially own
more than 10% of the registrant's voting stock have been excluded, except
shares with respect to which such directors, officers and 10% beneficial
owners disclaim beneficial ownership. Such exclusion should not be deemed a
determination or admission by the registrant that such individuals are, in
fact, affiliates of the registrant.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding on September 8, 1997 was 6,331,790.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
This Annual Report on Form 10-K contains, in addition to historical
information, certain forward-looking statements regarding future financial
condition and results of operations. The words "expect," "estimate,"
"anticipate," "predict," "believe," and similar expressions are intended to
identify forward-looking statements. Such statements involve certain risks
and uncertainties. Should one or more of these risks or uncertainties
materialize, actual outcomes may vary materially from those indicated.
PART I
Item 1. Business
(a) General Development of Business
Lincoln Snacks Company ("Lincoln Snacks" or the "Company") is one of
the leading manufacturers and marketers in the United States and
Canada of caramelized pre-popped popcorn. The primary product line
includes glazed popcorn/nut mixes and sweet glazed popcorn sold under
the brand names Poppycock (Registered Trademark), Fiddle Faddle
(Registered Trademark) and Screaming Yellow Zonkers (Registered
Trademark). In addition, the Company processes, markets and
distributes nuts.
The Company was formed in August 1992 by Noel Group, Inc. ("Noel"), a
publicly held company conducting its principal operations through
small and medium-sized operating companies in which it holds
controlling and other significant equity interests, and a management
team of former executives of Nestle Foods Corporation. On August 31,
1992, the Company acquired the business and certain assets of Lincoln
Snacks Company, a division of Sandoz Nutrition Corporation, an
indirect subsidiary of the Swiss-based drug, pharmaceutical and
hospital care company, Sandoz Ltd. In March 1993, Carousel Nut
Company, a newly formed wholly owned subsidiary of the Company
("Carousel"), acquired the business and certain assets of Carousel
Nut Products, Inc., a producer and marketer of roasted, dry roasted,
coated, raw and mixed nuts. In December 1993, Carousel was merged
with and into the Company, and the operations of Carousel were
integrated with the Company's plant in Lincoln, Nebraska in the first
calendar quarter of 1994.
The Company markets its Poppycock and nut products directly through
independent brokers to grocery stores, supermarkets, convenience
stores, drug stores, mass merchandise outlets, warehouse clubs,
vending channels, military commissaries and other military food
outlets, and other retailers. On July 17, 1995, Planters Company, a
unit of Nabisco, Inc. ("Planters"), began exclusively distributing
the Company's Fiddle Faddle and Screaming Yellow Zonkers products,
pursuant to a Distribution Agreement dated June 6, 1995 (the
Distribution Agreement"), for an initial term which was originally
scheduled to expire on June 30, 1997 unless renewed for additional
one year periods. The Distribution Agreement required Planters to
purchase an annual minimum number of equivalent cases of Fiddle
Faddle and Screaming Yellow Zonkers during the initial term.
(b) Recent Developments
On February 28, 1997, Lincoln Snacks and Planters entered into an
amendment to the Distribution Agreement (the "Amendment") which was
further modified on May 9, 1997 ("Letter Agreement") pursuant to
which the exclusive distribution arrangement with respect to the
Company's Fiddle Faddle product was extended for an additional period
of six months expiring December 31, 1997 at which time the
distribution arrangement will terminate. Effective May 1, 1997,
Planters ceased, and Lincoln Snacks resumed, marketing and
distributing the Company's Screaming Yellow Zonkers product.
The Amendment and Letter Agreement requires Planters to purchase a
specified number of manufactured cases and for Planters to compensate
the Company for the remaining contract minimums for the twelve month
period ended June 30, 1997. The Amendment requires new minimums for
the six month period ended December 31, 1997 (six month minimums).
Planters purchased 79% of the original June 30, 1997 contract
minimums and compensated the Company for the remaining 21%.
Planters has agreed to compensate the Company in the event that
Planters fails to purchase the six month minimums by December 31,
1997. The Amendment also requires Planters to compensate the
Company in the event that certain sales levels are not achieved
during the calendar year ending December 31, 1997.
In addition, the Amendment eliminates Planters right to terminate
the contract in the event of a change of control, Planters right of
first refusal on Poppycock granted in the Distribution Agreement, and
allows Lincoln Snacks to enter into co-pack arrangements relating to
ready-to-eat popcorn. Although the Amendment contains provisions
designed to effect a smooth transfer of the distribution business
back to the Company, there can be no assurance as to the long term
effects of the transition.
Net sales to Planters for the year ended June 30, 1997 were equal to
the minimum number of equivalent cases required to be purchased
during the fiscal year as part of the Amendment. Sales to Planters
represented 47% of net sales for the year ended June 30, 1997.
The foregoing description of the Amendment and Letter Agreement does
not purport to be complete. Reference is made to the Amendment and
the Letter Agreement copies of which are being filed herewith or
have previously been filed with the Securities and Exchange
Commission.
On July 11, 1997 the Company entered into a Trademark License
Agreement with Nabisco, Inc. pursuant to which Nabisco, Inc. granted
the Company the right to use the Planters' trademarks in connection
with the sale and marketing of the Company's Fiddle Faddle product in
the United States for a period of five years commencing on
January 1, 1998.
(c) Financial Information about Industry Segments
The Company is engaged principally in one line of business: the
manufacturing, marketing and distribution of pre-popped caramel
popcorn.
(d) Narrative Description of Business
Products
The Company manufactures and markets three nationally-recognized
branded products. Poppycock is a premium priced mixture of nuts and
popcorn in a deluxe buttery glaze. Fiddle Faddle is a more
moderately priced brand of popcorn and peanut clusters with a candied
glaze; a fat free version of Fiddle Faddle consists of popcorn with a
caramel glaze. Screaming Yellow Zonkers is produced by coating
popcorn clusters with a sweet buttery glaze. In addition the Company
processes, markets and distributes nuts.
Marketing, Sales and Distribution
Lincoln Snacks' brands are broadly distributed through grocery
stores, supermarkets, convenience stores, drug stores, mass
merchandise outlets, warehouse clubs, vending channels, military
commissaries and other military food outlets, and other retailers.
Selling responsibilities for Poppycock and the nut products in the
U.S. are currently handled by four regional business managers located
strategically across the U.S. These regional business managers
manage approximately 80 brokers across the U.S. in all classes of
trade. These brokers receive a commission on net sales plus
incentive payments. Certain exports and large volume customers are
handled directly by Lincoln Snacks' personnel. Pursuant to the
Amendment, Planters is continuing to exclusively distribute the
Company's Fiddle Faddle product in the United States until
December 31, 1997 and Lincoln Snacks resumed the sales and
distribution of its Screaming Yellow Zonkers product as
of May 1, 1997.
Seasonality
Sales of Lincoln Snacks' products are seasonal, peaking during the
third and fourth calendar quarters. During the fiscal year ended
June 30, 1997, Planters accounted for 47% of Lincoln Snacks' sales.
Competition
Lincoln Snacks' primary products participate in the pre-popped
caramel popcorn segment of the snack food market. Poppycock
competes with other premium quality snack products, while Fiddle
Faddle and Screaming Yellow Zonkers compete directly with Crunch N'
Munch (American Home Products Corp., Food Division), Cracker Jack
(Borden, Inc.) and a number of other regional and local brands. The
Company's products also compete indirectly with traditional
confections and other snack food products.
Raw Materials and Manufacturing
Substantially all of the raw materials used in Lincoln Snacks'
production process are commodity items, including corn syrup, butter,
margarine, brown and granulated sugar, popcorn, various nuts and
oils. These commodities are purchased directly from various
suppliers.
The manufacturing facility located in Lincoln, Nebraska includes,
among other things, continuous process equipment for enrobing popcorn
and nuts, as well as four distinct high speed filling and packing
lines for canisters, jars, single serving packs and bag-in-box
packages. The manufacturing and packaging equipment is sufficiently
flexible to allow for the manufacture of other similar product lines
or packaging formats. The facility is being operated at an overall
rate varying from approximately 40% to 75% of capacity depending on
the season. Lincoln Snacks' management believes that the facility is
generally in good repair and does not anticipate capital expenditures
other than normal maintenance and selected equipment modernization
programs.
Trademarks
Poppycock, Fiddle Faddle and Screaming Yellow Zonkers are registered
trademarks of Lincoln Snacks. The Company believes all its
trademarks enjoy a strong market reputation denoting high product
quality.
In addition, pursuant to the Trademark License Agreement, Nabisco
granted the Company the right, commencing January 1, 1998, to use
the Planters' trademarks in connection with the sale and marketing of
the Company's Fiddle Faddle product in the United States for a period
of five years.
Governmental Regulation
The production, distribution and sale of the Company's products are
subject to the Federal Food, Drug and Cosmetic Act; the Occupational
Safety and Health Act; the Lanham Act; various federal environmental
statutes; and various other federal, state and local statutes
regulating the production, packaging, sale, safety, advertising,
ingredients and labeling of such products, including recently adopted
nutritional labeling requirements with which the Company is
complying. Compliance with the above described governmental
entities and regulations have not had and are not anticipated to have
a material adverse effect on the Company's capital expenditures,
earnings or competitive position.
Employees
As of June 30, 1997 Lincoln Snacks had 73 full-time employees and no
part-time employees. Employment at the Lincoln plant varies
according to weekly and seasonal production needs, and averaged
approximately 85 employees during fiscal 1997. None of Lincoln
Snacks' work force is unionized. Lincoln Snacks' management believes
that Lincoln Snacks' relationship with its employees is good.
(e) Financial Information about Foreign and Domestic Operations and
Export Sales
Foreign operations accounted for less than 10% the Company's sales,
assets and net income in each of the Company's last three fiscal
years.
Item 2. Properties.
The Company's principal executive offices are located at 4 High Ridge
Park, Stamford, Connecticut 06905. The initial term of the lease on
this space expires on September 30, 1999.
Lincoln Snacks manufactures and packages all of its products at its
owned Lincoln, Nebraska manufacturing facility. The Lincoln plant,
constructed in 1968, is a modern 74,000 square foot one-story
building on a 10.75 acre site in a light industrial area in the city
of Lincoln. Approximately 67,000 square feet of the facility is
dedicated to production with the balance utilized for
administration. In October 1996,the Company sold land adjacent to
its manufacturing facility in Lincoln, Nebraska. At the same time,
the Company entered into a ten year lease agreement for 50,000 square
feet of a new warehouse which has been constructed on the land. This
facility accommodates all of Lincoln Snacks' current warehousing
needs. The Company's lease on this facility expires in July 2006,
and there is a five year renewal option beyond 2006.
The Company believes its properties are sufficient for the current
and anticipated needs of its business.
Item 3. Legal Proceedings.
The Company is not involved in any material pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
A. Market Information.
The shares of Common Stock of the Company are traded on the NASDAQ
Stock Market (Small Cap) under the symbol "SNAX". The range of high
and low reported sales prices for the Common Stock as reported by
NASDAQ for each full quarterly period within the two most recent
fiscal years were as follows:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
Ended Ended
June 30, 1996 June 30, 1997
---------------------------------------------------------------------
High Low High Low
<S> <C> <C> <C> <C>
First Fiscal Quarter 3 1/4 2 1/4 1 1/2 1 1/8
Second Fiscal Quarter 2 7/8 1 3/4 1 3/4 1
Third Fiscal Quarter 1 7/8 1 1/4 1 7/8 1
Fourth Fiscal Quarter 2 1/8 1 1/4 1 9/16 7/8
</TABLE>
The public market for 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.
B. Holders.
On September 8, 1997, as reported by the Company's transfer agent,
shares of Common Stock were held by 38 persons, based on the number
of record holders, including several holders who are nominees for
an undetermined number of beneficial owners.
C. Dividends.
The Company has not declared or paid a cash dividend since its
inception, and 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 the Company and other factors which its
Board of Directors may deem appropriate. The Company expects to use
any future earnings in its operations and consequently does not intend
to pay dividends on its Common Stock in the foreseeable future. In
addition, the Company is currently prohibited from declaring or paying
any cash dividends on its capital stock by the terms of its bank loan
agreement, as amended.
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
(In thousands, except per share data)
12 Months 6 Months 12 Months 12 Months 12 Months 12 Months
Ended Ended Ended Ended Ended Ended
Dec. 31, June 30, June 30, June 30, June 30, June 30,
1993 1994 1994 1995 1996 1997
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Net sales $28,368 $10,038 $29,497 $27,136 $23,846(F2) $23,102(F2)
Gross profit 10,683 2,846 10,320 10,916 6,621(F2) 7,576(F2)
Income (loss) from
operations (678) (5,273) (5,003) (1,082)(F1) 897 1,879
Net income (loss)
prior to dividends
on preferred stock (1,337) (5,660) (5,810) (1,602)(F1) 511 1,443
Net income (loss)
per common share ($0.34) ($0.92) ($1.41) ($.25)(F1) $.08 $.23
Weighted average
number of shares
outstanding 3,978 6,123 4,113 6,340 6,335 6,331
<CAPTION>
Dec. 31, June 30, June 30, June 30, June 30,
1993 1994 1995 1996 1997
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Working capital $(2,371) $ 327 $ (691) $ (237) $ 2,042
(deficit)
Total assets 19,492 16,318 13,850 13,979 13,290
Total long term debt 3,200 1,909 1,109 309 --
Stockholders' equity (2,299) 9,354 7,985 8,506 9,949
(deficit)
<FN>
(F1) Amount includes a non-recurring charge of $726,000 (or $.11
per share) relating to the Distribution Agreement with Planters.
(F2) The financial impact of the Distribution Agreement versus
historical results is reductions in revenue and gross profit
which are offset by reduced selling, marketing and distribution
costs. Reference is made to Management's Discussion and
Analysis of Financial Condition and Results of Operations.
</FN>
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
The Company's net sales are subject to significant seasonal
variation. Consequently, results from operations will fluctuate
due to these trends. The Company's business is seasonal due to
customer buying patterns of Poppycock during the traditional holiday
season. As a result, third and fourth calendar quarter sales account
for a significant portion of the Company's annual sales.
On July 17, 1995, Planters began exclusively distributing the
Company's Fiddle Faddle and Screaming Yellow Zonkers products
pursuant to the Distribution Agreement for an initial term which was
originally scheduled to expire on June 30, 1997 unless renewed for
additional one year periods. The Distribution Agreement required
Planters to purchase an annual minimum number of equivalent cases of
Fiddle Faddle and Screaming Yellow Zonkers during the initial term.
On February 28, 1997, Lincoln Snacks and Planters entered into the
Amendment, pursuant to which the exclusive distribution arrangement
with respect to the Company's Fiddle Faddle product was extended for
an additional period of six months expiring December 31, 1997 at
which time the distribution arrangement will terminate. Effective
May 1, 1997, Planters ceased, and Lincoln Snacks resumed, marketing
and distributing the Company's Screaming Yellow Zonkers product.
The Amendment and Letter Agreement require Planters to purchase a
specified number of manufactured cases and for Planters to
compensate the Company for the remaining contract minimums for the
twelve month period ended June 30, 1997. The Amendment requires new
minimums for the six month period ended December 31, 1997 (six month
minimums). Planters purchased 79% of the original June 30, 1997
contract minimums and compensated the Company for the remaining 21%.
Planters has agreed to compensate the Company in the event that
Planters fails to purchase the six month minimums by December 31,
1997. The Amendment also requires Planters to compensate the Company
in the event that certain sales levels are not achieved during the
calendar year ending December 31, 1997.
