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, 1998
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 14, 1998, was approximately $2,753,106. On such
date, the closing price of registrant's common stock was $1.813 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 14, 1998 was 6,331,790.
DOCUMENTS INCORPORATED BY REFERENCE:
To the extent specified, part III of this Form 10-K incorporates information
by reference to the Registrant's definitive proxy statement for the 1998
Annual Meeting of Shareholders.
<PAGE>
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, at which time, 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. In March,
1998, the Company acquired certain assets of Iroquois Popcorn Company
("Iroquois"), a private label manufacturer of caramelized popcorn. In June
1998 Brynwood Partners III, L.P. purchased a controlling interest in
the Company from Noel Group, Inc. ("Noel").
The Company markets its Poppycock, Fiddle Faddle, Screaming Yellow Zonkers
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.
Planters Company, a unit of Nabisco, Inc. ("Planters"), exclusively
distributed 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. 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, the Company and Planters entered into an amendment to
the Distribution Agreement (the "Amendment"), which was further modified on
May 9, 1997 (the "Letter Agreement"), 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 arrangement terminated. Effective January 1, 1998
and May 1, 1997, Planters ceased, and the Company resumed, marketing and
distributing the Company's Fiddle Faddle and Screaming Yellow Zonkers
products, respectively.
The Amendment and Letter Agreement 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 and Letter Agreement required Planters to
compensate the Company for contract minimums for the six month period ended
December 31, 1997 (six month minimums). Planters has compensated the Company
for contract minimums, which were 27% less than case sales made to Planters
for the six month period ended December 31, 1996.
(b) Recent Developments
-------------------
The Amendment required Planters to compensate the Company in the event that
certain sales levels were not achieved during the calendar year ending
December 31, 1997. These sales levels were not achieved during the calendar
year ending December 31, 1997 resulting in Planters compensating the Company
$1.9 million which is partially offset on the Company's Statement of
Operations by approximately $500,000 in non-recurring charges associated
with initial efforts to rebuild the Fiddle Faddle brand ("Net Planters Other
Income").
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. See Management's
Discussion and Analysis of Financial Condition and Results of Operations.
In July and October, 1997, the Company entered into five year Trademark
License Agreements with Nabisco, Inc. granting the Company, subject to the
terms of the License Agreements, the right to use, commencing January 1,
1998, certain Planters' trademarks in connection with the sales and marketing
of the Company's Fiddle Faddle products in the United States and Canada.
Net sales to Planters were 9% and 47% of net sales for the twelve months
period ended June 30, 1998 and June 30, 1997, respectively. Sales to
Planters during the six months period ended December 31, 1997 represented
payments, in lieu of manufactured cases, at predetermined rates which are
lower than the rates Planters paid for manufactured cases.
(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.
The Company manufactures private label caramel popcorn in addition to
co-packing caramel popcorn. The Company also 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,
Fiddle Faddle, Screaming Yellow Zonkers and the nut products in the U.S. are
currently handled by five 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. The Company also has a
business manager who manages all private label and contract manufacture
accounts. Certain exports and large volume customers are handled directly
by Lincoln Snacks' personnel. Pursuant to the Amendment, Lincoln Snacks
resumed the sales and distribution of its Fiddle Faddle product as of
January 1, 1998.
Seasonality
- -----------
Sales of Lincoln Snacks' products are seasonal, peaking during the third and
fourth calendar quarters.
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 (International Home Foods,
Inc., Food Division), Cracker Jack (Frito Lay, Inc.) Orville Redenbacher
(Hunt Wesson) and a number of other regional and local brands. The Company's
products also compete indirectly with traditional confections and other snack
food products.
Significant Customers
- ---------------------
In the fiscal year ended June 30, 1998, the Company copacked product for
Golden Valley Microwave Foods and made sales to Wal-Mart representing 18% and
12% of the Company's sales, respectively. Although the Company believes its
relationship with these customers to be good, the loss of such customers
could have a material adverse effect on the Company.
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 Company believes that such
materials are in good supply and are available from multiple sources.
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 37% to 81% 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 July and October, 1997, the Company entered into five year Trademark
License Agreements with Nabisco, Inc. granting the Company, subject to the
terms of the License Agreements, the right to use, commencing January 1,
1998, certain Planters' trademarks in connection with the sales and marketing
of the Company's Fiddle Faddle products in the United States and Canada.
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. 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, 1998, Lincoln Snacks had 93 full-time employees and 2
part-time employees. Employment at the Lincoln plant varies according to
weekly and seasonal production needs, and averaged approximately 90 employees
during fiscal 1998. 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
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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, 1997 June 30, 1998
------------- -------------
High Low High Low
<S> <C> <C> <C> <C>
First Fiscal Quarter $1 1/2 $1 1/8 $1 13/16 $1 1/8
Second Fiscal Quarter 1 3/4 1 2 1 3/8
Third Fiscal Quarter 1 7/8 1 2 5/8 1 1/2
Fourth Fiscal Quarter 1 9/16 7/8 2 3/8 1 3/4
</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 14, 1998, as reported by the Company's transfer agent, shares
of Common Stock were held by 34 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.
Item 6. Selected Financial Data
- ------ -----------------------
<TABLE>
<CAPTION>
(In thousands, except per share data)
12 Months 12 Months 12 Months 12 Months 12 Months
Ended Ended Ended Ended Ended
June 30, June 30, June 30, June 30, June 30,
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $29,497 $27,136 $23,846(F2) $23,102(F2) $24,278(F3)
Gross profit 10,320 10,916 6,621(F2) 7,576(F2) 8,872(F3)
Income (loss) from operations (5,003) (1,082)(F1) 897 1,609 292(F4)
Net income (loss) prior to
dividends on preferred stock (5,810) (1,602)(F1) 511 1,443 1,667(F5)
Basic and diluted net income
(loss) per common share ($1.41) ($.25)(F1) $.08 $.23 $.26
Weighted average number of
shares outstanding
Basic 4,113 6,340 6,335 6,332 6,332
Diluted 4,113 6,340 6,335 6,332 6,342
June 30, June 30, June 30, June 30, June 30,
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
Balance Sheet Data
Working capital (deficit) $ 327 $ (691) $ (237) $ 2,042 $ 3,500
Total assets 16,318 13,850 13,979 13,290 16,073
Total long term debt 1,909 1,109 309 -- --
Stockholders' equity 9,354 7,985 8,506 9,949 11,616
<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 Planters Distribution Agreement versus
historical results was reductions in revenue and gross profit which
were offset by reduced selling, marketing and distribution costs.
Reference is made to Management's Discussion and Analysis of
Financial Condition and Results of Operations.
<F3> The financial impact of the termination of the Planters Distribution
Agreement on December 31, 1998 versus Fiscal 1996 and Fiscal 1997 was
an increase in revenue and gross profit which were offset by
increased selling, distribution and marketing costs. Reference is
made to Management's Discussion and Analysis of Financial Condition
and Results of Operations.
<F4> Amount includes a non-recurring charge of $484,000 (or $.08 per
share) which represents severance and other compensation costs in
connection with the resignation of the Company's former Chairman and
Chief Executive Officer.
<F5> Amount includes Net Planters Other Income of $1.4 million.
</FN>
</TABLE>
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, with
results from operations fluctuating due to these trends. This seasonality is
due to customers' buying patterns of Poppycock and nut products 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 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. 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 (the "Amendment"), which was further modified on
May 9, 1997 (the "Letter Agreement"), 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 arrangement terminated. Effective January 1, 1998
and May 1, 1997, Planters ceased, and the Company resumed, marketing and
distributing the Company's Fiddle Faddle and Screaming Yellow Zonkers
products, respectively.
The Amendment and Letter Agreement 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 and Letter Agreement required Planters to
compensate the Company for contract minimums for the six month period ended
December 31, 1997 (six month minimums). Planters has compensated the Company
for contract minimums, which were 27% less than case sales made to Planters
for the six month period ended December 31, 1996.
The Amendment also required Planters to compensate the Company in the event
that certain sales levels were not achieved during the calendar year ending
December 31, 1997. These sales levels were not achieved during the calendar
year ending December 31, 1997 resulting in Planters compensating the Company
$1.9 million which is partially offset on the Company's Statement of
Operations by approximately $500,000 in non-recurring charges associated with
initial efforts to rebuild the Fiddle Faddle brand ("Net Planters Other
Income").
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.
In July and October, 1997, the Company entered into five year Trademark
License Agreements with Nabisco, Inc. granting the Company, subject to the
terms of the License Agreements, the right to use, commencing January 1,
1998, certain Planters' trademarks in connection with the sales and marketing
of the Company's Fiddle Faddle products in the United States and Canada.
Net sales to Planters were 9% and 47% of net sales for the twelve months
period ended June 30, 1998 and June 30, 1997, respectively. Sales to
Planters during the six months period ended December 31, 1997 represented
payments, in lieu of manufactured cases, at predetermined rates which are
lower than the rates Planters paid for manufactured cases. As a result of
the termination of the Distribution Agreement, sales to Planters ceased as
of January 1, 1998.
Under the Agreement, which required Planters to purchase a minimum number of
cases during the fiscal year, the Company sold the Products to Planters at a
selling price which was reduced from the Company's historical customer
selling prices. Planters in turn was responsible for the sales and
distribution of the Products to its customers, therefore, the Company did not
have any selling, marketing or distribution costs associated with these
Products. The financial impact of the Agreement versus historical results
was reflected in reductions in revenue and gross profit which were offset by
reduced selling, marketing and distribution costs.
Upon the termination of the Agreement on December 31, 1998, the Company
resumed distribution of Fiddle Faddle at its historical selling prices.
The financial impact of the termination of the Agreement versus the results
under the Agreement was reflected in an increase in revenue which was offset
by increased selling, marketing and distribution costs.
Twelve months ended June 30, 1998 versus June 30, 1997
- ------------------------------------------------------
Overall net sales increased 5% or $1.2 million to $24.3 million for the
twelve months ended June 30, 1998 versus $23.1 million in the corresponding
period of 1997. The sales increase is attributable to newly secured copack
and private label business which was partially offset by declines in sales of
Fiddle Faddle. The Company sold 34% fewer cases of Fiddle Faddle to its
customers and Planters in the twelve months ended June 30, 1998 than the
number of cases sold to Planters under the Planters Agreement a year ago.
