CHARLOTTE DIVISION 3:10-cv-433 DAVID SHAEV, individually...
Transcript of CHARLOTTE DIVISION 3:10-cv-433 DAVID SHAEV, individually...
UNITED STATES DISTRICT COURTWESTERN DISTRICT OF NORTH CAROLINA
CHARLOTTE DIVISION3:10-cv-433
DAVID SHAEV, individually and on behalfof all others similarly situated,
Plaintiff,
vs.
LANCE, INC., DAVID V. SINGER, W.J.PREZZANO, JAMES W. JOHNSTON, S.LANCE VAN EVERY, DAN C. SWANDER,WILLIAM R. HOLLAND, JEFFREY A.ATKINS, J.P. BOLDUC, ISAIAH TIDWELL,and SNYDER'S OF HANOVER, INC.,
Defendants.
COMPLAINT
Plaintiff David B. Shaev (“Plaintiff”) alleges the following facts based on
personal information as to himself and as to all other matters on information and belief based on,
among other things, the following: (a) review and analysis of public filings made by defendant
Lance, Inc. (“Lance” or the “Company”) with the United States Securities and Exchange
Commission (“SEC”); (b) review and analysis of press releases disseminated by defendants;
analyst reports on Lance covering the relevant time period; (c) review of other publicly available
information concerning Lance and other persons; and (d) consultation with a financial expert.
Plaintiff believes that these allegations will have additional evidentiary support after a reasonable
opportunity for further investigation and discovery.
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NATURE OF THE ACTION
1. Plaintiff is a shareholder of Lance. On July 22, 2010, Lance and Snyder’s of
Hanover, Inc. (“Snyder’s”) announced that their boards of directors had entered into a Merger
Agreement under which, subject to shareholder approval, Snyder’s will merge with and into a
wholly-owned subsidiary of Lance (hereinafter referred to as the “Merger”). Upon completion of
the Merger, Lance will become the parent of Snyder’s; Lance’s name will be changed to
Snyder’s-Lance, Inc.; Snyder’s shareholders will receive 108.25 shares of Lance common stock;
and Lance shareholders of record will receive a one-time “special dividend” of $3.75 per share.
Lance is a public company that makes cookies and crackers; its shares are publicly traded on
Nasdaq under the symbol “LNCE.” Snyder’s manufactures a variety of snack foods.
2. On August 13, Lance and Snyder’s filed a joint proxy statement/prospectus with
the SEC on Form S-4 (the “Proxy Statement”) describing the terms of the Merger. In the Proxy
Statement, the board of directors of Lance urged Lance shareholders to vote to approve the
Merger. (Proxy Statement, Cover Letter to shareholders)(“Proposed Merger – Your Vote is Very
Important”).
3. In Count I, Plaintiff alleges an individual claim against Defendants for violation
of the federal proxy laws, 15 U.S.C. §78n(a) and Rule 14a-9, based on the Proxy Statement’s
material omissions and misrepresentations about the valuation of Lance and other issues, as
alleged below.
4. In Count II, Plaintiff alleges a claim on behalf of the shareholders of Lance
against Lance, the board of directors of Lance, and Snyder’s arising out of the proposed Merger.
Plaintiff’s class claim in Count II charges that the board of Lance, aided and abetted by Lance
and Snyder’s, breached its state-law fiduciary duties to Plaintiff and other Lance shareholders,
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by: (a) failing to maximize shareholder value by agreeing to sell Lance for inadequate
consideration; and, (b) disseminating a proxy statement to shareholders that fails to disclose
material information about the Merger that Plaintiff and other Lance shareholders needed to
know in order to make an informed decision on whether to vote for or against the Merger.
5. Plaintiff seeks injunctive relief to compel disclosure of the omitted material in the
Proxy Statement before the shareholder vote is held on the proposed Merger. The date for this
shareholder vote has not been announced, but Lance has publicly stated that it expects to
consummate the Merger in the fourth quarter of this year (October 1 to December 31, 2010).
JURISDICTION & VENUE
6. This Court has subject-matter jurisdiction pursuant to 28 U.S.C. §1331 because
Count I arises under federal law, 15 U.S.C. §78n(a) and 17 C.F.R. §240.14a-9(a). This Court
also has subject-matter jurisdiction pursuant to 28 U.S.C. § 1332, because the amount in
controversy on Plaintiff’s state-law claim in Count II exceeds $75,000, exclusive of interest and
costs, and the action is between citizens of different states. This court also has supplemental
jurisdiction of Plaintiff’s state-law claim, under 28 U.S.C. § 1367.