In addition, the Amendment eliminates Planters right to terminate the
contract in the event of a change of control, Planters right of first
refusal on Poppycock granted in the Distribution Agreement, and
allows Lincoln Snacks to enter into co-pack arrangements relating to
ready-to-eat popcorn. Although the Amendment contains provisions
designed to effect a smooth transfer of the distribution business
back to the Company, there can be no assurance as to the long term
effects of the transition.
Twelve months ended June 30, 1997 versus June 30, 1996
Net sales decreased 3% or $.7 million to $23.1 million for the
twelve months ended June 30, 1997 versus $23.8 million in the
corresponding period of 1996. Sales to Planters and of the Company's
other branded product increased for the twelve months period ended
June 30, 1997 versus the same period in 1996. Such increases were
offset by declines in the Company's Nut Division ("Nut Division")
sales. Sales to Planters represented 47% and 43% of net sales for
the twelve months ended June 30, 1997 and June 30, 1996,
respectively.
Gross profit increased 14% or $1 million to $7.6 million for the
twelve months ended June 30, 1997 versus $6.6 million in the
corresponding period of 1996. The gross profit increase is the
result of increased sales to Planters and of the Company's other
branded product and increased manufacturing efficiencies. These
increases were partially offset by a decrease in Nut Division gross
profits resulting from declines in sales.
Selling, general and administrative expenses remained equal to a year
ago of $5.7 million for the twelve months ended June 30, 1997.
The increase in gross profit and the decrease in interest expense,
resulted in an increase in net income of $.9 million to $1.4 million
for the twelve months ended June 30, 1997 versus $.5 million in the
corresponding period in 1996.
Twelve months ended June 30, 1996 versus June 30, 1995
Net sales decreased 12% or $3.3 million to $23.9 million for the
twelve months ended June 30, 1996 versus $27.1 million in the
corresponding period of 1995. Combined case sales of Fiddle Faddle
and Screaming Yellow Zonkers related to the Distribution Agreement
were 38% higher than the corresponding period in 1995 while revenue
dollars declined $2.0 million primarily due to the lower selling
prices resulting from the Distribution Agreement. Lincoln Snacks'
sales, excluding sales relating to the Distribution Agreement,
decreased 8% or $1.3 million versus the same period in 1995 primarily
due to a decline in export sales attributable to changing market
conditions in the Far East and a decrease in liquidation sales.
Gross profit decreased $4.3 million to $6.6 million for the twelve
months ended June 30, 1996 versus $10.9 million in the corresponding
period of 1995. Gross profit primarily decreased as a result of
lower selling prices under the Distribution Agreement.
Selling, general and administrative expenses decreased $5.6 million
to $5.7 million in the twelve months ended June 30, 1996 versus $11.3
million the same period in 1995. These expenses decreased during
this period primarily due to cost reductions resulting from the
Distribution Agreement.
The decline in gross profits, more than offset by significantly lower
selling, general and administrative expenses coupled with a decrease
in non-recurring charges of $.7 million, resulted in an increase in
net income of $2.1 million to $.5 million for the twelve months ended
June 30, 1996 versus a $1.6 million net loss in the corresponding
period in 1995.
Twelve months ended June 30, 1995 versus June 30, 1994
Net sales decreased 8% or $2.4 million to $27.1 million for the
twelve months ended June 30, 1995 versus $29.5 million in the
corresponding period of 1994. Net sales of the Nut Division decreased
by $1.8 million which is primarily due to the loss of one large Nut
Division customer (acquired by another company which is not a
customer of the Nut Division) as well as declines in sales with other
customers associated with increased competitive pressures.
Gross profit increased 5.8% or $.6 million to $10.9 million for the
twelve months ended June 30, 1995 from $10.3 million in the
corresponding period of 1994. Gross profits improved as a result
of reduced factory costs, lower raw material costs, and formula
refinement.
Selling, general and administrative expenses decreased 26% or $4.1
million to $11.3 million in the twelve months ended June 30, 1995
versus $15.3 million in the same period in 1994. These expenses
decreased during this period primarily due to lower freight costs,
reduced trade and consumer promotional spending, and reduced
administrative expenses.
A non-recurring charge of $.7 million is related to the Company's
Distribution Agreement with Planters for Fiddle Faddle and Screaming
Yellow Zonkers. The charge is primarily comprised of a $.5 million
write-off of the covenant not to compete, a $.1 million severance
expense relating to a reduction in headcount, and a $.1 million
write-off of packaging relating to discontinued items.
The improvement in gross profit and lower selling, general and
administrative expenses contributed to a net loss decrease of $4.2
million to $1.6 million for the twelve months ended June 30, 1995
versus $5.8 million in the corresponding period in 1994. The net
loss, excluding the non-recurring charge, is $.9 million for the
twelve months ended June 30, 1995 versus $5.8 million in the
corresponding period in 1994.
Liquidity and Capital Resources
As of June 30, 1997, the Company had working capital of $2 million
compared with a working capital deficit of $.2 million at June 30,
1996, an increase of $2.2 million. The increase in working capital
is primarily attributable to a $3.1 million increase in net cash
provided by operations which was partially offset by term loan
repayments of $1.1 million.
Management continues to focus on increasing product distribution and
continues to review all operating costs with the objective of
increasing profitability and ensuring future liquidity. However,
there can be no assurance that any of these objectives will be
achieved in future periods. Although the Amendment contains
provisions designed to effect a smooth transfer of the distribution
business back to the Company, there can be no assurance as to the
long term effects of the transition.
The Company's short-term liquidity is affected by seasonal increases
in inventory and accounts receivable levels, payment terms in excess
of 60 days granted in some situations during certain months of the
year, and seasonality of sales. Inventory and accounts receivable
levels increase substantially during the latter part of the third
calendar quarter and during the remainder of the calendar year.
The following chart represents the net funds provided by or used in
operating, financing and investment activities for each period as
indicated.
<TABLE>
<CAPTION>
Twelve Months Ended
------------------------------------------------------------------------------------
(in thousands)
June 30, 1997 June 30, 1996
------------------------------------------------------------------------------------
<S> <C> <C>
Cash provided by operating activities $3,141 $ 1,273
Cash provided by (used in) investing activities 72 (119)
Cash used in financing activities (1,665) (1,174)
</TABLE>
Cash provided by operating activities increased to $3.2 million
during the twelve months ended June 30, 1997 compared to $1.3 million
in 1996. The increase in cash provided by operating activities is
primarily due to the Company's net profit of $1.4 million and an
increase in cash receipts due to the timing of sales.
Net cash provided by investing activities were $.1 million during the
twelve months ended June 30, 1997 compared to use of cash of $.1
million for the twelve months ended June 30, 1996. Net cash used by
investing activities as of June 30, 1997 of $.4 million represents
proceeds from the sale of land and is offset by $.3 million of
capital expenditures. Net cash used by investing activities as of
June 30, 1996 of $.1 million represents capital expenditures.
Cash used for financing activities for the twelve months ended
June 30, 1997 was attributable to term loan repayments of $1.1
million and revolver repayments of $.6 million. The proceeds of $.4
million from the sale of land were used to pay down the term loan and
revolver. Cash used for financing activities for the twelve months
ended June 30, 1996 was attributable to term loan repayments of $.8
million which were financed by revolver repayments of $.4 million.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Not Applicable
Item 8. Financial Statements and Supplementary Data
The financial information required by Item 8 is included
elsewhere in this report. See Part IV, Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
<TABLE>
<CAPTION>
The directors and executive officers of the Company are as follows:
Name Age Position
------------------ --- ------------------------------------------
<S> <C> <C>
Karen Brenner 41 Chairman and
Chief Executive Officer; Director(F1)(F3)
C. Larry Davis 56 Director(F2)(F4)
Alexander P. Lynch 45 Director(F1)(F3)
James G. Niven 51 Director(F2)(F4)
Kristine A. Crabs 34 Vice President - Chief Financial Officer,
Secretary and Treasurer
R. Scott Kirk 45 President and Chief Operating Officer
<FN>
(F1) Member of the Executive Committee.
(F2) Member of the Audit Committee.
(F3) Member of the Compensation Committee.
(F4) Member of the Long Term Equity Incentive Committee.
</FN>
</TABLE>
No family relationship exists among any of the executive officers
and directors of the Company.
Directors hold office until the next annual meeting of shareholders
of the Company and until their successors have been elected and
qualified or until their earlier resignation or removal. Officers
serve at the discretion of the Board of Directors.
The following sets forth the principal occupations of each of the
Company's executive officers and directors during the previous five
years, as well as the names of any other public or affiliated
companies or registered investment companies of which they are
directors.
Karen Brenner has served as Chairman and Chief Executive Officer
since June, 1994. Ms. Brenner has also served as a director of
Lincoln Snacks since its inception and has served as a director of
Noel Group, Inc., a company which prior to its adoption of a Plan of
Complete Liquidation and Distribution in March 1997, conducted its
principal operations through small and medium-sized operating
companies (including Lincoln Snacks) in which it holds controlling or
other significant equity interests, from October 1989 until November
1991, and as a Vice President of Noel from April 1989 until November
1991, when she became a Managing Director. Prior to joining Noel,
Ms. Brenner was a principal in a management and financial consulting
business, specializing in managing turnaround situations for venture
capital and leveraged buyout companies. In February 1996,
Ms. Brenner was elected Vice Chairman and a director of Carlyle
Industries, Inc. (formerly known as Belding Heminway Company, Inc.)
("Carlyle"). In May, 1996 she was elected Chairman of the Board and
in October, 1996 she was elected President and Chief Executive
Officer. Carlyle packages and distributes an extensive variety of
buttons for home sewing and crafts to mass merchandisers, specialty
stores and independent retailers throughout the United States.
Ms. Brenner is a director of On Assignment, Inc., a leading
nationwide provider of science professionals on temporary
assignments to laboratories in the biotechnology, environmental,
chemical, pharmaceutical, food and beverage and petrochemical
industries, and a director of Motorcar Parts and Accessories, Inc.,
a leading re-manufacturer and distributor of replacement alternators
and starters for both import and domestic cars and light trucks.
Ms. Brenner is currently a member of the Board of Trustees of Prep
for Prep, a charitable organization dedicated to providing
preparatory education to disadvantaged children, and a trustee of the
City Parks Foundation of New York.
C. Larry Davis has served as a director of Lincoln Snacks since its
inception. He is Chairman of the Board, Chief Executive Officer and
a principal owner of Farmhouse Foods Company. Mr. Davis has a broad
food and beverage industry background with over 25 years experience
at Nestle S.A. (1973-1992) and PepsiCo, Inc. (1967-1973) in both
domestic and international business operations. During the period
from 1984 through 1991, Mr. Davis served as Group Vice President and
President of the $800 million Nestle Specialty Products Company where
he was primarily involved in the successful turnaround of
under-performing businesses, the creation of new business growth
divisions, and acquisitions and divestitures. Mr. Davis is also a
member of the Board of Directors of Cultor Food Science, an
international manufacturer of unique food and beverage ingredients.
Alexander P. Lynch has served as a director of Lincoln Snacks since
November 1993. Mr. Lynch has been a partner of The Beacon Group, a
financial advisory firm, since May 1997. From January 1995 to April
1997 he served as Co-President and Co-Chief Executive Officer of The
Bridgeford Group ("Bridgeford"), a financial advisory firm. From
April 1991 to December 1994 he served as a Senior Managing Director
of Bridgeford. From 1985 until April 1991, Mr. Lynch was a Managing
Director of Lehman Brothers, a division of Shearson Lehman Brothers
Inc. Mr. Lynch is also a director of Illinois Central Corporation, a
railroad holding company, and a director of Patina Oil & Gas
Corporation, an independent oil and gas company engaged in
exploration and development.
James G. Niven has served as a director of Lincoln Snacks since
October 1992. He is currently a Senior Vice President of Sotheby's,
and, since 1982, has been a general partner of Pioneer Associates, a
venture capital investment company. He is also a director of The
Lynton Group, Inc., a company engaged in aircraft charter and
maintenance, Noel Group, Inc., Tatham Offshore, Inc., an independent
energy company engaged in the development, exploration and production
of offshore oil and gas reserves, HealthPlan Services Corporation, a
leading managed healthcare service company, CBT Bancshares, Inc., a
multi-financial holding company, and an advisory director of Houston
National Bank, a commercial bank. He is a member of the Board of
Managers of Memorial Sloan-Kettering Cancer Center, and a trustee of
the Museum of Modern Art and the National Center for Learning
Disabilities, Inc.
R. Scott Kirk has served as President and Chief Operating Officer
since August, 1997 and had served as Executive Vice President and
Chief Operating Officer since May, 1995. Mr. Kirk had served as
Vice President-General Manager of Lincoln Snacks since September,
1992. From 1990 to 1992 Mr. Kirk served as Vice President-Finance and
Chief Financial Officer of Nestle Dairy Systems, a leader in frozen
confection novelties. From 1987 to 1990 he was Business Controller
and from 1985 to 1987 he was General Credit Manager for Nestle Food
Corporation, a major manufacturer and marketer in the food industry.
From 1982 to 1985 he served as Director-Corporate Credit with
Continental Grain Company, a grain trading merchant. From 1979 to
1982 Mr. Kirk served as Assistant Manager of General Credit and from
1974 to 1979 was Senior Internal Auditor for Amstar Corporation
(Domino Sugar).
Kristine A. Crabs joined Lincoln Snacks in January 1993 as Vice
President of Finance and Administration, and in July, 1996 was
promoted to Vice President and Chief Financial Officer. Prior to
joining Lincoln Snacks, Ms. Crabs was a Senior Audit Manager with
KPMG Peat Marwick, specializing in the food and consumer products
industries.
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who
own more than ten percent of a registered class of the Company's
equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and to furnish
the Company with copies of such reports.
Based solely on its review of the copies of such forms furnished to
the Company by such reporting persons during the fiscal year ended
June 30, 1997, or written representations from such reporting persons
that no Forms 5 were required for those persons with respect to such
period, the Company believes that during the fiscal year ended June
30, 1997 all filing requirements applicable to its officers,
directors, and greater than ten-percent beneficial owners were
complied with.
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth certain information regarding
compensation awarded or paid to, or earned by, during each of the
last three fiscal years, the person who served as the Chairman and
Chief Executive Officer during the fiscal year ended June 30, 1997,
and the Company's executive officers (other than the Chairman and
Chief Executive Officer) who were serving as executive officers at
June 30, 1997 and whose total salary and bonus during the fiscal
year ended June 30, 1997 exceeded $100,000 (the "Named Executive
Officers").
<PAGE>
<TABLE>
<CAPTION>
Long Term Compensation
------------------------------------------------
Annual Compensation Awards Payouts
-------------------------------- -------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Annual Restricted All Other
Name and Compen- Stock LTIP Compen-
Principal Bonus sation Award(s) Options/ Payouts sation
Position Year (F1) Salary ($) ($) ($)(F2) ($) SARs(#) ($) ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Karen Brenner 1997 50,000 -- -- -- 300,000(F3) -- 175,000(F4)
Chairman and 1996 -- -- -- -- 5,000(F5) -- 175,000(F4)
Chief Executive 1995 -- -- -- -- 2,500(F5) -- 175,000(F4)
Officer
R. Scott Kirk 1997 168,000 45,000 -- -- 58,750(F6) -- 3,080(F7)
President and 1996 160,000 30,000 -- -- -- -- 3,200(F7)
Chief Operating 1995 143,000 4,000 -- -- 7,000(F8) -- 2,860(F7)
Officer
Kristine A. Crabs 1997 115,940 30,000 -- -- 17,500(F6) -- 2,319(F9)
Vice President and 1996 105,400 20,000 -- -- -- -- 2,108(F9)
Chief Financial 1995 95,400 4,000 -- -- 5,000(F8) -- 1,908(F9)
Officer
<FN>
(F1) Reference to 1997, 1996 and 1995 herein means each fiscal
year ending June 30, respectively.