Sales to Planters, excluding Net Planters Other Income, represented 9% and
47% of net sales for the twelve months ended June 30, 1998 and 1997,
respectively. The termination of the Planters Agreement on December 31,
1997, in addition to reduced minimums and sales rates for the six month
period ended December 31, 1997, resulted in the sales decline to Planters.
Sales to Planters during the six months period ended December 31, 1997
represented payments, in lieu of manufactured cases, at predetermined rates
which are lower than the rates Planters paid for manufactured cases during
the corresponding period in 1996. The sales declines are partially offset by
the Company resuming distribution of Fiddle Faddle in January 1998 at
historical selling prices which are higher than its selling prices to
Planters.
Gross profit increased 17% or $1.3 million to $8.9 million for the twelve
months ended June 30, 1998 versus $7.6 million in the corresponding period of
1997. Gross profit increased due to new copack and private label business,
increased selling prices to historical levels resulting from the Company
resuming distribution of Fiddle Faddle, and lower raw material costs. These
increases were partially offset by decreased Fiddle Faddle gross profits
resulting from decreased case volume.
Selling, general and administrative expenses increased 42% or $2.4 million to
$8.1 million for the twelve months ended June 30, 1998 versus $5.7 million
for the same period in 1997. These expenses primarily increased during this
period due to the Company resuming the marketing and distribution of the
Fiddle Faddle and Screaming Yellow Zonkers business. In addition, expenses
increased relating to consumer promotions for the Company's other branded
products.
The non-recurring charge of $.5 million represents severance and other
compensation costs in connection with the resignation of the Company's former
Chairman and Chief Executive Officer.
Net Planters Other Income of $1.4 million represents Planters compensation of
$1.9 million to the Company for failing to achieve certain sales levels
during the calendar year ending December 31, 1997 which was partially offset
by approximately $.5 million in non-recurring charges associated with initial
efforts to rebuild the Fiddle Faddle brand.
The increase in gross profit was offset by increases in selling, general and
administrative expenses and a non-recurring charge resulting in a decline of
$1.3 million in income from operations. The decline in income from
operations was offset by Net Planters Other Income and interest income
resulting in an increase in net income of $.2 million to $1.7 million for the
twelve months ended June 30, 1998 versus $1.4 million in the corresponding
period in 1997.
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 $1.0 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.
Liquidity and Capital Resources
- -------------------------------
As of June 30, 1998, the Company had working capital of $3.5 million compared
with a working capital of $2.0 million at June 30, 1997, an increase of $1.5
million. The increase in working capital is primarily attributable to a $3.5
million increase in net cash provided by operations which was partially
offset by the acquisition of certain assets of Iroquois Popcorn Company,
capital expenditures and note payable repayments.
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 contained provisions designed to effect a smooth
transfer of the distribution of the Fiddle Faddle business back to the
Company, there can be no assurance as to the long term effects of the
transition. Management has secured new copack and private label business
which partially offsets the decrease in Fiddle Faddle sales, however, there
can be no assurance that this business will continue.
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, 1998 June 30, 1997
--------------------------------
<S> <C> <C>
Cash provided by operating activities $ 3,508 $ 3,141
Cash provided by (used in) investing activities (1,222) 72
Cash used in financing activities (167) (1,665)
</TABLE>
Cash provided by operating activities increased to $3.5 million during the
twelve months ended June 30, 1998 compared to $3.1 million in 1997. The
increase in cash provided by operating activities is primarily due to the
increase in the Company's net profit of $.2 million.
Net cash used in investing activities of $1.2 million for the twelve months
ended June 30, 1998 is primarily comprised of the $.8 million acquisition of
certain assets of Iroquois and $.5 million in capital expenditures. Net cash
provided by investing activities of $.7 million during the twelve months
ended June 30, 1997 represents proceeds from the sale of land and is
partially offset by capital expenditures.
Net cash used in financing activities for the period ended June 30, 1998
represents payments under the short term note relating to the Iroquois
Acquisition. Net cash used in financing activities for the period ended
June 30, 1997 was $1.7 million, which consisted of revolver repayments under
its credit agreement of $.6 million and term loan repayments of $1.1
million. In December 1993, the Company entered into a bank loan agreement,
as amended, which provides for up to $4.0 million in revolver borrowings.
The Company believes that cash flow from operations and available cash and
revolver borrowings are adequate to fund the Company's operations for the
foreseeable future.
Y2K Disclosure
- --------------
The Company is working to resolve the potential impact of the year 2000 on
the ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. Any of the Company's
programs that recognize a date using "00" as the year 1900 rather than the
year 2000 could result in errors or system failures. The Company utilizes a
number of computer programs, and although the Company has not completed its
assessment, it currently believes that costs of addressing this issue will
not have a material adverse impact on the Company's financial position.
However, if the Company and third parties upon which it relies are unable to
address this issue in a timely manner, it could result in a material
financial risk to the Company. In order to assure that this does not occur,
the Company plans to devote all resources required to resolve any significant
year 2000 issues in a timely manner.
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
- ------- --------------------------------------------------
The Company's definitive Proxy Statement to be issued in conjunction with the
1998 Annual Meeting of Shareholders is incorporated herein by reference.
Item 11. Executive Compensation
- ------- ----------------------
The Company's definitive Proxy Statement to be issued in conjunction with the
1998 Annual Meeting of Shareholders is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------- --------------------------------------------------------------
The Company's definitive Proxy Statement to be issued in conjunction with the
1998 Annual Meeting of Shareholders is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
- ------- ----------------------------------------------
The Company's definitive Proxy Statement to be issued in conjunction with the
1998 Annual Meeting of Shareholders is incorporated herein by reference.
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.
--------------------
On June 16, 1998 the Company filed a Current Report on Form 8-K with
respect to a Change of Control of the Registrant.
<PAGE>
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/ R. Scott Kirk
-----------------
R. Scott Kirk
President and Chief Operating Officer
Date: September 22, 1998
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/ Kristine A. Crabs September 22, 1998
- --------------------------------------------------------
Kristine A. Crabs
Vice President and Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ Hendrik J. Hartong, Jr. September 22, 1998
- --------------------------------------------------------
Hendrik J. Hartong, Jr.
Director
/s/ John T. Gray September 22, 1998
- --------------------------------------------------------
John T. Gray
Director
/s/ C. Alan MacDonald September 22, 1998
- --------------------------------------------------------
C. Alan MacDonald
Director
/s/ Ian B. MacTaggart September 22, 1998
- --------------------------------------------------------
Ian B. MacTaggart
Director
<PAGE>
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, 1998 and 1997 F-2 to F-3
Statements of Operations for the Years Ended
June 30, 1998, 1997 and 1996 F-4
Statements of Changes in Stockholders' Equity
for the Years Ended June 30, 1998, 1997 and 1996 F-5
Statements of Cash Flows for the Years Ended
June 30, 1998, 1997 and 1996 F-6 to F-7
Notes to Financial Statements F-8 to F-18
</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, 1998 and 1997, and the related
statements of operations, changes in stockholders' equity, and cash flows for
the years ended June 30, 1998, 1997 and 1996. 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, 1998 and 1997, and the results of its operations and its cash flows
for the years ended June 30, 1998, 1997 and 1996 in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Stamford, Connecticut,
August 5, 1998
<PAGE>
<TABLE>
<CAPTION>
LINCOLN SNACKS COMPANY
----------------------
BALANCE SHEETS
--------------
ASSETS
------
JUNE 30, 1998 AND 1997
----------------------
June 30, June 30,
1998 1997
------------- --------------
ASSETS
------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 3,726,400 $ 1,606,357
Accounts receivable, net of allowances
for doubtful accounts and cash
discounts of $322,509 and $237,778 1,703,427 1,951,937
Inventories 2,363,287 1,680,253
Prepaid and other current assets 61,557 29,023
------------ ------------
Total current assets 7,854,671 5,267,570
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land 370,000 370,000
Building and leasehold improvements 1,782,992 1,526,705
Machinery and equipment 5,023,795 4,800,284
Construction in process 13,093 122,319
------------ ------------
7,189,880 6,819,308
Less-accumulated depreciation (2,877,571) (2,263,689)
------------ ------------
4,312,309 4,555,619
INTANGIBLE AND OTHER ASSETS, net of
accumulated amortization of
$826,967 and $667,111 3,906,515 3,466,371
------------ ------------
Total assets $16,073,495 $13,289,560
=========== ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
<PAGE>
<TABLE>
<CAPTION>
LINCOLN SNACKS COMPANY
----------------------
BALANCE SHEETS
--------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
JUNE 30, 1998 AND 1997
----------------------
June 30, June 30,
1998 1997
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 1,197,444 $ 1,357,170
Accrued expenses 1,381,928 1,178,601
Accrued trade promotions 1,428,669 675,585
Deferred gain-short term (Note 9) 13,434 13,434
Current portion of note payable 333,333 --
------------- -------------
Total current liabilities 4,354,808 3,224,790
DEFERRED GAIN - LONG TERM (Note 9) 102,863 115,784
------------- -------------
Total liabilities 4,457,671 3,340,574
------------- -------------
COMMITMENTS (Notes 7 and 10)
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value,
20,000,000 shares authorized,
6,450,090 outstanding
at June 30, 1998 and 1997 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 (6,433,288) (8,100,126)
------------- -------------
11,641,850 9,975,012
Less - cost of common stock in treasury;
118,300 shares at June 30, 1998 and 1997 (26,026) (26,026)
------------- -------------
Total stockholders' equity 11,615,824 9,948,986
------------- -------------
Total liabilities and stockholders' equity $16,073,495 $13,289,560
============ =============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
<PAGE>
<TABLE>
<CAPTION>
LINCOLN SNACKS COMPANY
----------------------
STATEMENTS OF OPERATIONS
------------------------
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