7. This Court has personal jurisdiction over Defendants. Lance conducts business in
this District and maintains its principal place of business at 13024 Ballantyne Corporate Place,
Harris Building, Suite 900, Charlotte, North Carolina. Snyder’s conducts substantial and
continuous business in North Carolina. The Individual Defendants (defined below) have
sufficient minimum contacts with North Carolina so as to render the exercise of jurisdiction by
this Court permissible under traditional notions of fair play and substantial justice. Defendants
David V. Singer, James W. Johnston, and Lance Van Every reside in North Carolina.
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8. Venue is proper in this District under 28 U.S.C. §1391(a) because Defendant
Lance is headquartered here, Defendants David V. Singer, James W. Johnston, and Lance Van
Every reside in this District, and because a substantial part of the events or omissions giving rise
to the claims occurred in this District.
THE PARTIES
9. Plaintiff David B. Shaev is the owner of Lance common stock, and has been
continuously throughout all times relevant hereto. Plaintiff is a citizen of New York.
10. Defendant Lance is incorporated in North Carolina and maintains its principal
executive offices at 13024 Ballantyne Corporate Place, Harris Building, Suite 900, Charlotte,
North Carolina, 28277. Lance manufactures, markets, and distributes a variety of snack foods.
The Company’s common stock trades on the Nasdaq stock exchange under the ticker “LNCE.”
As of February 24, 2010 there were 32,045,863 shares of Lance common stock outstanding.
Lance is a citizen of North Carolina.
11. Defendant David V. Singer (“Singer”) has been a Lance director since 2003 and
the Company’s President and CEO since 2005. Singer is a citizen of North Carolina.
12. Defendant W.J. Prezzano (“Prezzano”) has been Chairman of the Lance Board of
Directors since 2005. Prezzano is a citizen of South Carolina.
13. Defendant James W. Johnston (“Johnston”) has been a Lance director since 1998.
Johnston is a citizen of North Carolina.
14. Defendant S. Lance Van Every (“Van Every”) has been a Lance director since
1990. Every is a citizen of North Carolina.
15. Defendant Dan C. Swander (“Swander”) has been a Lance director since 2004.
Swander is a citizen of California.
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16. Defendant William R. Holland (“Holland”) has been a Lance director since 1993.
Holland is a citizen of Florida.
17. Defendant Jeffrey A. Atkins (“Atkins”) has been a Lance director since 2006.
Atkins is a citizen of Tennessee.
18. Defendant J.P. Bolduc (“Bolduc”) has been a Lance director since 2006. Bolduc
is a citizen of Maryland.
19. Defendant Isaiah Tidwell (“Tidwell”) has been a Lance director since 1995.
Tidwell is a citizen of Georgia.
20. Defendant Snyder’s is incorporated in Pennsylvania and maintains its principal
executive offices at 1250 York Street, Hanover, PA, 17331. Snyder’s manufactures, markets,
and distributes packaged snack foods. Snyder’s is a privately-held company. Snyder’s is a
citizen of Pennsylvania.
21. Defendants Singer, Prezzano, Johnston, Van Every, Swander, Holland, Atkins,
Bolduc and Tidwell are collectively referred to herein as the “Individual Defendants.”
22. The Individual Defendants, by virtue of their positions as officers and/or directors
of Lance, are in a fiduciary relationship with Plaintiff and the other Lance shareholders and owe
them the highest obligations of good faith, fair dealing, loyalty and due care.
SUBSTANTIVE ALLEGATIONS
A. The Merger Under-Compensates Lance Shareholders
23. Lance manufactures and markets snack foods throughout much of the United
States and other parts of North America. Its products include sandwich crackers and cookies,
potato chips, crackers, cookies, other snacks, sugar wafers, nuts, restaurant style crackers and
candy. Lance has manufacturing facilities in North Carolina, Iowa, Georgia, Massachusetts,
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Texas, Florida, Ohio, and Ontario, Canada. Its products are sold under the Lance®, Cape Cod®,
Tom’s®, Archway® and Stella D’oro® brand names along with a number of private label and
third-party brands. Lance distributes its products through its direct-store-delivery system, a
network of independent distributors and direct shipments to customer locations. Products are
distributed widely through grocery and mass merchant stores, convenience stores, club stores,
food service outlets and other channels.