(F2) The dollar value of perquisites and other personal benefits
for each of the Named Executive Officers was less than
established reporting thresholds.
(F3) Awarded on July 18, 1996 and April 29, 1997 pursuant to the
Company's 1993 Stock Option Plan.
(F4) Consists of $175,000 paid by Noel. Reference is made to
"Employment Contracts and Termination of Employment and
Change in Control Arrangements" for a description of Ms.
Brenner's employment arrangement with Noel.
(F5) Awarded to Ms. Brenner pursuant to the Company's Non-Employee
Directors' Stock Option Plan.
(F6) Awarded on July 18, 1996 pursuant to the Company's 1993 Stock
Option Plan.
(F7) Consists of amounts contributed by the Company to Mr. Kirk's
account under the Company's 401(k) plan.
(F8) Awarded on December 15, 1994 pursuant to the Company's 1993
Stock Option Plan.
(F9) Consists of amounts contributed by the Company to Ms. Crabs'
account under the Company's 401(k) plan.
</FN>
</TABLE>
<PAGE>
Option/SAR Grants During the Fiscal Year Ended June 30, 1997
The following table sets forth, information regarding individual
grants of stock options made during the fiscal year ended June 30,
1997 to each of the Named Executive Officers, and their potential
realizable values.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term
-------------------------------------------------------------------------- ---------------------------
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Shares Options/SAR's
Underlying Granted to Exercise or
Options/SAR's Employees in Base Price Expiration
Name Granted Fiscal Year ($/Sh) Date 5% ($) 10% ($)
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Karen Brenner 150,000(F1) 36.9% $1.50 7/18/06 $ 51,403(F3) $215,126(F3)
150,000(F2) 36.9% $1.00 4/29/07 $126,403(F3) $290,126(F3)
R. Scott Kirk 58,750(F1) 14.4% $1.50 7/18/06 $ 20,133(F3) $ 84,258(F3)
Kristine A. Crabs 17,500(F1) 4.3% $1.50 7/18/06 $ 5,997(F3) $ 25,098(F3)
<FN>
(F1) Granted on July 18, 1996 pursuant to the Company's 1993
Stock Option Plan. The options vest over a 36 month period.
Options become exercisable on each full month following the
date of grant.
(F2) Granted on April 29, 1997 pursuant to the Company's 1993
Stock Option Plan. The options vest over a 36 month period.
Options become exercisable on each full month following the
date of grant.
(F3) The assumed rates of annual appreciation are calculated from
the date of grant through the assumed expiration date.
Actual gains, if any, on stock option exercises and common
stock holdings are dependent on the future performance of
the Common Stock and overall stock market conditions.
There can be no assurance that the value reflected in the
table will be achieved.
</FN>
</TABLE>
<PAGE>
Aggregate Option/SAR Exercises During the Fiscal Year and Fiscal Year
End Option/SAR Values
The following table provides information related to options exercised
by the Named Executive Officers during the fiscal year ended June 30,
1997 and the number and value of unexercised stock options held by
the Named Executive Officers at that date. The Company does not have
any outstanding stock appreciation rights.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
options/SARs at Options/SARs
Fiscal Year-End (#) at Fiscal Year-End(F1)($)
------------------------------------------------------------------------ ---------------------------
(a) (b) (c) (d) (e)
Shares Acquired Value
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Karen Brenner -- -- 280,901 237,499 $9,115 $37,760
R. Scott Kirk -- -- 30,311 35,439 0 0
Kristine A. Crabs -- -- 10,778 11,722 0 0
<FN>
(F1) Based on a closing price of Common Stock on June 30, 1997
of $1.3125 per share.
</FN>
</TABLE>
Compensation of Directors
Directors of the Company are not paid annual retainers but are
reimbursed for their out-of-pocket expenses incurred in connection
with their service as directors, including travel expenses. Pursuant
to the Company's Non-Employee Directors' Stock Option Plan, as
amended, each non-employee director, following initial election to
the Board, automatically receives an option to purchase 20,000 shares
of Common Stock at an exercise price equal to the fair market value
per share on the date of grant, and each non-employee director
automatically receives an option to purchase 5,000 shares of Common
Stock immediately following such director's re-election at an
exercise price equal to the fair market value of a share of Common
Stock on the date of grant.
Employment Contracts and Termination of Employment and Change in
Control Arrangements
Pursuant to a letter agreement dated March 1, 1996 by and between
Ms. Brenner and Noel, as amended by letter dated March 21, 1996,
Ms. Brenner is employed in an executive capacity by Noel for a period
of two years. The term may be extended by mutual agreement.
Pursuant to the agreement, Ms. Brenner has agreed to perform such
executive services in connection with Noel and entities in which Noel
holds interests, including Lincoln Snacks, as shall reasonably be
assigned to Ms. Brenner by the Board of Directors or Chief Executive
Officer of Noel. $175,000 of the salary paid to Ms. Brenner pursuant
to this agreement is deemed to be paid for services rendered to
Lincoln Snacks.
In addition, as evidenced by a letter agreement dated March 22, 1995
in consideration for Ms. Brenner agreeing to serve as Chairman and
Chief Executive Officer, effective June 20, 1994, Noel granted
Ms. Brenner an option to purchase 200,000 shares of the Company's
Common Stock held by Noel at a price of $1.50 per share. Options to
purchase 166,667 of such shares are currently exercisable. The
balance is exercisable on the earlier to occur of (x) the eighth
anniversary of the date of grant, provided that Ms. Brenner shall
have continued to serve as Chief Executive Officer continuously
through such date, and (y) from and after the date the stock price
reaches $5.00. The vested options will terminate on the fourth
anniversary of the date Ms. Brenner ceases to so serve as Chief
Executive Officer or the tenth anniversary of the date of grant
whichever is earlier. The shares purchasable by Ms. Brenner
pursuant to the forgoing options have been registered under the
Securities Act of 1933, as amended, permitting the resale of such
shares to the public following exercise of such options by
Ms. Brenner.
Compensation Committee Interlocks and Insider Participation
In February 1993, the Board of Directors formed a Compensation
Committee, the current members of which are Alexander P. Lynch and
Karen Brenner. Except for Ms. Brenner, none of the members of the
Compensation Committee during the last completed fiscal year was an
officer or employee of the Company. In November 1993, the Board of
Directors formed a Long Term Equity Incentive Committee to administer
the 1993 Stock Option Plan and the Non-Employee Directors' Stock
Option Plan, the current members of which are James G. Niven and C.
Larry Davis. None of the members of the Long Term Equity Incentive
Committee during the fiscal year ended June 30, 1997 was an officer
or employee of the Company. During the fiscal year ended June 30,
1997, no executive officer of the Company served as a director or a
member of the Compensation Committee (or other board committee
performing equivalent functions) of another entity one of whose
executive officers served on the Compensation Committee, the Long
Term Equity Incentive Committee or the Board of Directors of the
Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of September
8, 1997 as to the beneficial ownership of the Common Stock and the
common stock, par value $.10 per share, of Noel ("Noel Common Stock")
by (i) each person known by the Company to own beneficially more than
5% of the issued and outstanding shares of Common Stock, (ii) each
director, (iii) each of the Named Executive Officers, and (iv) all
directors and executive officers as a group:
<TABLE>
<CAPTION>
Noel Common Stock Lincoln Snacks Common Stock
------------------------------------------------------------- --------------------------------
Name and Address of Number of Percentage Number of Percentage
Beneficial Owner Shares(F1) Owned(F2) Shares(F3) Owned(F4)
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5% Stockholders
Noel Group, Inc. -- -- 3,769,755 59.5%
667 Madison Avenue
New York, New York 10021
Lawrence, Kamin, Saunders -- -- 489,000(F5) 7.7%
& Uhlenhop on behalf of
Gofen & Glossberg, Inc.
208 S. LaSalle St., Suite 1750
Chicago, IL 60604
Directors
Karen Brenner 0 -- 290,000(F6) 4.5%
C. Larry Davis 0 -- 78,000(F7) 1.2%
Alexander P. Lynch 0 * 32,500(F8) *
James G. Niven 22,223 * 32,500(F9) *
Named Executive Officers
Karen Brenner 0 -- 290,000(F6) 4.5%
R. Scott Kirk 0 -- 98,561(F10) 1.6%
Kristine A. Crabs 0 -- 33,528(F11) *
All executive officers and 22,223 * 565,089(F12) 6.5%
directors as a group
(includes 6 persons)
* Less than 1%
<FN>
(F1) Unless otherwise indicated, each of the parties listed has
sole voting and investment power over the shares of Noel
Common Stock owned.
(F2) Based on 20,611,028 shares of Noel Common Stock issued and
outstanding on September 5, 1997.
(F3) Unless otherwise indicated, each of the parties listed has
sole voting and investment power over the shares of Common
Stock owned. The number of shares of Common Stock indicated
includes in each case the number of shares of Common Stock
issuable upon exercise of outstanding stock options, to the
extent that such options are currently exercisable. For
purposes of this table, options are deemed to be currently
exercisable to the extent that they are exercisable prior
to November 30, 1997.
(F4) Based on 6,331,790 shares of Common Stock issued and
outstanding on September 8, 1997. In addition, treated
as outstanding for the purpose of computing the percentage
ownership of each director or named executive officer and
of all executive officers and directors as a group are
shares of Common Stock issuable to such individual or group
upon exercise of options to purchase Common Stock to the
extent currently exercisable.
(F5) The information set forth in the table and in this footnote
regarding shares beneficially owned by Gofen & Glossberg, Inc.
("Gofen & Glossberg") is based on a Schedule 13G dated
February 12, 1996 filed with the Securities and Exchange
Commission by Gofen & Glossberg.
(F6) Consists of 9,100 shares held by Ms. Brenner directly, 114,233
shares issuable upon exercise of options granted by the
Company, but does not include an additional 204,167 shares
issuable pursuant to options granted by the Company which are
not currently exercisable. In addition, consists of 166,667
shares issuable upon exercise of the Noel Option, but does not
include an additional 33,333 shares issuable pursuant to the
Noel Option which are not currently exercisable.
(F7) Consists of 25,500 shares held by Mr. Davis directly, 20,000
shares held by Mr. Davis' wife as trustee for Mrs. Davis'
children, with respect to which shares Mr. Davis disclaims
beneficial ownership, and 32,500 shares issuable upon exercise
of options granted by the Company.
(F8) Consists of 32,500 shares issuable upon exercise of options to
purchase Common Stock granted by the Company.
(F9) Consists of 9,100 shares held by Mr. Niven directly and 23,400
shares issuable upon exercise of options to purchase Common
Stock granted by the Company.
(F10) Consists of 68,250 shares held by Mr. Kirk directly and 30,311
issuable upon exercise of options to purchase Common Stock
granted by the Company which are currently exercisable. The
number indicated does not include an additional 35,439 shares
issuable pursuant to options granted by the Company which are
not currently exercisable.
(F11) Consists of 22,750 shares held by Ms. Crabs directly and
10,778 shares issuable upon exercise of options to purchase
Common Stock granted by the Company which are currently
exercisable. The number indicated does not include an
additional 11,722 shares issuable pursuant to options to
purchase Common Stock granted by the Company which are not
currently exercisable.
(F12) Includes 410,389 shares issuable upon exercise of options
granted by the Company and Noel and certain shares with
respect to which beneficial ownership is disclaimed.
</FN>
</TABLE>
<PAGE>
Item 13. Certain Relationships and Related Transactions
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements
The financial statements listed in the accompanying Index to
Financial Statements and Financial Statement Schedules are filed
as part of this annual report
(2) Exhibits.
Financial statement schedules are omitted because they are not
applicable or the required information is shown in the financial
statements or notes thereto.
(b) Reports on Form 8-K.