------------------------------------------------
Year Ended Year Ended Year Ended
June 30, 1998 June 30, 1997 June 30, 1996
------------- ------------- -------------
<S> <C> <C> <C>
NET SALES $24,277,772 $23,101,704 $23,845,844
COST OF SALES 15,405,319 15,525,387 17,224,348
------------- ------------- -------------
Gross profit 8,872,453 7,576,317 6,621,496
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 8,096,238 5,697,404 5,724,777
WRITE DOWN OF FIXED
ASSETS (Note 11) -- 269,498 --
NON-RECURRING CHARGE (Note 12) 484,388 -- --
------------- ------------- -------------
Income from operations 291,827 1,609,415 896,719
OTHER:
Net Planters' other income 1,376,000 -- --
Interest income (expense) 128,452 (126,820) (356,910)
Other expense (19,441) -- --
------------- ------------- -------------
Income before provision
for income taxes 1,776,838 1,482,595 539,809
PROVISION FOR INCOME TAXES 110,000 40,000 29,000
------------- ------------- -------------
Net income $ 1,666,838 $ 1,442,595 $ 510,809
============ ============ ==============
BASIC AND DILUTED NET
INCOME PER SHARE (Note 2) $ .26 $ .23 $ .08
============ ============ ==============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING
Basic 6,331,790 6,331,790 6,334,757
============ ============ ==============
Diluted 6,341,804 6,331,790 6,334,757
============ ============ ==============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
<PAGE>
<TABLE>
<CAPTION>
LINCOLN SNACKS COMPANY
----------------------
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
---------------------------------------------
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
------------------------------------------------
Additional
Common Special Paid-in Accumulated Treasury
Stock Stock Capital (Deficit) Stock
--------- -------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
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)
Net income -- -- -- 1,666,838 --
--------- -------- ----------- ------------- ---------
June 30, 1998 $64,501 $ -- $18,010,637 $ (6,433,288) $(26,026)
========= ======== =========== ============= =========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
<PAGE>
<TABLE>
<CAPTION>
LINCOLN SNACKS COMPANY
----------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
------------------------------------------------
Year Ended Year Ended Year Ended
June 30, 1998 June 30, 1997 June 30, 1996
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $1,666,838 $1,442,595 $ 510,809
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation 645,305 640,738 636,943
Amortization 159,856 177,116 221,700
Loss on sale of equipment 19,441 -- --
Write down of fixed assets -- 269,498 --
Provision for doubtful accounts
and cash discounts, net 39,198 64,254 (84,439)
Changes in assets and liabilities:
(Increase) decrease in
accounts receivable 686,620 677,684 (1,087,214)
(Increase) decrease in
inventories (460,182) 403,275 279,953
(Increase) decrease in
prepaid and other current
assets (32,534) 61,313 8,692
Increase in other assets -- -- (6,017)
Increase (decrease) in
accounts payable (159,726) (472,885) 1,054,514
Increase (decrease) in
accrued trade promotions 753,084 (184,595) (140,784)
Increase (decrease) in
accrued expenses 190,406 61,938 (121,396)
------------- ----------- -----------
Net cash provided
by operating activities 3,508,306 3,140,931 1,272,761
------------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, net of seller
note payable (800,160) -- --
Capital expenditures (488,782) (314,529) (119,844)
Proceeds on sale of land -- 369,218 --
Proceeds on sale of fixed assets 67,346 17,640 --
------------- ----------- -----------
Net cash provided by
(used in) investing
activities (1,221,596) 72,329 (119,844)
------------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LINCOLN SNACKS COMPANY
----------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
------------------------------------------------
(continued)
Year Ended Year Ended Year Ended
June 30, 1998 June 30, 1997 June 30, 1996
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C> <C>
Repayments under note payable $ (166,667) $ -- $ --
Repayments under term loan -- (1,109,326) (800,004)
Borrowings (repayments)
under revolver, net -- (556,115) (385,476)
Noel payment under tax agreement -- -- 12,891
Purchase of treasury stock -- -- (2,002)
------------- ----------- -----------
Net cash used in
financing activities (166,667) (1,665,441) (1,174,591)
------------- ----------- -----------
Net increase (decrease)
in cash 2,120,043 1,547,819 (21,674)
CASH, beginning of period 1,606,357 58,538 80,212
------------- ----------- -----------
CASH, end of period $3,726,400 $ 1,606,357 $ 58,538
============= =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 13,010 $ 120,059 $ 279,582
============= =========== ============
Income taxes paid $ 105,672 $ 21,388 $ 22,140
============= =========== ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
<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 Brynwood Partners III, L.P. (the "Parent"). Prior to June 1998, the
Company was a majority-owned subsidiary of Noel Group, Inc. ("Noel").
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
part of an initial public offering. The Company received net proceeds
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 arrangement terminated. Effective January 1,
1998 and May 1, 1997, Planters ceased, and Lincoln resumed, marketing
and distributing the Company's Fiddle Faddle and Screaming Yellow
Zonkers products, respectively.
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 required Planters to compensate the
Company for contract minimums for the six month period ended December
31, 1997 (six month minimums). Planters compensated the Company in the
six months ended December 31, 1997 for contract minimums, which were 27%
less than case sales made to Planters for the six month period ended
December 31, 1996.
The Amendment also required Planters to compensate the Company in the
event that certain sales levels were not achieved during the calendar
year ending December 31, 1997. These sales levels were not achieved
during the calendar year ending December 31, 1997, resulting in Planters
compensating the Company approximately $1,880,000 which is partially
offset on the Company's statement of operations by approximately
$500,000 in non-recurring charges associated with initial efforts to
rebuild the Fiddle Faddle brand ("Net Planters Other Income").
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
9%, 47% and 43% of net sales for the years ended June 30, 1998, 1997 and
1996 and amounts due from Planters represented 69% and 85% of accounts
receivable at June 30, 1997 and 1996, respectively.
In July and October 1997, the Company entered into Trademark License
Agreements with Nabisco, Inc. pursuant to which Nabisco, Inc. granted
the Company the right to use the Planters trademarks in connection with
the sales and marketing of the Company's Fiddle Faddle products in the
United States and Canada for a period of five years commencing on
January 1, 1998. This agreement is royalty free for the first two years
of its term. Royalty payments, based on net sales of products included
in the agreement, are payable in subsequent years.
(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 10-30 years
Intellectual property and other 1-20 years
The Company believes no impairment of intangible assets exists at
June 30, 1998.
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.
Income taxes-
-------------
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", under which deferred income taxes are
determined based on the differences between the financial statement and
tax bases of assets and liabilities using presently enacted tax rates
and regulations. A valuation allowance is established for any deferred
tax asset for which realization is not likely.
Net income per share-
---------------------
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128") in 1998. This statement establishes
standards for computing and presenting basic and diluted earnings per
share.
Below is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Basic earnings per share:
Weighted average number of
shares outstanding 6,331,790 6,331,790 6,334,757
Dilutive effect of stock options 10,014 -- --
--------- --------- ---------
Diluted earnings per share:
Weighted average number of
shares outstanding 6,341,804 6,331,790 6,334,757
Net Income $1,666,838 $1,442,595 $ 510,809
Basic and diluted earnings
per share $ .26 $ .23 $ .08
</TABLE>
Options and warrants to purchase 290,000, 822,550 and 473,800 shares of
common stock were outstanding at June 30, 1998, 1997 and 1996,
respectively, but were not included in the computation of diluted
earnings per share because the options' exercise price was greater than
the average market price of the common shares.
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 $1,385,854 $1,293,280
Finished goods 977,433 386,973
------------- -----------
$2,363,287 $1,680,253
============= ===========
Intangible and other assets-
Excess of purchase price over net
assets acquired $4,577,631 $3,977,631
Intellectual property and other 155,851 155,851
------------- -----------
4,733,482 4,133,482
Less: accumulated amortization (826,967) (667,111)
------------- -----------
Intangible assets, net $3,906,515 $3,466,371
============= ===========
</TABLE>
(4) Income Taxes:
-------------------------
The income tax provisions for the years ended June 30, 1998, 1997 and
1996 consist primarily of state taxes and federal alternative minimum
taxes.
The following represents a reconciliation of the federal statutory
income tax rate to the effective income tax rate:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- ------
<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 1.5 1.1 3.6
Utilization of loss
carryforwards, net (29.7) (32.6) (34.7)
Non-deductible meals and
entertainment .4 .2 0.7
------- ------- ------
Effective income tax rate 6.2% 2.7% 3.6%
======= ======= ======
</TABLE>
The principal temporary items comprising the net unrecognized deferred
income tax asset are as follows:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1998 1997 1996
----------- -------- ---------
<S> <C> <C> <C>
Net operating loss carryforward,
net of amount utilized
by Parent $ 1,386,000 $ 2,428,000 $ 3,079,000
Depreciation and amortization (985,000) (864,000) (504,000)
Accrued expenses not
yet deductible 660,000 165,000 476,000
All other 456,000 385,000 192,000
----------- ---------- -----------
Net deferred tax asset
unrecognized 1,517,000 2,114,000 3,243,000
Less: valuation reserve (1,517,000) (2,114,000) (3,243,000)
----------- ---------- -----------
Net deferred tax asset
recognized $ -- $ -- $ --
=========== =========== ============
</TABLE>
At June 30, 1998, the Company had a net operating loss carryforward
("NOLs") for income tax purposes, subject to Internal Revenue Service
review, of approximately $3,464,000 which expire in 2007 through 2011 if
not utilized. The above NOLs include those NOLs generated subsequent to
deconsolidating from Noel in 1994. The Company has been reimbursed for
the portion of the Company's pre-fiscal 1996 NOLs utilized by Noel prior
to deconsolidating, including $12,891 in fiscal 1996, which was recorded
by the Company as additional paid-in capital.
Under section 382 of the Internal Revenue Code, if the Company undergoes
an ownership change, the amount of its pre-change losses that may be
utilized to offset future taxable income generally will be subject to an
annual limitation. In general, the annual limitation would be based on
the value of the Company's outstanding stock immediately before the
ownership change and the adjusted Federal long-term interest rate in
effect for the month in which the ownership change occurs. Any unused
portion of the annual limitation would be available in subsequent years.