24. For the year ended December 26, 2009, Lance had revenues of $918.2 million and
net income of $35.8 million. (Proxy Statement at 1). Lance reported its second quarter earnings
on July 22, 2010, announcing $0.44 per share income or $14.4 million, which far exceeded 2009
second quarter income of $9.5 million and beat Wall Street estimates.
25. On July 22, 2010, Lance and Snyder’s issued a press release announcing that they
had agreed to merge. Snyder’s will merge with Lima Merger Corp., a wholly-owned subsidiary
of Lance, with Snyder’s continuing as the surviving subsidiary. After completion of the Merger,
Lance will become the parent of Snyder’s and will change its name to Snyder’s-Lance, Inc.
(Proxy Statement at ii, 1, 77).
26. Each share of Snyder’s that is issued and outstanding immediately before the
completion of the Merger (other than shares of Snyder’s common stock held by Snyder’s that
will be cancelled upon completion of the Merger) will be converted into the right to receive
108.25 shares of Lance common stock (referred to as the “exchange ratio”). (Proxy Statement at
77). Lance shareholders are expected to own 49.9% of the newly formed entity; shareholders of
Snyder’s will own 50.1 % of the total equity in the new company.
27. Lance will declare a special cash dividend of $3.75 per share to all holders of
record of shares of Lance common stock on the business day prior to the closing of the Merger.
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(Id. at 2). According to the Company, Lance stockholders are not entitled to appraisal rights in
connection with the Merger. (Id. at 5).
28. The exchange ratio of the Merger fails to reflect the fact that Lance had more than
$900 million in revenues in 2009, compared to Snyder’s roughly $673 million in revenues.
Further, the exchange ratio fails to account for Lance's recent strong financial performance as
evidenced by Lance’s reported 2010 Second Quarter numbers. And although the $3.75 per share
dividend (approximately $130 million in total) attempts to create parity, more than $80 million
remains in unaccounted contributory earnings by Lance. Lance is the larger of the two
companies, contributing around 58% of combined sales and approximately 56% of combined
adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). Lance
shareholders are nevertheless getting less than half of the combined company, despite the fact
that Lance is the larger entity. (KeyBanc Capital Markets, July 22, 2010, Quick Alert at 1).
29. In pursuing the unlawful plan to induce Lance shareholders to approve the Merger
via an unfair and uninformed process, each of the Defendants violated applicable law by directly
breaching and/or aiding the other Defendants’ breaches of their fiduciary duties of loyalty, due
care, diligence, good faith and fair dealing, independence and candor.
B. The Flawed Process That Led to the Merger Agreement
i. Singer is conflicted but does all the negotiating for the Merger
30. The process leading to the Merger was flawed. Defendant Singer conducted
almost all of the negotiations by himself with his counterpart, Carl L. Lee, Jr. (“Lee”) of
Snyder’s. Given Singer’s substantial stake in the new company and what he stood to gain
financially, the board should have at least formed an independent committee to negotiate with
Snyder’s. Singer, however, conducted all of the important negotiations alone, and completed
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most of them before he had even informed the board he had been negotiating with Lee,
according to the Proxy Statement.
31. Singer, according to the Proxy Statement, began negotiating with Lee in person
about a potential joint venture and supply chain synergies as early as December 16, 2009,
agreeing to continue discussions regarding “possible strategic options.” (Proxy Statement at 33).
32. The Proxy Statement states that Singer and Lee thereafter met in person to further
explore a business combination on March 2, 2010 in Harrisburg, Pennsylvania. (Id). On March
5, 2010, according to the Proxy Statement, Singer telephoned Lee to arrange a date for Lee to
visit Lance’s operations in Charlotte, North Carolina. (Id.)
33. According to the Proxy Statement, Singer and Lee spoke again by teleconference
on April 19, 2010 regarding a confidentiality agreement to cover the exchange of information
and their joint retention of Wells Fargo Securities, LLC (“Wells Fargo”), despite the obvious and
inherent conflict of interest that would flow from Wells Fargo’s joint representation of the two
companies. (Id.).
34. According to the Proxy Statement, on April 21, 2010, Singer and Lee met in
Charlotte, and Singer reviewed more detailed financial information he received from Snyder’s.
(Id. at 35).
35. According to the Proxy Statement, not until May 4, 2010, at a regularly scheduled
meeting of the board, did Singer tell the other board members about his negotiations with
Snyder’s to merge the two companies. (Id.). The board did nothing, however, to determine
whether other alternative transactions might be available to Lance and in the shareholders’ best
interest. According to the Proxy Statement, the board authorized Singer to continue negotiations
with Lee. (Id.).