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LINCOLN SNACKS COMPANY
(Registrant)
By: /s/ Karen Brenner
Karen Brenner
Chairman of the Board and
Chief Executive Officer
Date: September 15, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Karen Brenner September 15, 1997
Karen Brenner
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer); Director
/s/ Kristine A. Crabs September 15, 1997
Kristine A. Crabs
Vice President-Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ C. Larry Davis September 15, 1997
C. Larry Davis
Director
/s/ Alexander P. Lynch September 15, 1997
Alexander P. Lynch
Director
/s/ James G. Niven September 15, 1997
James G. Niven
Director
LINCOLN SNACKS COMPANY
FINANCIAL STATEMENTS
AS OF JUNE 30, 1997 AND 1996
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
LINCOLN SNACKS COMPANY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Financial Statements: Page(s)
<S> <C>
Report of Independent Public Accountants F-1
Balance Sheets as of June 30, 1997 and 1996 F-2 to F-3
Statements of Operations for the Years Ended
June 30, 1997, 1996 and 1995 F-4
Statements of Changes in Stockholders' Equity
for the Years Ended June 30, 1997, 1996 and 1995 F-5
Statements of Cash Flows for the Years Ended
June 30, 1997, 1996 and 1995 F-6 to F-7
Notes to Financial Statements F-8 to F-17
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Lincoln Snacks Company:
We have audited the accompanying balance sheets of Lincoln Snacks Company (a
Delaware corporation) as of June 30, 1997 and 1996, and the related statements
of operations, changes in stockholders' equity, and cash flows for the years
ended June 30, 1997, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lincoln Snacks Company as of
June 30, 1997 and 1996, and the results of its operations and its cash flows
for the years ended June 30, 1997, 1996 and 1995 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut,
August 12, 1997
<PAGE>
<TABLE>
<CAPTION>
LINCOLN SNACKS COMPANY
BALANCE SHEETS
ASSETS
JUNE 30, 1997 AND 1996
June 30, June 30,
1997 1996
- --------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,606,357 $ 58,538
Accounts receivable, net of allowances for doubtful accounts
and cash discounts of $237,778 and $173,524 1,951,937 2,693,875
Inventories 1,680,253 2,083,528
Prepaid and other current assets 29,023 90,336
- --------------------------------------------------------------------------------------------------------
Total current assets 5,267,570 4,926,277
- --------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 370,000 610,000
Building and leasehold improvements 1,526,705 1,555,985
Machinery and equipment 4,800,284 5,210,177
Construction in process 122,319 8,161
- --------------------------------------------------------------------------------------------------------
6,819,308 7,384,323
Less-accumulated depreciation (2,263,689) (1,975,357)
- --------------------------------------------------------------------------------------------------------
4,555,619 5,408,966
INTANGIBLE AND OTHER ASSETS, net of accumulated amortization of
$667,111 and $780,337 3,466,371 3,643,487
- --------------------------------------------------------------------------------------------------------
Total assets $13,289,560 $13,978,730
========================================================================================================
The accompanying notes to financial statements
are an integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LINCOLN SNACKS COMPANY
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30, 1997 AND 1996
June 30, June 30,
1997 1996
- --------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 1,357,170 $ 1,830,054
Accrued expenses 1,178,601 1,116,664
Accrued trade promotions 675,585 860,180
Deferred gain-short term (Note 8) 13,434 --
Current portion of term loan -- 800,004
Borrowings under revolving line of credit -- 556,115
- --------------------------------------------------------------------------------------------------------
Total current liabilities 3,224,790 5,163,017
TERM LOAN PAYABLE -- 309,322
DEFERRED GAIN - LONG TERM (Note 8) 115,784 --
- --------------------------------------------------------------------------------------------------------
Total liabilities 3,340,574 5,472,339
- --------------------------------------------------------------------------------------------------------
COMMITMENTS (Notes 7 and 9)
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value, 20,000,000 shares authorized,
6,450,090 outstanding at June 30, 1997 and 1996 64,501 64,501
Special stock, $0.01 par value, 300,000 shares authorized, none
outstanding -- --
Additional paid-in capital 18,010,637 18,010,637
Accumulated deficit (8,100,126) (9,542,721)
- --------------------------------------------------------------------------------------------------------
9,975,012 8,532,417
Less - cost of common stock in treasury; 118,300 shares at June 30,
1997 and 1996 (26,026) (26,026)
- --------------------------------------------------------------------------------------------------------
Total stockholders' equity 9,948,986 8,506,391
- --------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $13,289,560 $13,978,730
========================================================================================================
The accompanying notes to financial statements
are an integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LINCOLN SNACKS COMPANY
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
Year Ended Year Ended Year Ended
June 30, 1997 June 30, 1996 June 30, 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $23,101,704 $23,845,844 $27,136,404
COST OF SALES 15,525,387 17,224,348 16,220,495
- --------------------------------------------------------------------------------------------------------
Gross profit 7,576,317 6,621,496 10,915,909
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 5,697,404 5,724,777 11,271,544
WRITE DOWN OF FIXED ASSETS (Note 10) 269,498 -- --
NON-RECURRING CHARGE (Note 13) -- -- 726,019
- --------------------------------------------------------------------------------------------------------
Income (loss) from operations 1,609,415 896,719 (1,081,654)
OTHER:
Interest expense (126,820) (356,910) (519,144)
Other income (expense), net -- -- 12,415
- --------------------------------------------------------------------------------------------------------
Income (loss) before provision for
income taxes 1,482,595 539,809 (1,588,383)
PROVISION FOR INCOME TAXES 40,000 29,000 14,000
- --------------------------------------------------------------------------------------------------------
Net income (loss) $ 1,442,595 $ 510,809 $(1,602,383)
========================================================================================================
NET INCOME (LOSS) PER SHARE (Note 2) $ .23 $ .08 $ (.25)
========================================================================================================
Weighted average number of shares
outstanding 6,331,790 6,334,757 6,340,890
========================================================================================================
The accompanying notes to financial statements
are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LINCOLN SNACKS COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
Loans
Additional Receivable
Common Special Paid-in From Accumulated Treasury
Stock Stock Capital Stockholders (Deficit) Stock
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
June 30, 1994 $64,501 $ -- $17,764,746 $ -- $ (8,451,147) $(24,024)
Net loss -- -- -- -- (1,602,383) --
Noel payment under
tax agreement -- -- 233,000 -- -- --
- --------------------------------------------------------------------------------------------------------
June 30, 1995 64,501 -- 17,997,746 -- (10,053,530) (24,024)
Net income -- -- -- -- 510,809 --
Purchase of 9,100
shares of treasury -- -- -- -- -- (2,002)
Noel payment under
tax agreement -- -- 12,891 -- -- --
- --------------------------------------------------------------------------------------------------------
June 30, 1996 64,501 -- 18,010,637 -- (9,542,721) (26,026)
Net income -- -- -- -- 1,442,595 --
- --------------------------------------------------------------------------------------------------------
June 30, 1997 $64,501 $ -- $18,010,637 $ -- $ (8,100,126) $(26,026)
========================================================================================================
The accompanying notes to financial statements
are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LINCOLN SNACKS COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
Year Ended Year Ended Year Ended
June 30, June 30, June 30,
1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $1,442,595 $ 510,809 $(1,602,383)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 640,738 636,943 569,565
Amortization 177,116 221,700 627,842
Write-off of covenant not-to-compete -- -- 466,667
Write down of fixed assets 269,498 -- (5,415)
Provision for doubtful accounts and
cash discounts, net 64,254 (84,439) 33,711
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 677,684 (1,087,214) 95,027
Decrease in inventories 403,275 279,953 1,157,390
Decrease in prepaid and other current assets 61,313 8,692 58,582
(Increase) in other assets -- (6,017) (33,452)
Increase (decrease) in accounts payable (472,885) 1,054,514 (434,188)
(Decrease) in accrued trade promotions (184,595) (140,784) (5,058)
Increase (decrease) in accrued expenses 61,938 (121,396) (325,536)
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,140,931 1,272,761 602,752
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (314,529) (119,844) (474,307)
Proceeds on sale of land 369,218 -- --
Proceeds on sale of fixed assets 17,640 -- --
- --------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 72,329 (119,844) (474,307)
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LINCOLN SNACKS COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(Continued)
Year Ended Year Ended Year Ended
June 30, June 30, June 30,
1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) under revolver, net $ (556,115) $ (385,476) $ 466,010
(Repayments) under term loan (1,109,326) (800,004) (800,006)
Noel payment under tax agreement -- 12,891 233,000
Purchase of treasury stock -- (2,002) --
- --------------------------------------------------------------------------------------------------------
Net cash (used in) financing activities (1,665,441) (1,174,591) (100,996)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 1,547,819 (21,674) 27,449
CASH, beginning of period 58,538 80,212 52,763
- --------------------------------------------------------------------------------------------------------
CASH, end of period $ 1,606,357 $ 58,538 $ 80,212
========================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 120,059 $ 279,582 $ 438,430
========================================================================================================
Income taxes paid $ 21,388 $ 22,140 $ 6,129
========================================================================================================
The accompanying notes to financial statements
are an integral part of these statements.
</TABLE>
<PAGE>
LINCOLN SNACKS COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) The Company:
Lincoln Snacks Company ("Lincoln" or the "Company"), formerly Lincoln
Foods Inc., is a Delaware corporation and is a majority-owned subsidiary
of Noel Group, Inc. (the "Parent"). Lincoln is engaged in the
manufacture and marketing of caramelized pre-popped popcorn and glazed
popcorn/nut mixes primarily throughout the United States and Canada.
Sales of the Company's products are subject to seasonal trends with a
significant portion of sales occurring in the last four months of the
calendar year. The Company was formed in August 1992.
In January 1994, the Company sold 2,472,500 shares of common stock as
of approximately $9,600,000 from the sale of this stock. The Company's
certificate of incorporation authorizes the issuance of special stock
with such designations, rights and preferences as may be determined from
time to time by the Board of Directors.
On July 17, 1995, Planters Company, a unit of Nabisco, Inc.
("Planters"), began exclusively distributing the Company's Fiddle
Faddle and Screaming Yellow Zonkers products (the "Products") pursuant
to a distribution agreement dated June 6, 1995 (the "Distribution
Agreement") for an initial term which was originally scheduled to expire
on June 30, 1997 unless renewed for additional one year periods. The
Distribution Agreement required Planters to purchase an annual minimum
number of equivalent cases of the Products during the initial term.
On February 28, 1997, the Company and Planters entered into an amendment
to the Distribution Agreement, which was further modified on May 9, 1997
(the "Amendment"), pursuant to which the exclusive distribution
arrangement with respect to the Company's Fiddle Faddle product was
extended for an additional six month period expiring on December 31,
1997, at which time the distribution arrangement will terminate.
Effective May 1, 1997, Planters ceased, and Lincoln resumed, marketing
and distributing the Company's Screaming Yellow Zonkers product. The
Company does not expect to further extend the term of the Distribution
Agreement beyond December 31, 1997.
The Amendment required Planters to purchase a specified number of
manufactured cases of the Products and for Planters to compensate the
Company for the remaining contract minimums for the twelve month period
ended June 30, 1997. The Amendment requires new minimums for the six
month period ended December 31, 1997 (six month minimums). Planters
purchased 79% of the original June 30, 1997 contract minimums and made a
cash payment to the Company as compensation for the remaining 21%.
Planters has agreed to compensate the Company in the event that Planters
fails to purchase the six month minimums by December 31, 1997. The
Amendment also requires Planters to compensate the Company in the event
that certain sales levels are not achieved during the calendar year
ending December 31, 1997.
The Amendment, among other things, eliminates Planters' right to
terminate the contract in the event of a change of control, Planters'
right of first refusal on Poppycock granted in the original contract,
and allows Lincoln to enter into co-pack arrangements relating to
ready-to-eat popcorn.
Although the Amendment contains provisions designed to effect a smooth
transfer of the distribution business back to the Company, there can be
no assurance as to the long term effects of the transition.
Net sales to Planters for the year ended June 30, 1996 were equal to
the minimum number of cases required to be purchased during the fiscal
year as part of the Distribution Agreement. Sales to Planters
represented 47% and 43% of net sales for the years ended June 30, 1997
and 1996 and amounts due from Planters represented 69% and 85% of
accounts receivable at June 30, 1997 and 1996, respectively.
On July 11, 1997, the Company entered into a Trademark License Agreement
with Nabisco, Inc. pursuant to which Nabisco, Inc. granted the Company
the right to use the Planters trademarks in connection with the sale
and marketing of the Company's Fiddle Faddle product in the United
States for a period of five years commencing on January 1, 1998.
(2) Summary of Significant Accounting Policies:
Use of estimates --
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Revenue recognition --
Revenue is recognized by the Company when products are shipped and
title passes to the customer.
Advertising and promotion --
Advertising costs are expensed in the period in which the related
advertisements occur. The estimated cost of the total ultimate
redemptions of various coupon programs are expensed immediately at the
time a coupon program is distributed to the public.
Inventories --
Inventories, which include material, labor and manufacturing overhead,
are stated at the lower of cost (first in, first out) or market
(net realizable value).
Property, plant and equipment --
Property, plant and equipment is stated at cost and is depreciated on
the straight-line method based upon the estimated useful lives of the
assets. The estimated useful lives of assets are as follows:
Building and leasehold improvements 10-30 years
Machinery and equipment 3-10 years
Furniture and fixtures 7-10 years
Expenditures for maintenance and repairs are charged against income as
incurred. Significant expenditures for betterments are capitalized.
Capital expenditures which are not able to be put into use immediately
are included in construction in process. As these programs are
completed, they are transferred to depreciable assets.
Intangible assets --
Intangible assets are carried at cost, less accumulated amortization
which is calculated on a straight-line basis over the estimated useful
lives as follows:
Excess of purchase price over net assets acquired 30 years
Intellectual property and other 1-20 years
Covenant not to compete (see Note 14) 4 years
Impairment of long-lived assets --
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" in 1997. This statement requires that long-lived assets and certain
identifiable intangibles held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In general, this
statement requires recognition of an impairment loss when the sum of
undiscounted expected future cash flows is less than the carrying amount
of such assets. The measurement for such impairment loss is then based
on the fair value of the asset. Adoption of this statement had no
material effect on the financial statements.
Net income (loss) per common share --
Net income (loss) per common share is computed by dividing net income
available for common stock by the weighted average number of common
shares outstanding. Weighted average common shares outstanding
includes any common equivalent shares calculated for outstanding stock
options and warrants under the treasury stock method.
Reclassifications --
Certain amounts have been reclassified in the prior year statements to
conform with current year presentation.
(3) Balance Sheet Components:
The components of certain balance sheet accounts are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------------------------------------------------
Inventories --
<S> <C> <C>
Raw and packaging materials $1,293,280 $1,616,673
Finished goods 386,973 466,855
------------------------------------------------------------------------
$1,680,253 $2,083,528
=========================================================================
Intangible and other assets --
Excess of purchase price over
net assets acquired $3,977,631 $3,977,631
Intellectual property and other 155,851 446,193
------------------------------------------------------------------------
4,133,482 4,423,824
Less: accumulated amortization (667,111) (780,337)
------------------------------------------------------------------------
Intangible assets, net $3,466,371 $3,643,487
==================================================================================================
</TABLE>
<PAGE>
(4) Income Taxes:
Lincoln follows the accounting for income taxes required under Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes".
Upon completion of the registration and sale of stock in January 1994
the Company became less than 80% owned by its Parent and is no longer
included in the United States Federal income tax return of its Parent.
The following represents a reconciliation of the federal statutory
income tax rate to the effective income tax rate:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income (benefit) tax rate 34.0% 34.0% (34.0%)
State income and franchise taxes, net
of federal benefit 1.1 3.6 0.6
Net loss (benefited) not benefited (31.5) 14.6 30.1
Depreciation and amortization (7.7) (27.5) 3.3
Write down of fixed assets 6.2 -- --
Accrued expenses (4.0) (13.4) (0.3)
Other temporary differences 4.4 (8.4) 0.7
Non-deductible meals and entertainment .2 0.7 0.2
--------------------------------------------------------------------------------------------------
Effective income tax rate 2.7% 3.6% 0.6%
==================================================================================================
<CAPTION>
The principal temporary items comprising the net unrecognized deferred
income tax asset are as follows:
June 30, June 30, June 30,
1997 1996 1995
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net operating loss carryforward, net
of amount utilized by Parent $ 2,428,000 $ 3,079,000 $ 2,259,000
Depreciation and amortization (648,000) (662,000) (264,000)
Accrued expenses not yet deductible 165,000 476,000 545,000
All other 169,000 192,000 194,000
--------------------------------------------------------------------------------------------------
Net deferred tax asset unrecognized 2,114,000 3,085,000 2,734,000
Less: valuation reserve (2,114,000) (3,085,000) (2,734,000)
--------------------------------------------------------------------------------------------------
Net deferred tax asset recognized $ -- $ -- $ --
==================================================================================================
</TABLE>
<PAGE>
At June 30, 1997, the Company had a net operating loss carryforward
("NOL's") for income tax purposes, subject to Internal Revenue Service
review, of approximately $6,100,000 which expire in 2007 through 2011 if
not utilized. The above NOL's include those NOL's generated subsequent
to deconsolidating from its Parent and approximately $200,000 of
unutilized NOL's generated by the Company that were included in the
Parent's tax return prior to deconsolidation in fiscal 1996. The
Company has been reimbursed for the portion of the Company's fiscal 1994
and 1995 NOL's utilized by the Parent prior to deconsolidating. This
reimbursement resulted in a payments of $233,000 and $12,891,
respectively, to the Company, which were recorded by the Company as
additional paid-in capital.
Under the United States Internal Revenue Code, future utilization of
NOL's may be limited when certain ownership changes occur. As a result,
future changes in ownership may limit the Company's ability to fully
utilize its available NOL's.
(5) Stock Options and Warrants:
In November 1993, the Company adopted the 1993 Stock Option Plan and
the Non-Employee Directors' Stock Option Plan. A total of 550,000
shares of common stock is reserved for issuance under the 1993 Stock
Option Plan and 200,000 shares of common stock is reserved for
issuance under the Non-Employee Directors' Stock Option Plan. The
Company has granted options on 500,750 shares and 106,800 shares,
respectively, through June 30, 1997. Under both Plans, the option
exercise price equals the stock's market price on date of grant.
The 1993 Stock Option Plan options vest over periods ranging from
12 to 36 months. The Non-Employee Director's Stock Option Plan
options vest immediately upon grant. All options expire ten years
from date of grant. The Company accounts for these plans under APB
Opinion No. 25, under which no compensation cost has been recognized.
Under the Non-Employee Directors' Stock Option Plan, each individual
subsequently elected to the Board of Directors who is not an employee of
the Company will receive a grant of stock options covering 20,000 shares
of common stock, with an exercise price equal to the fair market value
of a share of common stock as of the date of grant. In addition, each
non-employee director of the Company will receive a stock option
covering 5,000 shares of common stock immediately following each Annual
Meeting of Stockholders of the Company during the ten-year term of the
Non-Employee Directors' Stock Option Plan, with an exercise price equal
to the fair market value of a share of common stock as of the date of
grant.
In connection with the offering of common stock in January 1994, the
Company issued to the underwriters warrants to purchase 215,000 shares
of common stock. These warrants are exercisable for a period of five
years beginning in January 1994 at an exercise price of $5.40 per
share.