On June 8, 1998, the Company underwent an ownership change as a result
of the acquisition of Noel's interest in the Company by the Parent. As
a result of the ownership change, utilization of the Company's NOL will
be subject to an annual limitation of approximately $650,000.
(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 are reserved for issuance under the 1993 Stock Option Plan
and 200,000 shares of common stock are reserved for issuance under the
Non-Employee Directors' Stock Option Plan. The Company has granted
options to purchase 198,659 shares and 143,400 shares, respectively,
through June 30, 1998. Under both Plans, the option exercise price
equals the stock's market price on date of grant. The 1993 Stock Option
Plan options normally vest over periods ranging from 12 to 36 months.
In June 1998, all existing nonvested options became vested upon the
change of control of the Company. 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 $1,666,838 $1,442,595
Pro forma 1,218,607 1,300,723
Basic and diluted income per share:
As reported $.26 $.23
Pro forma .19 .21
</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 experienced in future years.
A summary of the status of the Company's two stock option plans at
June 30, 1998, 1997, and 1996 and changes during the years then ended
is presented in the table and narrative below:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- ------------------- --------------------
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 822,550 $2.73 473,800 $4.35 499,600 $4.59
Granted 116,800 1.81 437,750 1.32 55,000 2.10
Canceled (380,200) 1.81 (75,000) 4.50 -- --
Forfeited (2,091) 1.54 -- -- (19,000) 3.53
Expired -- -- (14,000) 4.31 (61,800) 4.50
-------- --------- ------- --------- ------- ----------
Outstanding
at end of
year 557,059 $3.16 822,550 $2.73 473,800 $4.35
======== ========= ======= ========= ======= =========
Exercisable
at end of
year 557,059 435,940 310,492
========= ========= =========
Weighted
average
fair value
of options
granted $1.37 $1.00 $1.58
</TABLE>
<TABLE>
<CAPTION>
The following table summarizes information about stock options and
warrants outstanding at June 30, 1998:
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 1998 Life (Years) Price 1998 Price
-------------- ------------ ------------ -------- ----------- --------
<C> <C> <C> <C> <C> <C>
$1.25 - $1.875 267,059 5.22 $1.58 267,059 $1.58
$2.28 - $2.70 75,000 1.95 2.39 75,000 2.39
$5.40 215,000 5.58 5.40 215,000 5.40
------------- ------- -------
$1.25 - $5.40 557,059 557,059
======= =======
</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 1998 and 1997, respectively:
risk-free interest rates of 6.25% and 6.92 %, no expected dividend
yields, expected lives of ten years and expected volatility of 61%
and 59%.
(6) Credit Facility:
----------------
In December 1993, the Company entered into a bank loan agreement, as
amended, which provides for up to $4 million in revolver borrowings.
There were no amounts outstanding under the revolving credit facility at
June 30, 1998. The credit facility is available through December 2,
2000. 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, 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 percentage 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
1.5%. In addition to this rate, the Company has the option to pay
interest on the revolving credit facility at the alternate base rate, as
defined, plus 0.25%. At June 30, 1998 and 1997, the interest rate
8.658% and 8.696%, respectively. Interest is payable monthly.
The facility requires an annual monitoring fee of $6,000 and an unused
facility fee of 0.4% 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 for
the period to which the commitments apply. The total remaining amount
of inventory to be purchased under these commitments as of June 30, 1998
is approximately $4,100,000. These purchase commitments expire
primarily through December 31, 1998.
(8) Acquisition:
------------
On March 17, 1998, the Company acquired certain assets of Iroquois
Popcorn Company ("Iroquois"), a private label manufacturer of
caramelized popcorn, for approximately $1,300,000, of which $800,000 was
paid in cash and $500,000 is a non-interest bearing note to be paid in
equal monthly installments over a twelve-month period commencing March
31, 1998. A contingent payment of up to $350,000 may be paid in the
future if the Company maintains 70% of the sales volume to Iroquois'
largest customer.
The acquisition was accounted for as a purchase with the assets acquired
recorded at their fair values at the date of acquisition. The excess of
purchase price over net assets acquired is being amortized over a period
of 10 years. The purchase price has been allocated as follows:
<TABLE>
<S> <C>
Accounts receivable $ 477,000
Inventory 223,000
Excess of purchase price over
net assets acquired 600,000
----------
$1,300,000
==========
</TABLE>
The following is unaudited pro forma information as if the Company's
acquisition of Iroquois had occurred at the beginning of the respective
fiscal periods. The incremental revenue reflected below consists
primarily of sales to one customer. These results may not be indicative
of what the actual results would have been or may be in the future.
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Net sales $27,859,707 $27,118,445
Net income $ 2,594,054 $ 2,137,211
Net income per share $0.41 $0.34
</TABLE>
(9) 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 was deferred and will be
recognized as income over the ten-year lease term.
(10) Leases:
-------
At June 30, 1998, the Company's minimum future rental payments on a
fiscal year basis under non-cancelable operating leases are as follows:
1999 $ 332,000
2000 274,000
2001 249,000
2002 242,000
2003 and thereafter 1,303,000
Rent expense for operating leases amounted to approximately $310,000,
$286,000, and $283,000 for the years ended June 30, 1998, 1997 and 1996,
respectively.
(11) 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.
(12) Non-recurring Charge:
---------------------
During the year ended June 30, 1998, the Company recorded a
non-recurring charge of $484,388 relating to severance and other
compensation costs in connection with the resignation of the Company's
former chairman and chief executive officer.
(13) Related Party Transactions:
---------------------------
During the years ended June 30, 1998, 1997 and 1996, the Company paid
legal fees of approximately $38,000, $72,000 and $86,000, respectively,
to a law firm of which one of its partners is a director of Noel.
A director was paid export brokerage commissions of $9,000 during the
year ended June 30, 1996.
During the year ended June 30, 1996, one of the Company's executives was
paid by Noel. Lincoln did not receive any allocation of expenses from
Noel for this executive's services.
(14) 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, 1998, 1997 and 1996, Company contributions to the plan totaled
$52,000, $46,000 and $51,000, respectively.
(15) Sales Data:
-----------
Export sales-
-------------
During the years ended June 30, 1998, 1997 and 1996, export sales were
approximately $1,520,000, $2,157,000 and $2,241,000, respectively.
Significant customer-
---------------------
For the year ended June 30, 1998, two customers represented
approximately 18% and 12% of net sales, respectively. For the years
ended June 30, 1997 and 1996, Planters represented approximately 47% and
43%, respectively, of net sales.
(16) 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, 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
Year ended June 30, 1998,
allowances for
doubtful accounts
and cash discounts $237,778 $315,526 $(230,795) $322,509
</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) Waiver and Consent dated July 16, 1998 granted by BNY
Financial Corporation. 10(A)
(B) Amendment No. 10 dated July 17, 1998 To Revolving Credit,
Term Loan and Security Agreement. 10(B)
(C) Severance Agreement with Karen Brenner dated
February 24, 1998 and Amended Severance Agreement
dated June 4, 1998 10(C)
(D) Severance Agreement with R. Scott Kirk dated
February 24, 1998 and Amended Severance Agreement
dated June 4, 1998. 10(D)
(E) Severance Agreement with Kristine A. Crabs dated
February 24, 1998 and Amended Severance Agreement
dated June 4, 1998. 10(E)
(F) Amendment to 1993 Stock Option Plan dated June 4, 1998. 10(F)
(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 23 A
(24) Power of Attorney; Not Applicable
(27) Financial Data Schedule 27
(99) Additional Exhibits; Not Applicable
* Incorporated by reference
EXHIBIT 10(A)
LETTERHEAD
BNY FINANCIAL CORPORATION
1290 Avenue of the Americas
New York, NY 10104
212-408-7000
July 16, 1998
Lincoln Snacks Company
4 High Ridge Park
Stamford, Connecticut 06905
Re: Waiver and Consent
Gentlemen:
Reference is made to the Revolving Credit, Term Loan and Security
Agreement between you and BNY Financial Corporation, as successor-in-interest
to The Bank of New York Commercial Corporation, dated December
3, 1993, as supplemented and amended (the "Loan Agreement"). You have
requested that we waive a certain covenant within the Loan Agreement and
consent to a certain transaction, to the extent and as more fully
described in this letter. Initially capitalized terms used but not
otherwise defined herein shall have the meanings given such terms in the
Loan Agreement.
Pursuant to your request, we hereby agree to waive as a default
under the Loan Agreement the transfer of control of Borrower resulting
from the sale of approximately 3,600,000 share of your common stock by
the Original Owner to Brynwood Partners III on or about June 8, 1998
(the "transfer of control") in violation of the Change of Control
covenant set forth in Section 10.13 of the Loan Agreement, and we
consent to such transfer of control to Brynwood Partners III.
The waiver and consent provided herein are specifically limited to
the section of the Loan Agreement set forth above, and no waiver of, or
consent with respect to, any other term, condition, covenant, agreement
or other aspect of the Loan Agreement is intended or implied. Except
for the specific circumstances covered by this letter, no other aspect
of the covenant referred to in this letter is waived, including without
limitation for any other circumstance, and no such additional waiver is
intended or implied.
If you are in agreement with the foregoing, please so indicate by
signing and returning to us the enclosed copy of this letter.
Very truly yours,
BNY FINANCIAL CORPORATION
By: /s/ Anthony Viola
------------------
Name: Anthony Viola
Title: Vice President
AGREED TO AND ACCEPTED:
LINCOLN SNACKS COMPANY
By: /s/ Kristine A. Crabs
------------------------
Name: Kristine A. Crabs
Title: Chief Financial Officer
EXHIBIT 10(B)
AMENDMENT NO. 10
TO
REVOLVING CREDIT, TERM LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 10 ("Amendment") is entered into as of July 17,
1998, by and between Lincoln Snacks Company, a Delaware corporation,
having its principal place of business at 4 High Ridge Park, Stamford,
Connecticut 06905 ("Borrower") and BNY Financial Corporation, as
successor-in-interest to The Bank of New York Commercial Corporation,
having offices at 1290 Avenue of the Americas, New York, New York 10104
("Lender").