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36. Thereafter, according to the Proxy Statement, Singer continued to negotiate with
Lee toward an agreement to merge: May 20, 2010 (Singer and Lee meet for dinner to conduct
further negotiations); May 21, 2010 (Singer and Lee meet in Charlotte with Wells Fargo
representatives and at this meeting “Mr. Lee and Mr. Singer clarified that the principal terms of
the merger transaction would be negotiated by them in their roles as chief executive officers of
their respective companies.”)(emphasis added); May 27, 2010 (Singer and Lee meeting in
Baltimore to negotiate “the key terms and structure of a possible merger transaction” and
“preliminary terms,” presumably meaning the exchange ratio for the Merger). (Proxy Statement
at 35).
37. On June 2, 2010, according to the Proxy Statement, Singer summarized for the
board the events leading up to the proposed transaction and the preliminary exchange ratio.
(Proxy Statement at 36). Based on this, the board authorized Singer to enter into a non-binding
letter of intent for the proposed transaction in accordance with the materials previously circulated
to the board.
38. On June 29, 2010, according to the Proxy Statement, Singer and Lee met in
Charlotte to discuss integration issues. (Id. at 37). By then, the Merger Agreement had been
drafted and was being revised, according to the Proxy Statement. ( Id. at 36-37). Wells Fargo,
despite its conflict of interest, continued to work on the transaction and meet with the Lance
board of directors, according to the Proxy Statement. (Id.). According to the Proxy Statement,
Lance’s board of directors did not formally retain Merrill Lynch until June 30, 2010 – long after
Wells Fargo had done its work and Singer and Lee had negotiated the principal terms of the
Merger. (Id. at 37). Even then, the board of Lance retained Merrill Lynch solely to “render a
fairness opinion on the proposed merger,” according to the Proxy Statement, and not to advise it
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on other alternatives to the Merger. (Id. at 37, 47-48) (“no opinion or view was expressed [by
Merrill Lynch] as to the relative merits of the merger or any related transaction in comparison to
other strategies or transactions that might be available to Lance or in which Lance might engage
or as to the underlying business decision of Lance to proceed with or effect the merger or any
such related transaction.”).
39. Singer, however, was conflicted given the following: (a) the position he would
assume in the new company as Chief Executive Officer and a director, with a salary at least
commensurate to his CEO compensation at Lance (2009: $2.7 million; 2008: $2.4 million (Proxy
Statement at 120), and (b) the substantial financial benefits he would receive from the Merger,
including: a change in control award ($578,800) and performance awards under Lance’s Three-
Year Plans ($220,000 (2010 plan); $414,300 (2009 plan)); the vesting of stock options ($1,533)
and restricted shares ($885,245); severance pay ($4,389,000); health benefits ($95,000); profit
sharing ($136,500); estimated tax payments (excise tax gross-ups) ($2,902,314); and adjustments
of stock option awards through a reduction of the option’s exercise price and a possible cash
payment up to $1.50 per option share (Singer owns 461,134 options subject to these
adjustments). (See Id. at 59-64). The Lance board itself concedes that Singer labored under a
conflict of interest because he was to become the CEO and a director of the combined company,
and because of the substantial financial gain that he will as a result of the Merger. (See Id. at 4,
58).
ii. The board did nothing to inform itself of alternative transactions
40. The board of directors of Lance not only ceded all negotiation of the Merger to
Singer, who was conflicted, but it did little, if anything, to consider other alternatives to the
transaction that Singer pursued with Lee, namely the Merger. After learning about the proposed
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Merger at a board meeting held on May 4, 2010, according to the Proxy Statement, the board
should have discussed the possibility of alternatives to the transaction that Singer had pursued
alone for nearly the preceding five months. Instead, according to the Proxy Statement, the board
pursued no such action for the remainder of the month. (Proxy Statement at 35).
41. On June 2, 2010, according to the Proxy Statement, the Chairman of the Board,
Defendant Prezzano, “noted questions to be considered by the board of directors, including
whether the proposed business combination with Snyder’s was the best alternative.” ( Id. at 36).
Nevertheless, the board had done no work and had no information before it to help answer the
question. On the contrary, the board had only heard from Wells Fargo, a company jointly
retained by Snyder’s and Lance, and hence by definition conflicted.