Had compensation cost for these plans been determined consistent with
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), the
Company's net income and earnings per share would have been reduced to
the following pro forma amounts:
<TABLE>
<CAPTION>
1997 1996
------------------------------------------------------------------------
<S> <C> <C>
Net income:
As reported $1,442,595 $510,809
Pro forma 1,300,723 463,410
Income per share:
As reported $.23 $.08
Pro forma .21 .07
</TABLE>
Because the SFAS 123 method of accounting is not applicable to options
granted prior to July 1, 1995, the resulting pro forma compensation cost
may not be representative of that to be expected in future years.
A summary of the status of the Company's two stock option plans at
June 30, 1997, 1996 and 1995 and changes during the years then ended is
presented in the table and narrative below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------------- ----------------- ----------------
Wtd.Avg. Wtd.Avg. Wtd.Avg.
Shares Ex.Price Shares Ex.Price Shares Ex.Price
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 473,800 $4.35 499,600 $4.59 466,600 $4.91
Granted 437,750 1.32 55,000 2.10 68,500 2.02
Canceled (75,000) 4.50 -- -- -- --
Forfeited -- -- (19,000) 3.53 -- --
Expired (14,000) 4.31 (61,800) 4.50 (35,500) 3.95
--------------------------------------------------------------------------------------------------
Outstanding at end of year 822,550 2.73 473,800 4.35 499,600 $4.59
==================================================================================================
Exercisable at end of year 435,940 310,492 275,800
==================================================================================================
Weighted average fair value of
options granted $1.00 $1.58
</TABLE>
<TABLE>
<CAPTION>
The following table summarizes information about stock options and
warrants outstanding at June 30, 1997:
Options Outstanding Options Exercisable
---------------------------------------------------------------- --------------------------
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
Range of at Remaining Average At Average
Exercise June 30, Contractual Exercise June 30, Exercise
Prices 1997 Life (Years) Price 1997 Price
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.00 - $1.50 437,750 9.38 $1.32 103,340 $1.46
$1.75 - $1.875 68,000 7.66 1.81 58,800 1.80
$2.375 - $2.70 40,000 8.08 2.54 40,000 2.54
$4.50 - $5.40 276,800 6.55 5.20 233,800 5.16
--------------------------------------------------------------------------------------------------
$1.00 - $5.40 822,550 435,940
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1997 and 1996, respectively:
risk-free interest rates of 6.92 and 6.74 percent, no expected dividend
yields, expected lives of ten years and expected volatility of 59%.
(6) Credit Facility:
In December 1993, the Company entered into a bank loan agreement, as
amended, which provides for up to $6 million in revolver borrowings and
a $1.9 million term loan. The term loan was fully repaid during the
year ended June 30, 1997, and there were no amounts outstanding under
the revolving credit facility at June 30, 1997. The credit facility is
available through December 2, 1999. At that time, any borrowing under
the credit facility becomes due.
The facilities require the maintenance of various financial and other
covenants including, but not limited to, earnings before interest,
taxes, depreciation and amortization ("EBITDA"), tangible net worth
and debt coverage. The financial covenants are to be met on a
quarterly basis, and the minimum requirements vary by quarter.
Borrowings under the revolver are limited to a percent of eligible
receivables and inventory. The revolving credit facility bears
interest at a rate equal to the sum of the average monthly
Eurodollar rate plus 2.0%. In addition to this rate, the Company
does have the option to pay interest on the revolving credit facility
at the Alternate Base Rate, as defined, plus 0.5%. At June 30, 1997 and
1996, the interest rate was 8.696% and 8.94%, respectively. Interest is
payable monthly.
The facility requires an annual monitoring fee of $12,000 and an unused
facility fee of 0.5% on the unused portion of the revolver. The
facilities are collateralized by substantially all of the Company's
assets.
(7) Commitments:
In the normal course of business, Lincoln enters into purchase
commitments with certain of its raw material suppliers generally
for periods up to one year. Amounts to be purchased under these
arrangements are not anticipated to exceed raw material requirements
or the period to which the commitments apply. The total remaining
amount of inventory to be purchased under these commitments as of
June 30, 1997 is approximately $2,277,000. These purchase commitments
expire primarily through December 31, 1997.
(8) Sale of Land:
In October 1996, the Company sold land adjacent to its manufacturing
facility in Lincoln, Nebraska. At the same time, the Company entered
into a ten year lease agreement for 50,000 square feet of a new
warehouse to be constructed on the land. The proceeds from the sale,
of $369,218, were used to pay down the Company's term loan. The sale
resulted in a net gain of $129,218 which has been deferred, and will be
recognized as income over the ten year lease term.
(9) Leases:
At June 30, 1997, the Company's minimum future rental payments on a
fiscal year basis under non-cancelable operating leases are as follows:
1998 $ 437,000
1999 325,000
2000 266,000
2001 243,000
2002 and thereafter 1,445,000
Rent expense for operating leases amounted to approximately $286,000,
$283,000 and $338,000 for the years ended June 30, 1997, 1996 and 1995,
respectively.
(10) Write Down of Fixed Assets:
During the year ended June 30, 1997, the Company recorded a write-down
of $269,498 on certain fixed assets that are no longer used in the
operations of the Company.
(11) Related Party Transactions:
During the years ended June 30, 1997, 1996 and 1995, the Company paid
legal fees of approximately $72,000, $86,000 and $75,000, respectively,
to a law firm of which one of its partners is a director of the Parent.
A director was paid export brokerage commissions of $9,000 and $42,000
during the years ended June 30, 1996 and 1995, respectively, and $35,000
during the year ended June 30, 1995 for consulting services.
During the years ended June 30, 1996 and 1995, one of the Company's
executives was paid by the Parent. Lincoln did not receive any
allocation of expenses from the Parent for this executive's services.
During the year ended June 30, 1995, an investment banking firm rendered
certain financial services to the Company. A director of the Company is
Co-President and Co-Chief Executive Officer of this investment banking
firm.
(12) Employee Benefit Plans:
The Company sponsors a defined contribution savings plan (401(k)).
Participation in the plan is available to substantially all salaried and
hourly employees. Company contributions to the plan are based on a
percentage (2%) of employee contributions. During the years ended
June 30, 1997, 1996 and 1995, Company contributions to the plan totaled
$46,000, $51,000 and $48,000, respectively.
(13) Non-recurring Charge Related to Distribution Agreement:
On June 6, 1995, the Company entered into an exclusive distribution
agreement with Planters for the sales and distribution rights for the
Products, see Note 1.
As a result of this agreement, the Company recorded a non-recurring
pre-tax charge to operations of $726,019 for estimated costs associated
with implementing the agreement for the year ended June 30, 1995. The
largest portion of this charge represents a $466,667 write-off of the
unamortized balance of covenant not to compete, as the Company
determined the net realizable value of the covenant to be
insignificant. In addition, the charge was also for estimated
severance payments and inventory obsolescence costs associated with
the agreement.
(14) Sales Data:
Export sales --
During the years ended June 30, 1997, 1996 and 1995, export sales were
approximately $2,157,000, $2,241,000 and $3,086,000, respectively.
Significant customer --
For the years ended June 30, 1997 and 1996, Planters represented
approximately 47% and 43%, respectively, of net sales. No one customer
accounted for 10% or more of net sales during the year ended December
31, 1995.
(15) Valuation and Qualifying Accounts:
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning Costs and at end
Description of Period Expenses Deductions of Period
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended June 30, 1995,
allowances for doubtful
accounts and cash discounts $224,252 $439,050 $(405,339) $257,963
Year ended June 30, 1996,
allowances for doubtful
accounts and cash discounts $257,963 $242,673 $(327,112) $173,524
Year ended June 30, 1997,
allowances for doubtful
accounts and cash discounts $173,524 $210,633 $(146,379) $237,778
</TABLE>
INDEX OF EXHIBITS
Exhibit Title Exhibit No.
(2) Plan of acquisition, reorganization, arrangement,
liquidation or succession; Not Applicable
(3) Articles of Incorporation and By-Laws
(A) Certificate of Incorporation, as amended and as *
currently in effect (Incorporated by reference to
Exhibit 3(A), filed by the Company with the Registration
Statement on Form S-1 (33-71432))
(B) By-laws as currently in effect (Incorporated by reference *
to Exhibit 3(B) filed by the Company with the Registration
Statement on Form S-1 (33-71432))
(4) Instruments defining the rights of security holders, including
indentures
(A) Excerpts from Certificate of Incorporation, as amended, *
(Incorporated by reference to Exhibit 4(A) filed by the
Company with the Registration Statement on Form S-1
(33-71432))
(B) Excerpts from By-Laws, as amended, (Incorporated by *
reference to Exhibit 4(B) filed by the Company with the
Registration Statement on Form S-1 (33-71432))
(9) Voting Trust Agreement; Not Applicable
(10) Material Contracts
(A) Trademark Licensing Agreement for the United States dated 10(A)
July 11, 1997 between Lincoln Snacks Company and Nabisco
Brands Company.
(B) Letter Agreement dated May 9, 1997 between Lincoln Snacks 10(B)
Company and Planters Company.
(C) Letter dated January 22, 1997 between Lincoln Snacks Company *
and Planters Company relating to extension of period for
notification of non-renewal (Incorporated by reference
to Exhibit 10(a) filed by the Company with the Quarterly
Report on Form 10-Q for the quarter ended December 31, 1996)
(D) Agreement for Sale and Purchase of Real Estate dated October *
10, 1996 between Lincoln Snacks Company and Donald W.
Linscott (Incorporated by reference to Exhibit 10(b) filed
by the Company with the Quarterly Report on Form 10-Q for
the quarter ended December 31, 1996)
(E) Amendment to the Distribution Agreement dated February 28, *
1997 between Lincoln Snacks Company and Planters Company
relating to extension of the Distribution Agreement until
December 31, 1997 (Incorporated by reference to Exhibit 10(c)
filed by the Company with the Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997)
(11) Statement of computation of per share earnings: Not required
because the relevant computations can be clearly determined from
the material contained in the financial statements included herein
(12) Statement re computation of ratios; Not applicable
(13) Annual report to security holders, Form 10-Q or quarterly report
to security holders; Not applicable
(16) Letter re change in certifying accountant; Not Applicable
(18) Letter re change in accounting principles; Not Applicable
(21) Subsidiaries of Registrant; Not Applicable
(22) Published report regarding matters submitted to vote of
security holders; Not Applicable
(23) Consents of Experts and Counsel
(A) Consent of Arthur Andersen, LLP 23A
(24) Power of Attorney; Not Applicable
(27) Financial Data Schedule 27
(99) Additional Exhibits; Not Applicable
* Incorporated by reference
EXHIBIT 10 A
AGREEMENT
AGREEMENT, dated the 11th day of July, 1997 between Nabisco
Brands Company, a Delaware corporation having a place of business at
1105 North Market Street, Suite 803, Wilmington, Delaware 19801
("Nabisco" or "Licensor") and Lincoln Snacks Company, a Delaware
corporation having a principal place of business at 4 High Ridge
Park, Stamford, Connecticut 06905 ("Licensee").
Recitals
WHEREAS, Nabisco is the owner of the trademarks Planters, Mr.
Peanut and the Representation of Mr. Peanut, together with
associated logos, trade dress, packaging appearance and claims to
copyrights associated therewith (hereinafter referred to as the
"IP") in the United States, its territories and possessions and in
the Commonwealth of Puerto Rico;
WHEREAS, Licensee desires the right to use the IP on and in
connection with the manufacture, distribution, advertising and sale
of its Fiddle Faddle branded snack food products and Nabisco is
willing to grant permission to do so, on the terms and conditions
set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual
promises and agreements herein set forth, Nabisco and Licensee
hereby agree as follows:
Definitions
In this Agreement, the following terms have the indicated
meaning.
The "Term" of this Agreement is for an initial period of five
(5) years commencing January 1, 1998. Nabisco and Licensee may in
their unfettered discretion mutually agree to additional five year
periods at least one hundred eighty (180) days prior to the time
when the initial five year period (or extended period, as the case
may be) would otherwise expire.
"IP" means the trademarks Planters, Mr. Peanut and the
Representation of Mr. Peanut, together with associated logos, trade
dress, packaging appearance and claims to copyrights associated
therewith.
"Territory" means the United States, its territories and
possessions and the Commonwealth of Puerto Rico.
"Products" means ready-to-eat caramelized popcorn product, with
or without nuts, sold in the Territory under Licensee's Fiddle
Faddle trademark, including the products identified in Exhibit 1
hereto and any new flavor developed by Licensee and approved by
Nabisco in the manner set forth herein, said approval not to be
unreasonably withheld or delayed.
"Distribution Channels" means all channels of trade.
The "First License Year" shall mean the period from January 1,
1998 to December 31, 1998. The "Nth License Year" (N greater than
one) means the twelve (12) month period measured from January 1,
1999 or the respective (N-1) anniversary thereof.
"Associated Materials" means the labeling, packaging,
advertising and promotional materials, including retail store signs
and displays and other point of sale material, advertising and
promotional copy and strategy, television commercials and all other
written material intended to be distributed to the trade or public
on which the IP appears or is intended to be used.
The "Lincoln Operating Procedures" means the formulae,
specifications, good manufacturing practices, plant quality control
procedures, product recall and withdrawal procedures, consumer and
manufacturing complaint procedures, audit and inspection procedures,
sanitary/environmental and pest control procedures, ingredient
specifications, finished product specifications and shelf life of
the Products contained in the Standard Operating Procedures Manual
and the QA Procedures Manual as currently used by Licensee and
previously approved by Licensor, as the same may from time to time
be amended with Licensor's written approval.
"Net Sales" means the gross sales of Product less cash
discounts and returns.
"Equivalent Cases" means an aggregate of sixty (60) ounces of
Fiddle Faddle (e.g., twelve (12) packages of five (5) ounces each),
and an aggregate of fifty-one (51) ounces of Fat Free Fiddle Faddle;
provided, however, that a "bonus" pack consisting of twelve (12)
packages of six (6) ounces each (or seventy two (72) ounces in the
aggregate) shall be deemed to be one Equivalent Case.
1. License Grant
a. Subject to the terms and conditions hereof, for the Term
of this Agreement, Nabisco hereby grants to Licensee an
exclusive license to use the IP in connection with the
production, packaging, promotion, sale and exploitation of
the Products in the Distribution Channels in the
Territory, subject to the provisions of Paragraph 5 below,
so long as Licensee produces the Products substantially in
accordance with the provisions of the Lincoln Operating
Procedures and so long as the Products are manufactured
only at the Licensee's manufacturing facility in Lincoln,
Nebraska, or such other plant as Licensor shall approve in
writing, such approval not to be unreasonably withheld or
delayed (collectively, the "Plants"; "Plant" means any one
of the Plants). In the event the Plants are not operated
by Licensee, Licensee shall ensure that the Plants are
contractually obligated to comply with the quality control
provisions for the Products set forth in this Agreement
and in the Lincoln Operating Procedures, provided,
however, that Licensee shall remain fully and primarily
liable to Licensor under this Agreement for the
performance of any and all Plants.
b. Licensee shall have no right to the IP or to make, use or
sell any goods utilizing the IP, or otherwise to deal in
or with the IP, other than as expressly granted in this
Agreement. Licensee shall have no right to make, use or
sell any goods utilizing any reproduction, counterfeit,
copy or colorable imitation of the IP, or otherwise deal
in or with such IP.
c. Licensee shall be responsible for manufacturing the
Products and all costs associated therewith shall be paid
by Licensee.
d. Nothing in this Agreement shall be construed to prevent
Nabisco from granting any other license or right to make,
use or sell goods bearing the IP, or from utilizing the IP
in any manner whatsoever, other than for caramelized
ready-to-eat popcorn products with or without nuts.