BACKGROUND
Borrower and Lender are parties to a Revolving Credit, Term Loan
and Security Agreement dated December 3, 1993, as amended by Amendment
No. 1 to Revolving Credit, Term Loan and Security Agreement dated as of
March 24, 1994, Amendment No. 2 to Revolving Credit, Term Loan and
Security Agreement dated as of September 14, 1994, Amendment No. 3 to
Revolving Credit, Term Loan and Security Agreement dated as of March 31,
1995, Amendment No. 4 to Revolving Credit, Term Loan and Security
Agreement dated as of June 29, 1995, Amendment No. 5 to Revolving
Credit, Term Loan and Security Agreement dated as of November 7, 1995,
Amendment No. 6 to Revolving Credit, Term Loan and Security Agreement
dated as of May 8, 1996, Amendment No. 7 to Revolving Credit, Term Loan
and Security Agreement dated as of October 8, 1996, Amendment No. 8 to
Revolving Credit, Term Loan and Security Agreement dated as of January
13, 1998 and Amendment No. 9 to Revolving Credit, Term Loan and Security
Agreement dated as of March 11, 1998 (as further amended, restated,
supplemented or otherwise modified from time to time, the "Loan
Agreement") pursuant to which Lender provided Borrower with certain
financial accommodations.
Borrower has requested that Lender amend the Loan Agreement and
Lender is willing to do so on the terms and conditions hereafter set
forth.
NOW, THEREFORE, in consideration of any loan or advance or grant
of credit heretofore or hereafter made to or for the account of Borrower
by Lender, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Definitions. All capitalized terms not otherwise defined
herein shall have the meanings given to them in the Loan Agreement.
2. Amendment to Loan Agreement. Subject to satisfaction of the
conditions precedent set forth in Section 3 below, the Loan Agreement is
hereby amended as follows:
(a) The defined term "Change of Control" in Section 1.2 of the
Loan Agreement is amended by deleting the words "an Original Owner"
appearing therein and inserting the words "the Controlling Shareholder"
in their place and stead.
(b) The following defined term is added to Section 1.2 of the
Loan Agreement in the appropriate alphabetical order to provide as
follows:
" "Controlling Shareholder" shall mean Brynwood Partners
III."
3. Conditions of Effectiveness. This Amendment shall become
effective upon receipt by Lender of four (4) copies of this Amendment
executed by Borrower.
4. Representations and Warranties. Borrower hereby represents
and warrants as follows:
(a) This Amendment and the Loan Agreement, as amended
hereby, constitute legal, valid and binding obligations of Borrower and
are enforceable against Borrower in accordance with their respective
terms.
(b) No Event of Default has occurred and is continuing or
would exist after giving effect to this Amendment.
(c) Borrower has no defense, counterclaim or offset with
respect to the Loan Agreement or the Obligations thereunder.
5. Effect on the Loan Agreement.
(a) Upon the effectiveness of Section 2 hereof, each
reference in the Loan Agreement to "this Agreement," "hereunder,"
"hereof," "herein" or words of like import shall mean and be a reference
to the Loan Agreement as amended hereby.
(b) Except as specifically amended herein, the Loan
Agreement, and all other documents, instruments and agreements executed
and/or delivered in connection therewith, shall remain in full force and
effect, and are hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of
Lender, nor constitute a waiver of any provision of the Loan Agreement,
or any other documents, instruments or agreements executed and/or
delivered under or in connection therewith.
6. Governing Law. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective
successors and assigns and shall be governed by and construed in
accordance with the laws of the State of New York.
7. Headings. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part
of this Amendment for any other purpose.
8. Counterparts. This Amendment may be executed by the parties
hereto in one or more counterparts, each of which shall be deemed an
original and all of which taken together shall be deemed to constitute
one and the same agreement.
IN WITNESS WHEREOF, this Amendment No. 10 has been duly executed
as of the day and year first written above.
LINCOLN SNACKS COMPANY
By: /s/ Kristine A. Crabs
-----------------------
Name: Kristine A. Crabs
Title: Chief Financial Officer
BNY FINANCIAL CORPORATION
By: /s/ Anthony Viola
-----------------------
Name: Anthony Viola
Title: Vice President
EXHIBIT 10(C)
LINCOLN SNACKS COMPANY
4 High Ridge Park
Stamford, CT 06905
February 27, 1998
Ms. Karen Brenner
Noel Group, Inc.
667 Madison Avenue
New York, NY 10021
Dear Karen:
In recognition of your current employment by Lincoln Snacks Company
(the "Company") and in order to induce you to continue in such
employment, this letter sets forth our mutual understanding concerning
the terms of your severance in the event of a Change of Control (as
defined below).
1. You shall be entitled to receive the severance payment
contemplated by this Agreement only in the event (i) you cease to be
employed by the Company for any reason (including, without limitation,
as a result of your resignation) within a twelve (12) month period
commencing at the effective time of a Change of Control and ending on
the first anniversary thereof, other than as a result of being
terminated by the Company for Cause (as defined below) or (ii) your
employment by the Company is terminated other than for Cause within 90
days prior to a Change of Control.
2. For purposes of this Agreement the following terms shall have
the following meanings:
(a) "Cause" shall mean (i) proven or admitted (A) embezzlement
or (B) dishonest usage of Company funds or assets; or (ii) conviction in
a court of law of, or pleading of guilty or nolo contendere to, any
crime that constitutes a felony in the jurisdiction involved.
(b)(i) "Change of Control" shall be deemed to have occurred
upon the occurrence of any of the following events:
(A) any transaction or series of related transactions
as a result of which any "person" or "group" (within the meaning
of Section 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), other than Noel Group,
Inc. ("Noel"), a wholly-owned subsidiary of Noel, or a
liquidating trust established by Noel, becomes the "beneficial
owner" (as defined in Rule 13d-3 of the Exchange Act) of
outstanding voting securities of the Company representing 50% or
more of the combined voting power of the Company's then
outstanding securities;
(B) the individuals who, as of the effective date of
this Agreement, constitute the Board of Directors of the Company
plus any individual who is within the definition of "Continuing
Director," cease for any reason to constitute at least a
majority of the directors of the Company;
(C) there shall be consummated any merger of the
Company with or into any person, other than Noel or a wholly-owned
subsidiary of Noel, where immediately following such
transaction 50% or more of the outstanding voting stock of the
surviving entity is not owned, directly or indirectly, by
persons who were shareholders of the Company holding, in the
aggregate, 50% or more of the outstanding shares of the Company
immediately prior to such transaction; or
(D) there shall be consummated a sale, to a person
other than Noel or a wholly-owned subsidiary of Noel, of all or
substantially all of the operating assets of the Company in one
transaction or a series of transactions.
(ii) Notwithstanding anything to the contrary herein contained:
(A) A "Change of Control" shall not be deemed to have
occurred as a result of a distribution by Noel of shares of the
Company's stock pro rata to Noel's shareholders.
(B) In the event of a transaction which would
constitute a "Change of Control" within the meaning of Section
2(b)(i) but for the exceptions relating to wholly-owned
subsidiaries of Noel contained in Subsections 2(b)(i)(A),
2(b)(i)(C) or 2(b)(i)(D), a "Change of Control" shall be deemed
to occur in the event (x) of any transaction or series of
related transactions as a result of which any "person" or
"group" becomes the "beneficial owner" of outstanding voting
securities of the wholly-owned subsidiary representing 50% or
more of the combined voting power of the wholly-owned
subsidiary's then outstanding securities; (y) there shall be
consummated any merger of the wholly-owned subsidiary with or
into any person, other than Noel, where immediately following
such transaction 50% or more of the outstanding voting stock of
the surviving entity is not owned, directly or indirectly, by
persons who were shareholders of the wholly-owned subsidiary
holding, in the aggregate, 50% or more of the outstanding shares
of the wholly-owned subsidiary immediately prior to such
transaction; or (z) there shall be consummated a sale, to a
person other than Noel, of all or substantially all of the
operating assets of the wholly-owned subsidiary in one
transaction or a series of transactions.
(c) "Continuing Director" shall mean any director on the date
hereof and any director who was nominated or elected a director by a
majority of the Continuing Directors in office at the time of his or her
nomination or election.
3. Subject to the terms and conditions contained herein, the
severance payment payable hereunder shall equal $250,000 which payment
you acknowledge is over and above that to which you would normally be
entitled. The amount payable under this Section 3 shall be payable by
the Company to you, or to your executors or personal representatives, in
a lump sum immediately following the execution of a release in favor of
the Company in the form of Exhibit A attached hereto (the "Release")
(which the Company shall deliver to you for execution promptly following
the occurrence of either of the events set forth in Section 1 of this
Agreement) and the expiration of the waiting periods set forth therein.
You acknowledge that all payments hereunder will be subject to
applicable withholding taxes. In the event that any proceeding is
instituted by you or the Company to enforce rights under this Agreement,
the unsuccessful party, as determined in such proceeding, shall pay the
reasonable legal fees and related expenses incurred by the successful
party in such proceeding.
4. In consideration of the foregoing benefits:
(a) if you choose to deliver the Release and accept the
severance provided for in this Agreement, the payment shall be in lieu
of and in satisfaction of all liabilities and obligations of the Company
to you, whether known or unknown, other than any unpaid salary for the
period preceding termination, any unpaid bonus previously awarded to
you, vacation pay accrued, accrued vested pension benefits and interests
in the Company's 401(k) plan and reasonable expenses in connection with
your employment for which timely substantiation shall have been
submitted prior to the payment of the severance amount. As a condition
of receiving the severance amount you will execute and deliver the
Release; and
(b) you agree to return to the Company or to destroy, within
five business days following the date you cease to be employed (or date
of Change of Control, if later), all documents, records and other
property relating to the Company and its business which are in your
possession or under your control. You agree not to disclose to anyone
any confidential or non-public information which relates to the Company
or its business.
5. The Company encourages you to carefully review the terms of this
Agreement and, if you wish, to seek advice and counsel from an attorney
before signing this Agreement.