42. On June 11, 2010, according to the Proxy Statement, after Lance had executed the
letter of intent with Snyder’s, the board had only “reviewed the process for reviewing other
alternatives to the proposed combination with Snyder’s and the plans for due diligence.” (Id.)
(emphasis added). “Reviewing the process for reviewing other alternatives,” however, was akin
to “getting ready to get ready.” It was plainly not an active search to discover “[w]hether the
proposed combination with Snyder’s was the best alternative.” Meanwhile, the Merger
Agreement had been drafted, and was being revised by all parties with a view to finalization,
according to the Proxy Statement. (Id. at 36-37).
43. On June 30, 2010, the board finally retained Bank of America Merrill Lynch
(“Merrill Lynch”) as a financial advisor, but only to render a fairness opinion on the exchange
ratio that Lance and Snyder’s had already agreed upon. (Proxy Statement at 37).
44. At a special board meeting on July 1, 2010, according to the Proxy Statement,
Merrill Lynch discussed the terms of its engagement with the board and the role of fairness
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opinions. (Proxy Statement at 37). According to the Proxy Statement, “[d]uring this meeting,
members of the board discussed potential opportunities related to the proposed merger
transaction and the potential for alternative transactions that might be available to Lance.” ( Id.).
45. The board’s sole effort to inform itself “whether the proposed business
combination with Snyder’s was the best alternative” consisted of a single discussion on July 1,
2010 with representatives of FIDUS Partners LLC (“FIDUS Partners”), according to the Proxy
Statement: “During the meeting [of July 1, 2010], the Lance board discussed with FIDUS
Partners LLC, a mergers and acquisitions advisory firm which had not been informed of the
proposed merger, potential valuations of Lance by potential strategic and financial buyers.”
(Proxy Statement at 37).
46. The Proxy Statement does not disclose any information about FIDUS Partners, its
experience, background, or reputation in marked distinction to the lengthy outline of Merrill
Lynch’s experience and reputation (Proxy Statement at 46, 54); how and why FIDUS Partners
was selected to attend the board meeting; whether the board ever formally retained FIDUS
Partners; what work, if any, FIDUS Partners actually performed and when, and what
conclusions, if any, it reached; whether FIDUS Partners was independent and how much, if
anything, it had been paid; or what FIDUS Partners told the members of the board, if anything,
about “the potential valuations of Lance by potential strategic and financial buyers,” all of whom
remain unidentified.
47. The Proxy Statement makes clear that the Lance board never contacted any other
potential buyers and never authorized any consultant or financial advisor to do so. The board
never contacted or sought any indications of interest from potential buyers, merger partners, or
joint venture partners. The board held only one “discussion” on the topic – on July 1, 2010 –
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during a meeting that, according to the Proxy Statement, was filled with a variety of other topics,
including the timeline for the Merger, due diligence findings, legal advice from the board’s
corporate counsel, and discussions with Wells Fargo. (Proxy Statement at 37).
48. Moreover, according to the Proxy Statement, on July 15, 2010, only two weeks
after the July 1, 2010 board meeting, Singer negotiated the “standstill agreement” with Snyder’s,
which would expressly prohibit Lance from contacting any other company that might be
interested in a business combination with Lance. (Id. at 38; Annex C).
49. On July 21, 2010, according to the Proxy Statement, the board met and voted to
approve the Merger. (Id at 39). According to the Proxy Statement, the board had done nothing
in between July 1, 2010 and July 21, 2010 to consider alternative transactions to the Merger.
(See Id. at 37-39).
50. Despite the lack of any meaningful due diligence on the existence of alternatives
to Singer’s proposal to merge with Snyder’s, the board told shareholders that it was “[t]he
board’s belief that the merger is the best strategic transaction available to Lance.” (Proxy
Statement at 40). The board nevertheless agreed to pay a $25 million termination fee to Snyder’s
under a variety of circumstances, including if Lance chose to solicit another company to
consummate a business combination, even if that transaction was a superior deal to the Merger.
(Id. at 83-84, 90).
C. The Proxy Statement Contains Material Omissions
51. Merrill Lynch performed a financial analysis of the Merger for the Lance board.
Merrill Lynch gave the board a written fairness opinion, annexed to the Proxy Statement as
Annex D. In addition, a summary of the methodologies, analyses, and findings of Merrill Lynch
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are set forth in the Proxy Statement at pages 46 to 54. The Proxy Statement, however, contains
material omissions as alleged below.