2. Quality Control
a. Licensee shall comply in all material respects with the
practices, procedures, specifications and quality programs
contained in the current Lincoln Operating Procedures, a
copy of which shall be provided to Nabisco upon execution
of this Agreement and incorporated herein by reference.
No alterations, modifications or other changes to the
Products or the Lincoln Operating Procedures shall be made
without the approval of Licensor, not to be unreasonably
withheld or delayed; provided, however, Licensee may
change the packaging sizes by written notice to Licensor
and without the consent of Licensor. Upon approval by
Nabisco, the Lincoln Operating Procedures and any
alterations, modifications or other changes shall be
deemed incorporated into this Agreement. Licensee shall
provide Nabisco on an annual basis an updated version of
the Lincoln Operating Procedures signed by the appropriate
Licensee official. If no changes are made to the Lincoln
Operating Procedures in any particular year during the
Term, then Licensee shall provide Nabisco with a signed
statement to that effect.
b. Licensee agrees to manufacture Product only at the Plant.
Licensee shall ensure that all Plants and equipment used
to manufacture, store, and distribute the Products are
maintained in a clean and sanitary manner, in good working
order, and comply in all material aspects with all local,
state and federal laws, ordinances, rules and regulations
now or hereafter in effect pertaining to the operation of
the Plants or the production of the Products, including,
but not limited to, FDA's Good Manufacturing Practice
Regulations set forth at 21 C.F.R. Part 110.
c. Licensee shall comply in all material respects with the
methods of testing raw materials, ingredients and
packaging materials, and finished Products in accordance
with local, state and federal standards and in accordance
in all material respects with the Lincoln Operating
Procedures. Licensee shall conduct, at its own expense,
certain tests on the Products including microbiological
analyses and organoleptic testing pursuant to the quality
standards set forth in the Lincoln Operating Procedures
and which test results shall, upon request, be delivered
to Nabisco; provided, however, Licensee shall immediately
advise Nabisco of results that indicate material
noncompliance with the Lincoln Operating Procedures or
material noncompliance with applicable local, state or
federal laws, ordinances, rules or regulations and upon
instruction of Nabisco correct such defects within 10
business days.
d. Licensee acknowledges and agrees that, solely for the
purpose of ensuring compliance in all material respects
with the Lincoln Operating Procedures, applicable law, and
licensee's compliance with the terms of this Agreement,
Nabisco may inspect, or cause to be inspected, on
reasonable notice and during normal business hours, the
Plants and any other Product manufacturing, warehouse or
distribution facility, ingredients and raw materials,
finished and in-process Products, and may audit, or cause
be audited, Licensee's quality control and sanitation
programs and/or the quality control and sanitation
programs of the Plant, or other Product manufacturing,
warehouse or distribution facility. After each inspection
and audit, Nabisco will submit reports to Licensee,
instructing corrective action if the facility, program or
condition that does not comply in any material respect
with the Lincoln Operating Procedures or fails to comply
in any material respect with applicable local, state or
federal laws, ordinances, rules or regulations. Licensee
agrees to implement any necessary corrective action within
thirty (30) days of notice, or if the defect is such that
it cannot be remedied within thirty (30) days, Licensee
shall commence taking all reasonable and appropriate steps
to remedy the defect within such thirty (30) day period
and shall proceed thereafter with due diligence and good
faith to complete the curing as soon as possible;
provided, however, Licensee shall immediately suspend
utilizing a Plant and/or other facility in which the
Products are manufactured, warehoused, distributed, stored
or sold, when in Nabisco's reasonable judgment, a defect
or condition is found that causes or may cause a health or
safety risk if such defect or condition rises to the level
of a Class I or Class II recall. Licensee shall, for as
long as the health or safety risk is present, refrain from
utilizing the affected Plant and/or facility for the
Products. If Licensee continues to utilize the affected
Plant or facility, Nabisco shall have the right to
immediately terminate or suspend this Agreement as to the
affected Plant or facility and the Product(s)
manufactured, warehoused, distributed, stored or sold
therein. Should this Agreement be so terminated or
suspended as a result of a breach of this paragraph 2.d.,
Licensee shall have no cause of action against Nabisco in
connection with such termination or suspension, including
but not limited to any claim for damages or compensation
for losses or expenses incurred, or for lost profits.
Licensee agrees to incorporate provisions consistent
herewith into any agreement with the Plants and any third
parties whom Licensee may employ to manufacture,
warehouse, distribute or store any item of the Product.
When so warranted under the provisions of 21 C.F.R.
Section 7.3, Licensee acknowledges its obligations to
recall, at its sole cost and expense, if so instructed by
Nabisco or requested by any applicable governmental agency
or regulatory body, any Products manufactured by it and
present at any level of trade, including, but not limited
to, warehouse, wholesale or retail levels, should such
Products fail to comply in a material respect with the
Lincoln Operating Procedures or be subject to market
withdrawal or recall pursuant to standards, laws,
ordinances, rules or regulations of any applicable
governmental agency or regulatory body.
e. Licensor has the unqualified right to withdraw its
approval of any Products in the event that their quality
ceases to materially conform with the specifications set
forth in the Lincoln Operating Procedures. Licensor has
the unqualified right to withdraw its approval of any
Associated Materials in the event that their quality
ceases to materially conform with Nabisco's standards for
quality and for intellectual property protection.
f. Nabisco shall have the right to receive from Licensee,
upon request, at Nabisco's cost and expense, a reasonable
quantity of samples of Products and Associated Materials.
g. Approval by Licensor of any Product, including any prior
approval by Licensor, shall not be construed to mean that
Licensor has determined that said Product complies with
the applicable laws, regulations, ordinances or other
applicable standards, such determination being the sole
responsibility of Licensee.
3. Purchase of Ingredients
a. This Paragraph is independent of any other Paragraph of
this Agreement.
b. Licensee shall be responsible, directly or through its
contract manufacturers, for the purchase of all
flavorings, other ingredients, packaging and other
Associated Materials for the Products in accordance with
the Lincoln Operating Procedures. In no event shall
Nabisco be responsible, financially or otherwise, for such
purchases.
c. Licensee is not required to purchase ingredients,
including nuts, from Nabisco for use in the Products.
However, Licensee shall ensure that all ingredients,
including nuts, it uses in the manufacture of the Products
comply with the relevant quality standards currently in
place for the existing Products, as set forth in the
Lincoln Operating Procedures, with any changes in said
standards being subject to Nabisco's approval in
accordance with Paragraph 2.a.
4. Pure Food Guarantee, Compliance With Laws and Indemnification
a. Licensee guarantees that the Products produced by it shall
not be adulterated or misbranded within the meaning of the
Federal Food, Drug and Cosmetic Act, as from time to time
amended, and regulations promulgated thereunder, and are
not articles which, under the provisions of Sections 404
or 505 of said federal act, may not be introduced into
interstate commerce, and are not in violation of the
provisions of the Food Additives Amendment of 1958. This
guarantee is in like terms extended and shall be
applicable to any applicable state law or municipal
ordinance in which the definitions of adulteration or
misbranding are substantially the same as those in said
federal act.
b. Licensee warrants that the Products shall be manufactured,
sold and distributed in material compliance with all
applicable federal, state and local laws, rules and
regulations. The sale and distribution by Licensee of the
Products shall be consistent with past practice in that it
did not, and will not, in any manner reflect adversely
upon the good name of Nabisco or any of its programs,
products or properties, or the IP.
5. Marketing and Advertising
a. Subject to compliance with the requirements of paragraph
5.c., Licensor hereby approves the Associated Materials as
currently used by Planters and Licensee and hereby agrees
that any non-material changes to such Associated Material
shall not require the consent of Licensor. Licensee shall
submit to Kathleen Gallagher, Nabisco Brands Company,
Suite 2740, One South Wacker Drive, Chicago, Illinois
60606, for prior and prompt approval, which shall not be
unreasonably withheld, (i) any material changes to
Associated Materials currently used by Licensee, and (ii)
any new associated materials. If Licensor requests
material changes, Licensee shall amend or cause to be
amended the Associated Materials to the reasonable
satisfaction of Nabisco in the manner that Nabisco shall
direct. Nabisco also reserves the right to change
unilaterally any aspect of the IP that is the subject of
this Agreement (e.g., the trade dress for planters).
Should this occur, Nabisco may, at its discretion, notify
Licensee of any changes at least six (6) months prior to
effecting any such changes, if reasonably possible. In
such event, Licensee shall have the right to utilize its
existing inventory of Associated Materials during such six
(6) month period, and shall have six (6) months in which
to make the necessary modifications to the IP on its
Associated Materials, with any material changes required
by Licensor being subject to the approval procedure set
forth in this Paragraph 5.a.
b. Licensee shall advise Nabisco, upon request, with respect
to the compliance of the Associated Materials with all
applicable federal, state and local laws or regulations,
including, but not limited, to labeling laws and
regulations, in the jurisdiction(s) in which the Products
will be manufactured, distributed, stored and/or sold. In
the event any Associated Materials fail to comply with
any applicable labeling law or regulation, Licensee
undertakes to hold Nabisco harmless from any and all
damages it may suffer as a result of failure to comply
with such laws and regulations. Approval by Licensor of
any material changes to the Associated Materials in
accordance with the procedure set forth in Paragraph 5.a.
shall not be construed to mean that Licensor has
determined that said changes to the Associated Materials
comply with the applicable laws, regulations, ordinances
or other relevant standards.
c. Licensee shall imprint or cause to be imprinted legibly on
all Associated Materials wherein the IP or related
copyrighted work may appear, an appropriate trademark
notice consisting of either the " Trademark " designation
or the " Registered Trademark " federal registration
designation and a copyright notice as directed by Nabisco.
In addition to and without detracting from the foregoing, a
marking legend shall be used in association with the Products
along the lines of the following: "Planters, Mr. Peanut and
the Rep. of Mr. Peanut are registered trademarks of Nabisco Brands
Company, used under license. Distributed by the authority
of Lincoln Snacks. Please address consumer inquiries to:
Lincoln Snacks Company
4 High Ridge Park
Stamford, Connecticut 06905
Attn: Customer Service
d. Except as set forth herein, Licensee shall, at its sole
cost and expense, handle all consumer complaints relative
to the Products and shall respond to all such complaints
in an appropriate manner. Notwithstanding the foregoing,
Licensee shall immediately forward to Nabisco all consumer
complaints about the Products which may materially and
adversely affect the reputation or business of Nabisco or
the IP. Nabisco and Licensee shall confer, where
necessary, as to how to respond to such consumer
complaints. For the First License Year, Licensee shall
forward quarterly summaries of all consumer complaints
about the Products to Nabisco. Thereafter, Licensee shall
forward quarterly summaries of all consumer complaints
upon written request of Nabisco. Nabisco shall have the
right to respond to all such material consumer complaints
or inquiries concerning the Products. Such complaints
shall be directed to:
Ms. Pat Mozeke
Director of R&D/QA
Planters Company
200 DeForest Avenue
East Hanover, NJ 07936
(201) 503-2852
or such other person as Nabisco shall designate from time
to time in writing.
6. Goodwill
Licensee recognizes the great value of the goodwill
associated with the IP and acknowledges that the IP and all
rights therein and goodwill pertaining thereto belong
exclusively to Nabisco, and that the IP has and will continue
to have a secondary meaning in the mind of the public to
signify Nabisco. Accordingly, Licensee shall not do or permit
to be done any act or thing or permit any Products to enter the
stream of commerce or be sold or distributed that may
materially impair the goodwill or other rights of Nabisco in
the IP or that would otherwise materially prejudice, tarnish
or damage the reputation of the IP, Nabisco, or the sale of
Nabisco's products.
7. Title and Protection
a. Licensee acknowledges Nabisco's title to the IP and agrees
that it shall not at any time knowingly do or suffer to be
done any act or thing or undertake any action anywhere
that in any manner might infringe or impair the validity,
scope, or title of Nabisco in the IP, or in any other
intellectual property which may be owned by Nabisco at any
time during the Term hereof. It is understood that
Licensee or any affiliate of Licensee shall not acquire
and shall not claim any title to the IP adverse to Nabisco
by virtue of this Agreement, the parties intending that
all utilization of the IP by Licensee shall at all times
inure to the exclusive benefit of Nabisco.
b. Nabisco acknowledges Licensee's title to the Lincoln IP
(as defined in paragraph 7.f.) and agrees that it shall
not at any time knowingly do or suffer to be done any act
or thing or undertake any action anywhere that in any
manner might infringe or impair the validity, scope or
title of Licensee in the Lincoln IP, or in any other
intellectual property which may be owned by Licensee at
any time during the Term hereof. It is understood that
Nabisco or any affiliate of Nabisco shall not acquire and
shall not claim any title to the Lincoln IP adverse to
Licensee by virtue of this Agreement, the parties
intending that all utilization of the Lincoln IP by
Nabisco shall at all times inure to the exclusive benefit
of Licensee.
c. Licensee agrees that it will not use the name of Nabisco
or any reproduction, counterfeit, copy or colorable
imitation thereof, as a trading designation or in any
other way, except to indicate, in the manner set forth in
Paragraph 5.c. above, that Licensee is authorized by
Nabisco to use the IP in respect of the Products.
d. Nabisco agrees that it will not use the name of Licensee
or any reproduction, counterfeit, copy or colorable
imitation thereof, as a trading designation or in any
other way.
e. Licensee shall notify Nabisco in writing of any
infringement and any reproduction, counterfeit, copy or
colorable imitation by others of the IP that may come to
Licensee's attention, and Nabisco shall have the sole and
exclusive right to determine whether or not any action
shall be taken on account of any such infringement,
reproduction, counterfeit, copy or imitation. Nabisco
shall control any and all infringement and unfair
competition actions and it shall have the sole and
exclusive right to commence or prosecute any claims or
suits with respect to the IP in its own name or jointly in
the name of Nabisco and Licensee at Nabisco's expense.
f. Nabisco shall notify Licensee in writing of any
infringement and any reproduction, counterfeit, copy or
colorable imitation by others of the Fiddle Faddle
trademark, together with the associated logos, trade
dress, packaging appearance and claims to copyrights
associated therewith ("Lincoln IP") that may come to
Nabisco's attention, and Licensee shall have the sole and
exclusive right to determine whether or not any action
shall be taken on account of any such infringement,
reproduction, counterfeit, copy or imitation. Licensee
shall control any and all infringement and unfair
competition actions and its shall have the sole and
exclusive right to commence or prosecute any claims or
suits with respect to the Lincoln IP in its own name or
jointly in the name of Licensee and Nabisco at Licensee's
expense.
8. Indemnifications
a. Except as otherwise provided in Paragraph 8.c. below,
Licensee hereby agrees to indemnify and hold harmless
Nabisco and its parent and affiliated companies and each
of their respective agents, officers, directors, and
employees from any and all claims, losses, demands,
damages, judgments, costs and expenses, including
reasonable attorneys' fees, that may be claimed, asserted
or rendered against Nabisco or any or all of the above
mentioned persons or their successors, arising from: (i)
any actual or alleged injury, damage, death or other
occurrence to any person or property arising or resulting
directly or indirectly out of the distribution and sale,
or the possession, use or consumption of the Products
manufactured, sold or supplied by Licensee at any time;
(ii) any actual or alleged patent, copyright or, subject
to Paragraph 8.c. below, trademark infringement or
dilution, false advertising, unfair competition or trade
secret violation, arising from the formulation,
manufacture, packaging, distribution, promotion,
exploitation or sale of the Products; or (iii) the failure
of Licensee to fulfill any of its obligations under this
Agreement. Any consents, approvals, inspections, reviews
or similar actions undertaken or not undertaken by Nabisco
or its agents under this Agreement shall not waive, reduce
or otherwise affect or diminish any rights of Nabisco or
any of the above mentioned parties or their successors to
indemnification under this Agreement.
b. Except as may be provided in Paragraph 8.c. below, Nabisco
and its parent and affiliated companies, and each of their
respective agents, officers, directors, and employees or
their successors will not be responsible, in any way, to
any party whatsoever, with respect to any warranties,
negligence, defects, or other obligations, however any of
the foregoing might arise, with respect to the
formulation, manufacture, packaging, distribution,
promotion, exploitation, or sale of the Products.