6. This Agreement shall inure to benefit of and shall be binding
upon you and your executors, administrators, heirs, personal
representatives and assigns, and the Company and its successors and
assigns; provided, however, that you shall not be entitled to assign or
delegate any of your rights or obligations hereunder without the prior
written consent of the Company.
7. This Agreement constitutes the entire agreement between the
parties relating to the subject matter hereof and supersedes any and all
other agreements relating to your employment whether written or oral.
This Agreement cannot be altered or amended except by a writing duly
executed by the party against whom such alteration or amendment is
sought to be enforced.
8. If any one or more of the provisions contained in this Agreement
shall be held illegal or unenforceable, no other provision shall be
affected.
We are pleased that we have been able to reach this Agreement.
After you have had the chance to review this Agreement and to consult
with your attorney, if you wish, please sign the enclosed copy and
return it to us.
LINCOLN SNACKS COMPANY
By: /s/ R. Scott Kirk
-------------------
Name: R. S. Kirk
Title: President & C.O.O.
Accepted and Agreed:
/s/ Karen Brenner
- --------------------
Karen Brenner
EXHIBIT A
RELEASE
The undersigned, for herself and her successors and assigns, does
hereby fully and completely RELEASE, ACQUIT and FOREVER DISCHARGE each
of Lincoln Snacks Company (the "Company"), its affiliates, subsidiaries
or other related entities as well as its shareholders, officers,
directors, employees, advisors, consultants or agents (collectively, the
"Releasees"), in all of its or their respective capacities, from any and
all claims, debts, demands, actions, causes of action, suits, sums of
money, contracts, agreements, judgements and liabilities, including
attorney's fees, whatsoever, both in law and in equity ("claims") of any
kind and any character arising out of or in connection with the
undersigned's employment by the Company that she ever had, might now or
hereafter have, or could have had, whether in contract, tort or
otherwise, including specifically any claims of discrimination that she
may claim in connection with her employment or association with the
Company or the termination thereof; provided, however, that this Release
excludes the Company's obligations under Section 4(a) of the agreement
dated February 24, 1998 between the Company and the undersigned. This
release includes, but is not limited to, claims arising under the
federal, state or local laws prohibiting discrimination on the basis of
one's sex, race, age, disability, national origin, color or religion, or
other reason forbidden by federal, state or local laws or claims growing
out of any legal restrictions on the right to terminate employees. This
release also specifically includes the waiver of any rights or claims
arising under the Age Discrimination in Employment Act of 1967 (29
U.S.C. 621 et seq.).
The undersigned acknowledges that after the undersigned has executed
and delivered this Release, the undersigned will have seven (7) days
following the date of execution during which time the undersigned may
revoke this Release, provided, however, that, if the undersigned elects
to return an executed copy of the document to the Company before the
expiration of 22 days from the date of receipt of the release from the
Company, the undersigned may revoke this Release at any time before the
later to occur of seven (7) days following the date of execution or 22
days after the date of receipt from the Company. The undersigned
further acknowledges that if the Company does not receive a written
revocation from the undersigned, or the undersigned's attorney, prior to
the expiration of the period in which the undersigned may revoke this
Release, this Release will become effective on the date after the
expiration of the applicable revocation period.
The undersigned acknowledges that she has been given the opportunity
to consider this Release for at least twenty-one (21) days, that the
undersigned has been advised to discuss this Release with an attorney of
her choice, that the undersigned has carefully read and fully
understands and agrees to all of the provisions of this Release and that
the undersigned is voluntarily entering into this Release.
Finally, the undersigned also understands that the undersigned has
seven (7) days after the execution of this Release (or twenty-two days
after the date of receipt of this release from the Company, if later) to
change her mind and that the undersigned may revoke this Release by
providing written notice of revocation to the Company prior to the
expiration of the applicable period.
June 12, 1998 /s/ Karen Brenner
- ------------------- --------------------
Date of Execution Karen Brenner
LINCOLN SNACKS COMPANY
LETTER AGREEMENT REGARDING AMENDED SEVERANCE AGREEMENT
Ms. Karen Brenner
667 Madison Avenue
New York, NY 10021
Dear Ms. Brenner:
Please be advised that pursuant to resolutions adopted by the Board
of Directors on June 4, 1998, paragraph 1 of the Severance Agreement
between you and the Company dated February 27, 1998, has been amended so
that you shall also be entitled to receive severance payments in the
event that you are not reelected as the Chairman of the Board for any
reason other than Cause (as defined in the Severance Agreement). In
addition, paragraph 4(a) of the Severance Agreement is amended so that
while you must still execute a release to receive severance payments, by
executing the release you will not be waiving your rights or releasing
the Company of its obligations pursuant to any stock option agreements
between you and the Company which may be in effect as of the date of the
release.
If the foregoing is in accordance with your understanding and
approved by you, please confirm such by mailing and returning the
duplicate of this Letter Agreement delivered for that purpose.
LINCOLN SNACKS COMPANY
By: /s/ R. Scott Kirk
---------------------
R. Scott Kirk
President and
Chief Operating Officer
AGREED AND ACCEPTED:
/s/ Karen Brenner
- ---------------------
Karen Brenner
EXHIBIT 10(D)
LINCOLN SNACKS COMPANY
4 High Ridge Park
Stamford, CT 06905
February 24, 1998
Ms. Kristine A. Crabs
87 Bald Hill Road
New Canaan, CT 86840
Dear Kris:
In recognition of your current employment by Lincoln Snacks Company
(the "Company") and in order to induce you to continue in such
employment, this letter sets forth our mutual understanding concerning
the terms of your severance in the event of a Change of Control (as
defined below).
1. You shall be entitled to receive the severance payment
contemplated by this Agreement only in the event (i) you cease to be
employed by the Company for any reason (including, without limitation,
as a result of your resignation) within a twelve (12) month period
commencing at the effective time of a Change of Control and ending on
the first anniversary thereof, other than as a result of being
terminated by the Company for Cause (as defined below) or (ii) your
employment by the Company is terminated other than for Cause within 90
days prior to a Change of Control.
2. For purposes of this Agreement the following terms shall have
the following meanings:
(a) "Cause" shall mean (i) proven or admitted (A) embezzlement
or (B) dishonest usage of Company funds or assets; or (ii) conviction in
a court of law of, or pleading of guilty or nolo contendere to, any
crime that constitutes a felony in the jurisdiction involved.
(b)(i) "Change of Control" shall be deemed to have occurred
upon the occurrence of any of the following events:
(A) any transaction or series of related transactions
as a result of which any "person" or "group" (within the meaning
of Section 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), other than Noel Group,
Inc. ("Noel"), a wholly-owned subsidiary of Noel, or a
liquidating trust established by Noel, becomes the "beneficial
owner" (as defined in Rule 13d-3 of the Exchange Act) of
outstanding voting securities of the Company representing 50% or
more of the combined voting power of the Company's then
outstanding securities;
(B) the individuals who, as of the effective date of
this Agreement, constitute the Board of Directors of the Company
plus any individual who is within the definition of "Continuing
Director," cease for any reason to constitute at least a
majority of the directors of the Company;
(C) there shall be consummated any merger of the
Company with or into any person, other than Noel or a wholly-owned
subsidiary of Noel, where immediately following such
transaction 50% or more of the outstanding voting stock of the
surviving entity is not owned, directly or indirectly, by
persons who were shareholders of the Company holding, in the
aggregate, 50% or more of the outstanding shares of the Company
immediately prior to such transaction; or
(D) there shall be consummated a sale, to a person
other than Noel or a wholly-owned subsidiary of Noel, of all or
substantially all of the operating assets of the Company in one
transaction or a series of transactions.
(ii) Notwithstanding anything to the contrary herein contained:
(A) A "Change of Control" shall not be deemed to have
occurred as a result of a distribution by Noel of shares of the
Company's stock pro rata to Noel's shareholders.
(B) In the event of a transaction which would
constitute a "Change of Control" within the meaning of Section
2(b)(i) but for the exceptions relating to wholly-owned
subsidiaries of Noel contained in Subsections 2(b)(i)(A),
2(b)(i)(C) or 2(b)(i)(D), a "Change of Control" shall be deemed
to occur in the event (x) of any transaction or series of
related transactions as a result of which any "person" or
"group" becomes the "beneficial owner" of outstanding voting
securities of the wholly-owned subsidiary representing 50% or
more of the combined voting power of the wholly-owned
subsidiary's then outstanding securities; (y) there shall be
consummated any merger of the wholly-owned subsidiary with or
into any person, other than Noel, where immediately following
such transaction 50% or more of the outstanding voting stock of
the surviving entity is not owned, directly or indirectly, by
persons who were shareholders of the wholly-owned subsidiary
holding, in the aggregate, 50% or more of the outstanding shares
of the wholly-owned subsidiary immediately prior to such
transaction; or (z) there shall be consummated a sale, to a
person other than Noel, of all or substantially all of the
operating assets of the wholly-owned subsidiary in one
transaction or a series of transactions.
(c) "Continuing Director" shall mean any director on the date
hereof and any director who was nominated or elected a director by a
majority of the Continuing Directors in office at the time of his or her
nomination or election.
3. Subject to the terms and conditions contained herein, the
severance payment payable hereunder shall equal $115,940 which payment
you acknowledge is over and above that to which you would normally be
entitled. The amount payable under this Section 3 shall be payable by
the Company to you, or to your executors or personal representatives, in
a lump sum immediately following the execution of a release in favor of
the Company in the form of Exhibit A attached hereto (the "Release")
(which the Company shall deliver to you for execution promptly following
the occurrence of either of the events set forth in Section 1 of this
Agreement) and the expiration of the waiting periods set forth therein.
You acknowledge that all payments hereunder will be subject to
applicable withholding taxes. In the event that any proceeding is
instituted by you or the Company to enforce rights under this Agreement,
the unsuccessful party, as determined in such proceeding, shall pay the
reasonable legal fees and related expenses incurred by the successful
party in such proceeding.