Licensee and its parent and affiliated companies, and each
of their respective agents, officers, directors, and
employees or their successors will not be responsible, in
any way, to any party whatsoever, with respect to any
warranties, negligence, defects, or other obligations,
however any of the foregoing might arise, with respect to
the formulations, manufacture, packaging, distribution,
promotion, exploitation, or sale of any of Nabisco's
products, except the Products.
c. Nabisco hereby agrees to indemnify and hold harmless
Licensee and its parent and affiliated companies and each
of their respective agents, officers, directors, and
employees from any and all claims, losses, demands,
damages, judgments, costs and expenses, including
reasonable attorneys' fees, that may be claimed or
asserted or rendered against Licensee, or any or all of
the above mentioned persons or their successors arising
from: (i) any actual or alleged injury, damage, death or
other occurrence to any person or property arising or
resulting, directly or indirectly, out of the distribution
and sale, or the possession, use or consumption of any of
Nabisco's products manufactured, sold or supplied by
Nabisco during the Term; or (ii) any actual or alleged
copyright, trademark infringement, false advertising or
unfair competition arising out of the use of the IP in the
Territory by Licensee pursuant to this Agreement. Nabisco
reserves the right to defend itself against any said
trademark infringement suit and Licensee shall assist
Nabisco in the defense of any such suit as Nabisco may
reasonably request.
d. In the event of any claim, action or proceeding for which
a person is entitled to indemnity hereunder, the person
seeking indemnity (the "Claimant") shall promptly notify
the other party (the "Indemnitor") of such matter in
writing. The Indemnitor shall then promptly assume
primary responsibility for and shall have primary control
of such matter, including settlement negotiations and the
institution and defense of any legal proceedings, provided
the Claimant shall retain the right to be represented, at
its expense, by separate counsel. The Claimant shall have
the right to approve or disapprove any proposed
settlement, provided that in the event Claimant
disapproves a proposed settlement, the Claimant shall
promptly assume responsibility for and control of such
matter and the Indemnitor shall thereafter have no further
obligation or liability for indemnification with regard to
such matter. Subject to the foregoing, the Claimant shall
otherwise fully cooperate at the Indemnitor's expense in
the Indemnitor's handling and defense of any such claims,
action or proceeding.
e. In the event of a challenge or protest by the Federal
Trade Commission, the Food and Drug Administration, any
state attorney general or any other regulatory body
alleging false or misleading advertising and/or labeling
provisions and/or adulterated or misbranded product, the
Claimant shall (to the extent permitted by law or such
governmental agency) have the right to participate in any
settlement proceedings related thereto and to be consulted
by the Indemnitor regarding such settlement, and the
Indemnitor shall not, without the prior consent (not to be
unreasonably withheld or delayed) of the Claimant: (i)
settle or compromise any such challenge or protest or (ii)
(unless required by law) release to the public any
settlement or other statement of the terms under which
such challenge or protest has been settled or compromised.
f. Licensee shall have no claim or cause of action against
Nabisco, including, but not limited to, any claim for
damages or compensation for losses or expenses incurred,
including attorneys' fees, or for lost profits, arising in
any fashion from the lawful and proper termination of this
Agreement.
9. Insurance
a. Licensee shall obtain, and at its own cost and expense,
Ten Million Dollars ($10,000,000) umbrella comprehensive
general liability insurance, including product liability
coverage, and One Million Dollars ($1,000,000)
advertiser's liability coverage, protecting Nabisco and
its parent and affiliated companies against any claim or
suits arising in any fashion from the consumption,
manufacture, distribution, advertising, promotion or sale
of the Products. Licensee shall submit to Nabisco
certificates of insurance with a thirty (30) day prior
written notice of cancellation provision, with "RJR
Nabisco, Inc., its subsidiaries, and affiliated companies
and each of their respective officers, directors, agents
and employees" named as additional insured parties, as
evidence of such insurance coverage. At least 30 days
prior to the commencement of the Term of this Agreement,
Licensee shall submit to Nabisco a binder as evidence of
insurance coverage set forth above with certificates of
insurance subsequently submitted to Nabisco within thirty
(30) days thereafter. Licensee shall keep policies in
force during the Term of this Agreement and for at least
one year thereafter, and submit to Nabisco evidence of
renewal prior to the expiration of the original term of
insurance and each renewal term thereafter.
b. It is understood and agreed that if Licensee fails to
obtain or maintain in force for a period of 30 consecutive
days such comprehensive general liability insurance and
advertiser's liability coverage, pursuant to the
requirements of Paragraph 9.a. above, Nabisco shall have
the right to terminate this Agreement should the defect
not be remedied within five (5) business days following
receipt of notice by Licensee. Should this Agreement be
so terminated, Licensee shall have no cause of action
against Nabisco or its parent or affiliated companies in
connection with such termination, including, but not
limited to, any claim for damages or compensation for
losses or expenses incurred, or for lost profits.
10. Royalties and Payments
a. The parties hereby agree on the following royalty rates:
(i) Nabisco hereby grants Licensee a royalty free license
for use of the IP on the Products in the Distribution
Channels in the Territory for the First and Second
License Year;
(ii) In the Third through Fifth License Years, Licensee
shall pay Nabisco a royalty in each such License Year
of (i) one percent (1%) of annual Net Sales of
Products in the Distribution Channels in the
Territory with respect to sales of up to 2,250,000
Equivalent Cases of Product in any such License Year;
and (ii) two percent (2%) of annual Net Sales of
Products in the Distribution Channels in the
Territory with respect to sales in excess of
2,250,000 Equivalent Cases of Product in any such
License Year.
b. Licensee shall provide Nabisco, within forty-five (45)
days after the end of each calendar quarter, during the
Third through Fifth License Years, whether or not any
royalties are due, a complete and accurate statement of
its Net Sales of Products for that quarter substantially
in the form set forth in Exhibit 2, which statement shall
be accompanied by any payment due.
11. Reports and Records
a. Licensee shall keep at its principal place of business
accurate and complete records of all matters pertaining to
its obligations under this Agreement. Nabisco, or its
authorized representative, shall have the right to audit
said records (upon thirty (30) days written notice, during
normal business hours) solely for the purpose of
determining the accuracy of any royalty statement
delivered to Licensor.
b. Licensee shall maintain records to verify accuracy of the
computation of royalty payments for a period of one (1)
year after such payments. Nabisco, or its authorized
representative, shall have the right to audit said records
for the period of one (1) year after such payments. This
Paragraph 11.b. shall survive the termination of this
Agreement.
c. In the event the audit discloses a discrepancy between
royalties due Nabisco and royalties actually paid to
Nabisco of greater than ten percent (10%), Licensee shall
pay Nabisco's audit costs under this Paragraph and the
balance due on the earned royalties, together with
interest thereon calculated from the date such deficiency
was due at an annual rate based on the then current three
month LIBOR Rate plus twelve point five (12.5) basis
points.
12. Term and Termination
a. Term. The Term shall commence as of January 1, 1998 and
shall continue for a period of five years thereafter,
unless sooner terminated or extended as set forth herein
below.
b. Termination in Event of Default, With Right to Cure. If
any of the following defaults shall have happened:
(i) If Licensee fails to make any required payment or
submit the required royalty report for a period
beyond thirty (30) days from the date such payment or
report was due, or fails to pay with interest any
amount due within three (3) business days after
notice of default; or
(ii) If Licensee fails to have affixed on any Product the
notice required by Section 5.c. hereof or as required
by applicable law or regulation, or utilizes any
Associated Materials not approved by Nabisco, where
required, in accordance with the procedure set forth
in Section 5.a.; or
(iii) In the event one or more of the following events
shall occur, which event or events do not rise
to the level of a Class I or Class II recall (as
set forth in Paragraph 12.c. herein): (A) food
pathogens are found in a Product or a Product is
otherwise adulterated; (B) Licensee has
materially deviated from the Lincoln Operating
Procedures, without obtaining the prior approval
of Licensor in accordance with the procedure set
forth in Paragraph 2.a.; or (C) Licensee has
materially altered the taste, texture, nature or
in other respects the quality of a Product
without Nabisco's prior written consent given
pursuant to Paragraph 2 above; or
(iv) If Licensee commits a material breach of this
Agreement, or defaults with respect to a material
obligation under this Agreement or otherwise fails to
perform a material obligation (other than a breach,
default or failure that rises to the level of a Class
I or Class II recall, as set forth in Paragraph 12.c.
herein), which breach, default or failure, in the
judgment of Nabisco (exercised reasonably and in good
faith), as an isolated event or a series of events in
the aggregate, has caused or resulted in:
A. material damage to the reputation or goodwill of
Nabisco; or
B. material adverse publicity to Nabisco, the IP
and/or Nabisco's marks, or material adverse
publicity to Licensee which has a material
adverse affect on Nabisco, the IP and/or
Nabisco's marks; or
C. Product that is likely to cause severe adverse
health consequences or is adulterated or
misbranded within the meaning of the Federal
Food, Drug and Cosmetic Act has been distributed
by Licensee which in the judgment of Nabisco
(exercised reasonably and in good faith) has
resulted in material damage to the reputation or
goodwill of Nabisco or material adverse
publicity to Nabisco, the IP and/or Nabisco's
trademarks, or material adverse publicity to
Licensee which has a material adverse affect on
Nabisco, the IP and/or Nabisco's trademarks; or
(v) If Licensee otherwise defaults in the performance of
any of the other terms, conditions or provisions of
this Agreement (other than a default that rises to
the level of a Class I or Class II recall, as set
forth in Paragraph 12.c. herein) in such a manner as
to materially and adversely affect the rights of
Nabisco hereunder or the validity or enforceability
of a IP;
then in all the foregoing circumstances, Licensor may, if
it so elects, terminate this Agreement upon thirty (30)
days prior written notice; provided, however, that none of
the circumstances set forth in Paragraph 12.b. above shall
constitute a breach (with the remedy of the exercise of
the right of termination being available to Licensor) if
any such breach or default is remedied within thirty (30)
days after written notice thereof from Licensor, or if
such breach or default is of a nature that cannot be
remedied within thirty (30) days, Licensor shall have
commenced curing such breach or default within thirty (30)
days after written notice thereof from Licensor and shall
proceed thereafter with due diligence and good faith to
complete the curing as soon as possible.
c. Termination Under Extraordinary Circumstances By Nabisco
Without Right to Cure. Notwithstanding anything in this
Agreement to the contrary, Nabisco shall have the right,
in its sole discretion, to terminate this Agreement
immediately and without Licensee's right to cure, upon
notice to Licensee, if any of the following events occur:
(i) In the event of a breach, failure or default of this
Agreement, which breach, failure or default, in the
judgment of Nabisco, as an isolated event or a series
of events in the aggregate, has caused or resulted
in: Product has been distributed that qualifies as
(a) a Class I recall of the Product or (b) a Class II
recall of the Product (Class I and Class II shall
have the meanings set forth in 21 C.F.R. Section
7.3); or
(ii) If Licensee fails to obtain or maintain insurance
coverage, pursuant to the requirements of Paragraph
9; or
(iii) In the event of an actual or attempted
assignment or sublicense hereof by Licensee, or
in the event Licensee delegates its duties
hereunder or subcontracts a substantial portion
of the manufacture of any Product without
Nabisco's prior written consent in each
instance, or
(iv) Licensee commits multiple breaches previously cured
under Section 12.b., or
(v) Licensee enters into a licensing agreement in
violation of Paragraph 21.
d. Termination in the event of Bankruptcy. If Licensee files
a voluntary petition of bankruptcy, (ii) an order for
relief under the Bankruptcy Code or other insolvency law
is entered against Licensee which order is not vacated
within 20 days, (iii) Licensee is adjudicated as bankrupt,
(iv) a petition in bankruptcy is filed against Licensee
which petition is not dismissed within 90 days from the
filing thereof, (v) Licensee become insolvent or makes an
assignment for the benefit of its creditors or an
arrangement pursuant to any bankruptcy or insolvency law,
or (vi) if a receiver is appointed for it or its business,
the license hereby granted shall automatically terminate
forthwith without any notice whatsoever being necessary.
Should this Agreement be so terminated, Licensee, its
administrator, successors, or assigns shall have no right
to sell, exploit or in any way deal with or in any
Products covered by this agreement or any written or
printed or tangible matter bearing the IP, except with and
under the special consent and instructions in writing of
Nabisco.
e. Termination for Failure to Use IP. If at any time after
the end of the Second License Year of this Agreement
Licensee introduces Products in the Territory without the
IP, fails to introduce Products in the Territory bearing
the IP, or ceases to sell Products in the Territory
bearing the IP, Nabisco may: (i) terminate the license
hereby granted; or (ii) amend the license grant to a
non-exclusive license; which options may be exercised, in
Nabisco's sole discretion and at its option, by giving
written notice to Licensee. Such notice shall be
effective when mailed, without any period for cure.
f. Termination by Licensee. Licensee shall at all times have
the right to terminate this Agreement upon 30 day prior
written notice.
13. Inventory Upon Termination
a. Ten (10) days after a notice of termination is given or
the happening of an event that automatically terminates
this Agreement where no notice is required, Licensee shall
furnish to Nabisco a statement certified by the president
or chief financial officer of Licensee to be true and
correct showing the number and description of Products on
hand, held for Licensee in inventory or otherwise, or in
process.
b. After expiration of the Term or earlier termination of
this Agreement, except as otherwise provided in this
Agreement and except in the event of termination pursuant
to Paragraph 2.d. or 9.b. or subparagraph (iii), (iv) or
(v) of Paragraph 12.b. or Paragraph 12.c., Licensee shall
have the right to deplete existing inventories of Products
bearing the IP for a period not to exceed six (6) months
following the date of expiration or termination; provided,
however, that Licensee acknowledges that the use of the IP
during this 6-month period is non-exclusive. Further,
during this 6-month period, Licensee shall to the best of
its ability remove Product beyond its shelf life from
store shelves and shall fully perform all its obligations
required under this Agreement as if it had not expired or
terminated. Within thirty (30) days of the expiration of
this six month period, Licensee shall offer to sell to
Nabisco its remaining inventory of Products, finished and
in-process, and any packaging therefor together with its
inventory of Associated Materials at Licensee's cost.
Nabisco shall have thirty (30) days to accept the offer to
sell this inventory. If Nabisco does not accept the
offer, Licensee shall have an additional three (3) months
from the date of Nabisco's notice that it does not intend
to purchase such inventory in which to deplete any
remaining inventory of Products. Thereafter the inventory
shall be destroyed at Licensee's expense and a sworn
certificate of destruction shall be furnished by Licensee
to Nabisco in a form acceptable to Nabisco and executed by
the chief operating officer or chief financial officer of
Licensee.
14. Effect of Termination
a. Upon termination of this Agreement, all rights granted to
Licensee hereunder shall forthwith revert to Nabisco, and
Licensee shall stop all further use of the IP or any
further reference to them, direct or indirect, or any
reproduction, counterfeit, copy or colorable imitation
thereof, in connection with the manufacture, sale or
distribution of Licensee's goods or other items of
tangible or intangible property except as provided in
Paragraph 13 above or otherwise in this Agreement.