4. In consideration of the foregoing benefits:
(a) if you choose to deliver the Release and accept the
severance provided for in this Agreement, the payment shall be in lieu
of and in satisfaction of all liabilities and obligations of the Company
to you, whether known or unknown, other than any unpaid salary for the
period preceding termination, any unpaid bonus previously awarded to
you, vacation pay accrued, accrued vested pension benefits and interests
in the Company's 401(k) plan and reasonable expenses in connection with
your employment for which timely substantiation shall have been
submitted prior to the payment of the severance amount. As a condition
of receiving the severance amount you will execute and deliver the
Release; and
(b) you agree to return to the Company or to destroy, within
five business days following the date you cease to be employed (or date
of Change of Control, if later), all documents, records and other
property relating to the Company and its business which are in your
possession or under your control. You agree not to disclose to anyone
any confidential or non-public information which relates to the Company
or its business.
5. The Company encourages you to carefully review the terms of this
Agreement and, if you wish, to seek advice and counsel from an attorney
before signing this Agreement.
6. This Agreement shall inure to benefit of and shall be binding
upon you and your executors, administrators, heirs, personal
representatives and assigns, and the Company and its successors and
assigns; provided, however, that you shall not be entitled to assign or
delegate any of your rights or obligations hereunder without the prior
written consent of the Company.
7. This Agreement constitutes the entire agreement between the
parties relating to the subject matter hereof and supersedes any and all
other agreements relating to your employment whether written or oral.
This Agreement cannot be altered or amended except by a writing duly
executed by the party against whom such alteration or amendment is
sought to be enforced.
8. If any one or more of the provisions contained in this Agreement
shall be held illegal or unenforceable, no other provision shall be
affected.
We are pleased that we have been able to reach this Agreement.
After you have had the chance to review this Agreement and to consult
with your attorney, if you wish, please sign the enclosed copy and
return it to us.
LINCOLN SNACKS COMPANY
By: /s/ Karen Brenner
-------------------
Name: Karen Brenner
Title: Chairman & Chief Executive Officer
Accepted and Agreed:
/s/ Kristine A. Crabs
- ----------------------
Kristine A. Crabs
EXHIBIT A
RELEASE
The undersigned, for herself and her successors and assigns, does
hereby fully and completely RELEASE, ACQUIT and FOREVER DISCHARGE each
of Lincoln Snacks Company (the "Company"), its affiliates, subsidiaries
or other related entities as well as its shareholders, officers,
directors, employees, advisors, consultants or agents (collectively, the
"Releasees"), in all of its or their respective capacities, from any and
all claims, debts, demands, actions, causes of action, suits, sums of
money, contracts, agreements, judgements and liabilities, including
attorney's fees, whatsoever, both in law and in equity ("claims") of any
kind and any character arising out of or in connection with the
undersigned's employment by the Company that she ever had, might now or
hereafter have, or could have had, whether in contract, tort or
otherwise, including specifically any claims of discrimination that she
may claim in connection with her employment or association with the
Company or the termination thereof; provided, however, that this Release
excludes the Company's obligations under Section 4(a) of the agreement
dated February 24, 1998 between the Company and the undersigned. This
release includes, but is not limited to, claims arising under the
federal, state or local laws prohibiting discrimination on the basis of
one's sex, race, age, disability, national origin, color or religion, or
other reason forbidden by federal, state or local laws or claims growing
out of any legal restrictions on the right to terminate employees. This
release also specifically includes the waiver of any rights or claims
arising under the Age Discrimination in Employment Act of 1967 (29
U.S.C. 621 et seq.).
The undersigned acknowledges that after the undersigned has executed
and delivered this Release, the undersigned will have seven (7) days
following the date of execution during which time the undersigned may
revoke this Release, provided, however, that, if the undersigned elects
to return an executed copy of the document to the Company before the
expiration of 22 days from the date of receipt of the release from the
Company, the undersigned may revoke this Release at any time before the
later to occur of seven (7) days following the date of execution or 22
days after the date of receipt from the Company. The undersigned
further acknowledges that if the Company does not receive a written
revocation from the undersigned, or the undersigned's attorney, prior to
the expiration of the period in which the undersigned may revoke this
Release, this Release will become effective on the date after the
expiration of the applicable revocation period.
The undersigned acknowledges that she has been given the opportunity
to consider this Release for at least twenty-one (21) days, that the
undersigned has been advised to discuss this Release with an attorney of
her choice, that the undersigned has carefully read and fully
understands and agrees to all of the provisions of this Release and that
the undersigned is voluntarily entering into this Release.
Finally, the undersigned also understands that the undersigned has
seven (7) days after the execution of this Release (or twenty-two days
after the date of receipt of this release from the Company, if later) to
change her mind and that the undersigned may revoke this Release by
providing written notice of revocation to the Company prior to the
expiration of the applicable period.
- ------------------------ -----------------------------
Date of Execution Kristine A. Crabs
LINCOLN SNACKS COMPANY
LETTER AGREEMENT REGARDING AMENDED SEVERANCE AGREEMENT
Ms. Kristine A. Crabs
87 Bald Hill Road
New Canaan, CT 86840
Dear Kris:
Please be advised that pursuant to resolutions adopted by the Board
of Directors on June 4, 1998, paragraph 4(a) of the Severance Agreement
between you and the Company dated February 24, 1998, is amended so that
while you must still execute a release to receive severance payments, by
executing the release you will not be waiving your rights or releasing
the Company of its obligations pursuant to any stock option agreements
between you and the Company which may be in effect as of the date of the
release.
If the foregoing is in accordance with your understanding and
approved by you, please confirm such by mailing and returning the
duplicate of this Letter Agreement delivered for that purpose.
LINCOLN SNACKS COMPANY
By: /s/ Karen Brenner
--------------------
Karen Brenner
President and
Chairman of the Board
AGREED AND ACCEPTED:
/s/ Kristine A. Crabs
- -------------------------
Kristine A. Crabs
EXHIBIT 10(E)
LINCOLN SNACKS COMPANY
4 High Ridge Park
Stamford, CT 06905
February 24, 1998
Mr. R. Scott Kirk
97 Daybreak Road
Southport, CT 06490
Dear Scott:
In recognition of your current employment by Lincoln Snacks Company
(the "Company") and in order to induce you to continue in such
employment, this letter sets forth our mutual understanding concerning
the terms of your severance in the event of a Change of Control (as
defined below).
1. You shall be entitled to receive the severance payment
contemplated by this Agreement only in the event (i) you cease to be
employed by the Company for any reason (including, without limitation,
as a result of your resignation) within a twelve (12) month period
commencing at the effective time of a Change of Control and ending on
the first anniversary thereof, other than as a result of being
terminated by the Company for Cause (as defined below) or (ii) your
employment by the Company is terminated other than for Cause within 90
days prior to a Change of Control.
2. For purposes of this Agreement the following terms shall have
the following meanings:
(a) "Cause" shall mean (i) proven or admitted (A) embezzlement
or (B) dishonest usage of Company funds or assets; or (ii) conviction in
a court of law of, or pleading of guilty or nolo contendere to, any
crime that constitutes a felony in the jurisdiction involved.
(b)(i) "Change of Control" shall be deemed to have occurred
upon the occurrence of any of the following events:
(A) any transaction or series of related transactions
as a result of which any "person" or "group" (within the meaning
of Section 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), other than Noel Group,
Inc. ("Noel"), a wholly-owned subsidiary of Noel, or a
liquidating trust established by Noel, becomes the "beneficial
owner" (as defined in Rule 13d-3 of the Exchange Act) of
outstanding voting securities of the Company representing 50% or
more of the combined voting power of the Company's then
outstanding securities;
(B) the individuals who, as of the effective date of
this Agreement, constitute the Board of Directors of the Company
plus any individual who is within the definition of "Continuing
Director," cease for any reason to constitute at least a
majority of the directors of the Company;
(C) there shall be consummated any merger of the
Company with or into any person, other than Noel or a wholly-owned
subsidiary of Noel, where immediately following such
transaction 50% or more of the outstanding voting stock of the
surviving entity is not owned, directly or indirectly, by
persons who were shareholders of the Company holding, in the
aggregate, 50% or more of the outstanding shares of the Company
immediately prior to such transaction; or
(D) there shall be consummated a sale, to a person
other than Noel or a wholly-owned subsidiary of Noel, of all or
substantially all of the operating assets of the Company in one
transaction or a series of transactions.
(ii) Notwithstanding anything to the contrary herein contained:
(A) A "Change of Control" shall not be deemed to have
occurred as a result of a distribution by Noel of shares of the
Company's stock pro rata to Noel's shareholders.
(B) In the event of a transaction which would
constitute a "Change of Control" within the meaning of Section
2(b)(i) but for the exceptions relating to wholly-owned
subsidiaries of Noel contained in Subsections 2(b)(i)(A),
2(b)(i)(C) or 2(b)(i)(D), a "Change of Control" shall be deemed
to occur in the event (x) of any transaction or series of
related transactions as a result of which any "person" or
"group" becomes the "beneficial owner" of outstanding voting
securities of the wholly-owned subsidiary representing 50% or
more of the combined voting power of the wholly-owned
subsidiary's then outstanding securities; (y) there shall be
consummated any merger of the wholly-owned subsidiary with or
into any person, other than Noel, where immediately following
such transaction 50% or more of the outstanding voting stock of
the surviving entity is not owned, directly or indirectly, by
persons who were shareholders of the wholly-owned subsidiary
holding, in the aggregate, 50% or more of the outstanding shares
of the wholly-owned subsidiary immediately prior to such
transaction; or (z) there shall be consummated a sale, to a
person other than Noel, of all or substantially all of the
operating assets of the wholly-owned subsidiary in one
transaction or a series of transactions.
(c) "Continuing Director" shall mean any director on the date
hereof and any director who was nominated or elected a director by a
majority of the Continuing Directors in office at the time of his or her
nomination or election.
3. Subject to the terms and conditions contained herein, the
severance payment payable hereunder shall equal $168,000 which payment
you acknowledge is over and above that to which you would normally be
entitled. The amount payable under this Section 3 shall be payable by
the Company to you, or to your executors or personal representatives, in
a lump sum immediately following the execution of a release in favor of
the Company in the form of Exhibit A attached hereto (the "Release")
(which the Company shall deliver to you for execution promptly following
the occurrence of either of the events set forth in Section 1 of this
Agreement) and the expiration of the waiting periods set forth therein.
You acknowledge that all payments hereunder will be subject to
applicable withholding taxes. In the event that any proceeding is
instituted by you or the Company to enforce rights under this Agreement,
the unsuccessful party, as determined in such proceeding, shall pay the
reasonable legal fees and related expenses incurred by the successful
party in such proceeding.
4. In consideration of the foregoing benefits:
(a) if you choose to deliver the Release and accept the
severance provided for in this Agreement, the payment shall be in lieu
of and in satisfaction of all liabilities and obligations of the Company
to you, whether known or unknown, other than any unpaid salary for the
period preceding termination, any unpaid bonus previously awarded to
you, vacation pay accrued, accrued vested pension benefits and interests
in the Company's 401(k) plan and reasonable expenses in connection with
your employment for which timely substantiation shall have been
submitted prior to the payment of the severance amount. As a condition
of receiving the severance amount you will execute and deliver the
Release; and
(b) you agree to return to the Company or to destroy, within
five business days following the date you cease to be employed (or date
of Change of Control, if later), all documents, records and other
property relating to the Company and its business which are in your
possession or under your control. You agree not to disclose to anyone
any confidential or non-public information which relates to the Company
or its business.
5. The Company encourages you to carefully review the terms of this
Agreement and, if you wish, to seek advice and counsel from an attorney
before signing this Agreement.
6. This Agreement shall inure to benefit of and shall be binding
upon you and your executors, administrators, heirs, personal
representatives and assigns, and the Company and its successors and
assigns; provided, however, that you shall not be entitled to assign or
delegate any of your rights or obligations hereunder without the prior
written consent of the Company.
7. This Agreement constitutes the entire agreement between the
parties relating to the subject matter hereof and supersedes any and all
other agreements relating to your employment whether written or oral.
This Agreement cannot be altered or amended except by a writing duly
executed by the party against whom such alteration or amendment is
sought to be enforced.
8. If any one or more of the provisions contained in this Agreement
shall be held illegal or unenforceable, no other provision shall be
affected.
We are pleased that we have been able to reach this Agreement.
After you have had the chance to review this Agreement and to consult
with your attorney, if you wish, please sign the enclosed copy and
return it to us.
LINCOLN SNACKS COMPANY
By: /s/ Karen Brenner
--------------------------
Name: Karen Brenner
Title: Chairman & Chief Executive Officer
Accepted and Agreed:
/s/ R. Scott Kirk
- ---------------------
R. Scott Kirk
EXHIBIT A
RELEASE
The undersigned, for himself and his successors and assigns, does
hereby fully and completely RELEASE, ACQUIT and FOREVER DISCHARGE each
of Lincoln Snacks Company (the "Company"), its affiliates, subsidiaries
or other related entities as well as its shareholders, officers,
directors, employees, advisors, consultants or agents (collectively, the
"Releasees"), in all of its or their respective capacities, from any and
all claims, debts, demands, actions, causes of action, suits, sums of
money, contracts, agreements, judgements and liabilities, including
attorney's fees, whatsoever, both in law and in equity ("claims") of any
kind and any character arising out of or in connection with the
undersigned's employment by the Company that he ever had, might now or
hereafter have, or could have had, whether in contract, tort or
otherwise, including specifically any claims of discrimination that he
may claim in connection with his employment or association with the
Company or the termination thereof; provided, however, that this Release
excludes the Company's obligations under Section 4(a) of the agreement
dated February 24, 1998 between the Company and the undersigned. This
release includes, but is not limited to, claims arising under the
federal, state or local laws prohibiting discrimination on the basis of
one's sex, race, age, disability, national origin, color or religion, or
other reason forbidden by federal, state or local laws or claims growing
out of any legal restrictions on the right to terminate employees. This
release also specifically includes the waiver of any rights or claims
arising under the Age Discrimination in Employment Act of 1967 (29
U.S.C. 621 et seq.).
The undersigned acknowledges that after the undersigned has executed
and delivered this Release, the undersigned will have seven (7) days
following the date of execution during which time the undersigned may
revoke this Release, provided, however, that, if the undersigned elects
to return an executed copy of the document to the Company before the
expiration of 22 days from the date of receipt of the release from the
Company, the undersigned may revoke this Release at any time before the
later to occur of seven (7) days following the date of execution or 22
days after the date of receipt from the Company. The undersigned
further acknowledges that if the Company does not receive a written
revocation from the undersigned, or the undersigned's attorney, prior to
the expiration of the period in which the undersigned may revoke this
Release, this Release will become effective on the date after the
expiration of the applicable revocation period.
The undersigned acknowledges that he has been given the opportunity
to consider this Release for at least twenty-one (21) days, that the
undersigned has been advised to discuss this Release with an attorney of
his choice, that the undersigned has carefully read and fully
understands and agrees to all of the provisions of this Release and that
the undersigned is voluntarily entering into this Release.
Finally, the undersigned also understands that the undersigned has
seven (7) days after the execution of this Release (or twenty-two days
after the date of receipt of this release from the Company, if later) to
change his mind and that the undersigned may revoke this Release by
providing written notice of revocation to the Company prior to the
expiration of the applicable period.
- ------------------------ -----------------------------
Date of Execution R. Scott Kirk
LINCOLN SNACKS COMPANY
LETTER AGREEMENT REGARDING AMENDED SEVERANCE AGREEMENT
Mr. R. Scott Kirk
97 Daybreak Road
Southport, CT 06490
Dear Scott:
Please be advised that pursuant to resolutions adopted by the Board
of Directors on June 4, 1998, paragraph 4(a) of the Severance Agreement
between you and the Company dated February 24, 1998, is amended so that
while you must still execute a release to receive severance payments, by
executing the release you will not be waiving your rights or releasing
the Company of its obligations pursuant to any stock option agreements
between you and the Company which may be in effect as of the date of the
release.
If the foregoing is in accordance with your understanding and
approved by you, please confirm such by mailing and returning the
duplicate of this Letter Agreement delivered for that purpose.
LINCOLN SNACKS COMPANY
By: /s/ Karen Brenner
--------------------
Karen Brenner
President and
Chairman of the Board
AGREED AND ACCEPTED:
/s/ R. Scott Kirk
- ----------------------
R. Scott Kirk
EXHIBIT 10(F)
LETTERHEAD
Lincoln Snacks Company
4 High Ridge Park
Stamford, CT 06905
(203) 329-4545
Fax: (203) 329-4555
June 4, 1998
To Holders of Options Issued under the 1993 Stock Option Plan
of Lincoln Snacks Company (the "Company")
Please be advised that pursuant to resolutions adopted by the
Board of Directors of the Company on June 4, 1998, the Stock Option
Agreement (the "Agreement") between you and the Company has been
amended, as confirmed hereby, to provide that the term "Extraordinary
Transaction" as used in section 3(a) of the Agreement includes "Change
of Control" of the Company accompanied by the termination of your
employment (either voluntary or involuntary). Upon the occurrence of an
"Extraordinary Transaction", immediate vesting of all options issued to
you will occur. For purposes hereof, "Change of Control" shall be
deemed to have occurred upon the occurrence of any of the following
events:
(a) any transaction or series of related transactions as a
result of which any "person" or "group" (within the meaning
of Section 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")), other than Noel
Group, Inc. ("Noel"), a wholly-owned subsidiary of Noel, or
a liquidating trust established by Noel, becomes the
"beneficial owner" (as defined in Rule 13d-3 of the Exchange
Act) of outstanding voting securities of the Company
representing 50% or more of the combined voting power of the
Company's then outstanding securities;
(b) the individuals who, as of the effective date of this
Agreement, constitute the Board of Directors of the Company
plus any individual who is within the definition of
"Continuing Director," cease for any reason to constitute at
least a majority of the directors of the Company;
(c) there shall be consummated any merger of the Company with or
into any person, other than Noel or a wholly-owned
subsidiary of Noel, where immediately following such
transaction 50% or more of the outstanding voting stock of
the surviving entity is not owned, directly or indirectly,
by persons who were shareholders of the Company holding, in
the aggregate, 50% or more of the outstanding shares of the
Company immediately prior to such transaction; or
(d) there shall be consummated a sale, to a person other than
Noel or a wholly-owned subsidiary of Noel, of all or
substantially all of the operating assets of the Company in
one transaction or a series of transactions.
Notwithstanding anything to the contrary herein contained:
(a) A "Change of Control" shall not be deemed to have occurred
as a result of a distribution by Noel of shares of the
Company's stock pro rata to Noel's shareholders.
(b) In the event of a transaction which would constitute a
"Change of Control", but for the exceptions relating to
wholly-owned subsidiaries of Noel contained in (c) above, a
"Change of Control" shall be deemed to occur in the event
(x) of any transaction or series of related transactions as
a result of which any "person" or "group" becomes the
"beneficial owner" of outstanding voting securities of the
wholly-owned subsidiary representing 50% or more of the
combined voting power of the wholly-owned subsidiary's then
outstanding securities; (y) there shall be consummated any
merger of the wholly-owned subsidiary with or into any
person, other than Noel, where immediately following such
transaction 50% or more of the outstanding voting stock of
the surviving entity is not owned, directly or indirectly,
by persons who were shareholders of the wholly-owned
subsidiary holding, in the aggregate, 50% or more of the
outstanding shares of the wholly-owned subsidiary
immediately prior to such transaction; or (z) there shall be
consummated a sale, to a person other than Noel, of all or
substantially all of the operating assets of the wholly-owned
subsidiary in one transaction or a series of transactions.
LINCOLN SNACKS COMPANY
By: /s/ R. Scott Kirk
---------------------
R. Scott Kirk
President and Chief Operating Officer
EXHIBIT 23A
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated August 5, 1998, included in Lincoln Snacks
Company's Form 10-K for the fiscal year ended June 30, 1998, 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 18, 1998
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