Licensee shall not initiate any new use of the IP or any
colorable imitation thereof on its Associated Materials.
Licensee shall be permitted to use its inventories of
approved Associated Materials and to use the IP in
existence at the time of service of a notice of
termination hereunder, only for promotion or advertising
in connection with its depletion of the Products.
Licensee shall promptly execute and deliver, at Nabisco's
expense, to Nabisco or its designee any and all documents
required to transfer to Nabisco or its designee any IP
rights or equities that may be vested in Licensee as a
result of Licensee's use of the IP pursuant to this
Agreement and, if any of the foregoing are not
transferable, shall execute and file, at Nabisco's
expense, with the appropriate authorities any and all
documents required to effectuate or to evidence the
surrender by Licensee of the right to use the IP.
b. Licensee acknowledges that its manufacture, sale or
distribution of the Products, or any other goods bearing
the IP, after termination of this Agreement, except as
provided in Paragraph 13 above, shall result in immediate
and irreparable damage to which there is no remedy in law
to Nabisco and to the rights of any subsequent Licensee.
Licensee acknowledges and admits that there is no adequate
remedy of law for its failure to cease such activities and
that, in such event, Nabisco shall be entitled to
equitable relief by way of such temporary and permanent
injunctive relief as a court may deem just and proper.
c. Licensee shall not be able to claim from Nabisco any
damages or compensation for losses or expenses incurred or
for loss of profits arising in any fashion from Nabisco's
proper and lawful termination of this Agreement.
d. Licensor shall not be able to claim from Licensee any
damages or compensation for losses or expenses incurred or
for loss of profits arising in any fashion from Licensee's
proper and lawful termination of this Agreement.
e. Termination of this Agreement for any reason shall not
affect those obligations that have theretofor accrued or
that, from the context hereof, are intended to survive
termination of this Agreement.
15. Representations
a. In addition to all of the agreements, promises,
guarantees, covenants, warranties and obligations herein
contained, Licensee represents and warrants to Nabisco
that it is a corporation organized and validly existing
under the laws of the state of its incorporation with full
power and authority to execute, deliver and fully perform
the terms and conditions hereof, and that it is under no
restriction or prohibition limiting its ability or right
to execute, deliver and fully perform its obligations
hereunder.
b. In addition to all of the agreements, promises,
guarantees, covenants, warranties and obligations herein
contained, Licensor represents and warrants to Licensee
that it is a corporation organized and validly existing
under the laws of the state of its incorporation with full
power and authority to execute, deliver and fully perform
all terms and conditions hereof, and that it is under no
restriction or prohibition limiting its ability or right
to execute, deliver and fully perform its obligations
hereunder. Licensor further represents that use of the IP
by Licensee pursuant to this Agreement will not conflict
with the rights of any third parties.
16. Disclaimer of Warranties and Representations by Nabisco
Nabisco and Licensee make no warranty or representation
whatsoever, express or implied, as to the amount of gross
sales, net sales, profits or volume that Nabisco or Licensee,
as the case may be, will derive from or may expect with respect
to the sale of the Products.
17. Notices
Any notice or report sent pursuant to any provision of
this Agreement shall be sent and shall be deemed given four (4)
days after being sent by certified mail, return receipt
requested, or will be deemed given when delivered in person or
by facsimile transmission if confirmation copy is received by
overnight courier on the following day, to the following
addresses or such other addresses as shall be hereafter
notified:
If to Nabisco: Nabisco Brands Company
Suite 2740
One South Wacker Drive
Chicago, Illinois 60606
Attention: Kathleen Gallagher
Fax: 312-726-7027
with a copy to: Planters Company
100 DeForest Avenue
East Hanover, New Jersey 07936
Attention: Ed Lyons
Fax: 201-503-3554
If to Licensee: Lincoln Snacks Company
4 High Ridge Park
Stamford, Connecticut 06905
Attention: R. Scott Kirk
Fax: 203-329-4555
with a copy to: Noel Group, Inc.
667 Madison Avenue
Suite 2500
New York, New York 10021
Attention: Karen Brenner
Fax: 212-758-8531
18. Applicable Law
This Agreement shall be construed in accordance with the
laws of the State of Illinois applicable to contracts executed
and to be fully performed in such jurisdiction.
19. No Joint Venture
Nothing herein contained shall be construed to place the
parties in the relationship of principal and agent, partners or
joint venturers, and Licensee shall have no power to obligate
or bind Nabisco in any manner whatsoever.
20. Assignment or Sublicense
a. Neither party may assign, convey or transfer this
Agreement or any part of its rights or obligations
hereunder without the prior written consent of the other
party. Notwithstanding the foregoing, (i) Nabisco
acknowledges that Licensee is a party to a certain
Revolving Credit, Term Loan and Security Agreement dated
December 3, 1993, as amended, with the Bank of New York
Commercial Corporation ("BNYCC"), pursuant to which
Licensee has assigned its interest under this Agreement to
BNYCC as collateral security for the performance of its
obligations thereunder, and that the collateral security
interest held by BNYCC or any other successor financial
institution shall not be deemed to be an assignment of
this Agreement, (ii) Licensee may assign, convey or
transfer this Agreement in the event of a Change of
Control provided that Nabisco shall not have exercised its
right to terminate in accordance with and in the manner
set forth in Paragraph 20.b. of this Agreement, and (iii)
Nabisco may assign, convey or transfer this Agreement in
connection with a sale of all or substantially all of the
business or assets of Planters; provided, however, that
the prior written consent of Licensee shall be required to
assign this Agreement to any person who is engaged,
directly or indirectly, in the ready-to-eat caramel
popcorn business. In the event of a permitted assignment,
conveyance or transfer, the holder or holders through
assignment, transfer or conveyance of this Agreement or
the rights granted hereunder shall be bound by all of the
terms and conditions hereof applicable to its transferor.
b. Licensee shall provide prompt written notice to Nabisco in
the event of a Change of Control (as hereinafter defined).
In such event, Nabisco shall have the right, exercisable
within thirty days of the date of notice of a Change of
Control, to terminate this Agreement by written notice,
effective thirty days after the date of such notice of
termination. In the event of termination of this
Agreement as a result of a Change of Control, the
provisions of Paragraph 14 shall apply. A "Change of
Control" shall mean (i) a sale of substantially all of the
business and assets of Licensee and (ii) any transaction
or series of transactions (including, without limitation,
a tender offer, merger or consolidation) the result of
which is that any "person" or "group" (within the meaning
of Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) other than
Noel Group, Inc. ("Noel") becomes the "beneficial owner"
(as defined in Rule 13(d)(3) under the Exchange Act) of
more than 50% of the total aggregate voting power of all
classes of the voting stock of Licensee, and/or warrants
or options to acquire such voting stock, calculated on a
fully diluted basis. Notwithstanding anything to the
contrary herein, a transfer by Noel of its interest in
Licensee to a "liquidating trust" will not be deemed to be
an assignment hereof.
c. Notwithstanding Paragraph 20.b., the acquisition of any
majority interest (i.e., 50% or more) of Licensee or Noel
by a person or entity that is a competitor of Nabisco in
the snack foods business shall be deemed an assignment for
purposes of this Paragraph 20.
d. During the term of this Agreement and any renewal period,
Licensee shall promptly provide Licensor with copies of
all Schedule 13D's and Schedule 13G's (and all amendments
thereto) filed with the Securities and Exchange Commission
relating to the beneficial ownership of Licensee's common
stock.
e. In the event Licensee assigns any benefits, rights, or
duties hereunder without Nabisco's prior written consent,
Nabisco may, at its sole discretion, terminate the
agreement. Should this agreement be so terminated,
Licensee shall have no cause of action against Nabisco in
connection with such termination, including, but not
limited to, any claim for damages or compensation for
losses or expenses incurred, or for lost profits.
21. Exclusivity
During the Term and any Renewal Term of this Agreement,
Licensee or any other corporate entity in which Licensee has a
majority interest shall not enter into any licensing agreement
with any other person or entity for the development,
manufacture, marketing or sale in the Territory of any ready-to-eat
caramelized popcorn or nut product utilizing trademarks
of any competitor of Nabisco in the nut, candy or snack food
category; provided, however, that nothing in the foregoing
shall prevent Licensee from entering into co-packing
arrangements with any other person or entity that is a
competitor of Nabisco in the nut, candy, or snack food
category, including, without limitation, co-packing
arrangements for private label manufacture; and further
provided that Licensee may, with Nabisco's prior written
approval, which shall not be unreasonably withheld or delayed,
enter into a licensing agreement with another person or entity
that is a competitor of Nabisco in the nut, candy or snack food
category to utilize trademarks of that person or entity solely
for Licensee's Screaming Yellow Zonkers and Poppycock
caramelized popcorn products.
22. Waiver
The failure of any party hereto to enforce any provision
of this Agreement, or any right with respect thereto, or
failure to exercise any election provided for herein, shall in
no way be considered a waiver of such provision, right, or
election, or in any way affect the validity of this Agreement.
The failure of any party hereto to enforce any provision, right
or election shall not prejudice such party from later enforcing
or exercising that provision, right, or election which it has
under this Agreement.
23. Severability
In the event that any provision of this Agreement or any
part thereof is held by a court to be invalid, the remainder of
this Agreement shall be binding on the parties and construed as
if the invalid provisions or parts thereof have been deleted
from this Agreement.
24. Paragraph/Paragraph Order and Headings
The section/paragraph order and headings are for
convenience only and shall not be deemed to affect in any way
the language, obligations or the provisions to which they
refer.
25. Entire Agreement
This Agreement sets forth the entire understanding of the
parties in respect of the subject matter hereof, and it may be
amended or modified only in writing executed by each party
hereto.
26. Confidentiality
Except as otherwise required by law, each party to this
Agreement shall maintain the terms of this Agreement in
confidence and shall not disclose the terms to any person
except only to the extent necessary to that party's employees
or, in the case of Nabisco, to the employees of its parent
company, Nabisco, Inc., or to that party's legal, accounting
and banking counsel as required to implement the Agreement.
Neither party shall issue a public statement concerning or
announcing this Agreement without the written consent of the
other party, which shall not be unreasonably withheld or
delayed.
NABISCO BRANDS COMPANY LINCOLN SNACKS COMPANY
By: /s/ K. Bolte By: /s/ Karen Brenner
Name: Karl Bolte Name: Karen Brenner
Title: Assistant Secretary Title: Chairman/CEO
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 1
FIDDLE FADDLE SKUs
CASE
UPC PRODUCT PACK/SIZE
<S> <C> <C>
98231-0 5 oz. Butter Toffee Fiddle Faddle 12/5 oz.
98250-0 5 oz. Caramel Fiddle Faddle 12/5 oz.
98431-0 4.25 oz. Fat Free Fiddle Faddle 12/4.25 oz.
98214-0 10 oz. Caramel Fiddle Faddle 12/10 oz.
98233-0 10 oz. Butter Toffee Fiddle Faddle 12/10 oz.
98433-0 8.5 oz. Fat Free Fiddle Faddle 12/8.5 oz.
98228-0 15 oz. Caramel Fiddle Faddle 12/15 oz.
98247-0 15 oz. Butter Toffee Fiddle Faddle 12/15 oz.
98447-0 12.7 oz. Fat Free Fiddle Faddle 12/12.7 oz.
98238-0 .5 oz. Snax Pack Caramel Fiddle Faddle 12/7.5 oz.
98239-0 .5 oz. Snax Pack Butter Toffee Fiddle Faddle 12/7.5 oz.
98240-0 .5 oz. Snax Pack Assorted Fiddle Faddle 12/8.5 oz.
</TABLE>
<PAGE>
EXHIBIT 2
EARNED NET SALES STATEMENT
FOR
PRODUCT:____________________________________________________
QUARTER ENDED:_____________________________________________
SALES CURRENT QUARTER
# of Units Sold _____ Gross Sales _____
Less: Cash discounts and returns. ( )
Documentation submitted herewith.
Net Sales _____
SALES CONTRACT YEAR TO DATE
# of Units Sold _____ Gross Sales _____
Less: Cash Discounts and returns. ( )
Documentation to be submitted herewith.
Net Sales _____
EXHIBIT 10 B
Lincoln Snacks Company
c/o Noel Group, Inc.
667 Madison Avenue, Suite 2500
New York, NY 10021
Karen Brenner Phone 212.371.1400
Chairman and Facsimile 212.758.8531
Chief Executive Officer
May 9, 1997
Mr. Ed Lyons
Planters Company
100 Deforest Avenue
East Hanover, NJ 07936
Dear Mr. Lyons:
Please refer to the Amendment to Exclusive Distribution
Agreement dated as of February 28, 1997 (the "Amendment") between
Lincoln Snacks Company ("Lincoln") and Planters Company, a unit of
Nabisco, Inc. ("Planters").
At the time of the execution of the Amendment, it was intended
that Lincoln would produce, pursuant to Section 6(a), 375,000
Equivalent Cases in the quarter ending June 30, 1997. Pursuant to
our discussions of the last two days relating to Planters sales and
inventory levels, the parties hereby agree to modify the production
in the quarter ending June 30, such that Lincoln will produce
200,000 Equivalent Cases in that quarter and Planters will be billed
and pay for such cases within 15 days of such production. In
respect of the 175,000 Equivalent Cases which Lincoln is agreeing
not to produce during the quarter Planters acknowledges and agrees
that it shall be billed for and pay Lincoln on June 30, 1997 a
non-reimbursable amount of $420,000 (which amount represents $2.40 x
175,000) and such amount shall not be applied against any other
amount due under this agreement. Planters also hereby agrees to
reimburse Lincoln within 15 days of receipt of invoice for any raw
materials and packaging obligations entered into on behalf of
Planters, pursuant to and in accordance with the original production
schedule of 375,000 Equivalent Cases for the quarter ending June 30,
1997, which Lincoln is unable to apply to the 200,000 Equivalent
Cases produced or cancel.
Please confirm you are in agreement with the foregoing by
executing a copy of this letter and returning it to me.
Very truly yours,
LINCOLN SNACKS COMPANY
By: /s/ Karen Brenner
Name: Karen Brenner
Title: Chairman and Chief
Executive Officer
Accepted and Agreed to:
PLANTERS COMPANY, a Unit of NABISCO, INC.
By: /s/ Ed Lyons
Name: Ed Lyons
Title: VP Finance
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation be reference of our reports dated August 12, 1997,
included in Lincoln Snacks Company's Form 10-K for the fiscal year
ended June 30, 1997, into the Company's previously filed
Registration Statement on Form S-8 (File No. 33-99404) and
Registration Statement on Form S-3 (File No. 33-99402).
ARTHUR ANDERSEN LLP
Stamford, Connecticut
September 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,606,357
<SECURITIES> 0
<RECEIVABLES> 2,189,715
<ALLOWANCES> 237,778
<INVENTORY> 1,680,253
<CURRENT-ASSETS> 5,267,570
<PP&E> 6,819,308
<DEPRECIATION> 2,263,689
<TOTAL-ASSETS> 13,289,560
<CURRENT-LIABILITIES> 3,224,790
<BONDS> 0
0
0
<COMMON> 64,501
<OTHER-SE> 9,884,485
<TOTAL-LIABILITY-AND-EQUITY> 13,289,560
<SALES> 23,101,704
<TOTAL-REVENUES> 23,101,704
<CGS> 15,525,387
<TOTAL-COSTS> 15,525,387
<OTHER-EXPENSES> 5,966,902
<LOSS-PROVISION> 60,000
<INTEREST-EXPENSE> 126,820
<INCOME-PRETAX> 1,482,595
<INCOME-TAX> 40,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,442,595
<EPS-PRIMARY> .23
<EPS-DILUTED> 0
</TABLE>