52. The Proxy Statement should disclose how Lance will pay for the $3.75 special
dividend. As part of the Merger, Lance intends to distribute a special dividend of $3.75 per
share to each Lance shareholder of record. But to do that will cost approximately $130 million.
Lance only has $7 million in cash. The Proxy Statement fails to disclose how Lance will pay for
the special dividend. If Lance intends to borrow the money, that fact and the rate of interest are
both highly material and must be disclosed.
53. The Proxy Statement should disclose Snyder’s enterprise value. The Proxy
Statement discusses Merrill Lynch’s analysis of the “enterprise value” of Lance and Snyder
against 13 publicly traded companies chosen from the food industry as comparable companies,
namely: Campbell Soup Company; ConAgra Foods, Inc.; Diamond Foods, Inc.; Flowers Foods,
Inc.; General Mills, Inc.; The Hain Celestial Group, Inc.; The J.M. Smucker Company; Kellogg
Company; Kraft Foods Inc.; PepsiCo, Inc.; Ralcorp Holdings, Inc.; Sara Lee Corp., TreeHouse
Foods Inc. (Proxy Statement at 48-49). Typically, enterprise value refers to the market
capitalization of a company plus its debt, minority interest and preferred shares minus cash and
cash equivalents. The Proxy Statement says that Merrill Lynch calculated the enterprise values
for the selected comparable companies and Lance “as equity values based on closing stock prices
on July 20, 2010 , plus debt and minority interests, less cash and cash equivalents, as a multiple
of last 12 months earnings before interest, taxes, depreciation and amortization, which is referred
to as ‘EBITDA,’ and of calendar year 2010 estimated EBITDA.” ( Id. at 49). Snyder’s is a
private company and no financial information about it is publicly available. Merrill Lynch,
however, obtained “corresponding [financial] data” from Snyder’s as well as estimated financial
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data based on Snyder’s own internal forecasts. (Id.). Nevertheless, the Proxy Statement fails to
disclose the enterprise value for Snyder’s.
54. The Proxy Statement should disclose the multiple, range, mean or median for
the comparable companies used in Merrill Lynch’s analysis. Merrill Lynch performed a
comparable companies analysis. In performing a selected publicly traded companies analysis of
Lance, Merrill Lynch reviewed enterprise values of 13 publicly-traded comparables in the food
industry and Lance. (Proxy Statement at 49). Merrill Lynch “then applied a range of selected
multiples of last 12 months EBITDA [earnings before interest, taxes, depreciation and
amortization] and calendar year 2010 estimated EBITDA derived from the selected publicly
traded companies and Lance to corresponding data of Lance.” (Id.). According to the Proxy
Statement, this analysis resulted in an implied share price reference range for Lance, after giving
effect to the payment of the $3.75 special dividend, which is discussed below. The Proxy
Statement, however, fails to disclose any multiple, range, mean or median of last 12 months
EBITDA or estimated 2010 EBITDA for any of the 13 selected publicly traded comparable
companies. This information is highly material because it would allow shareholders to verify
Merrill Lynch’s analysis and conclusions. The data in fact is critical because it formed the basis
of Merrill Lynch’s opinion about the implied share price ranges for Lance (see Id. at 49),
discussed below.
55. The Proxy Statement should disclose how Merrill Lynch treated the $3.75
special dividend to Lance shareholders in calculating the implied share price reference
ranges for Lance. The Proxy Statement states that Merrill Lynch’s comparable companies
analysis, described in the paragraph above, resulted in the following implied per share reference
ranges for Lance, “after giving effect to payment of the special dividend:” LTM [last 12 months]
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EBITDA: $13.03 -- $17.13; 2010E [estimated] EBITDA: $15.20 -- $20.06. (Proxy Statement at
49) (emphasis added). No disclosure is ever made in the Proxy Statement, however, on what
Merrill Lynch did to “give effect” to the payment of the special dividend. There is no disclosure
whether Merrill Lynch simply took $3.75 off the value of each share, or changed the enterprise
value of Lance by increasing the Company’s debt, or applied some other method. How Merrill
Lynch gave effect to the special dividend is plainly material information affecting Merrill
Lynch’s final conclusions on the implied value of Lance’s shares. The information is particularly
compelling here, because Merrill Lynch is opining that the value of Lance’s shares is lower than
its current market price. Presumably, the market would have discounted for the $3.75 special
dividend also; yet, Lance’s public trading price from July 22, 2010 to today is approximately $21
to $22. Even in the roughly three months just before Lance publicly announced the Merger (May
1 to July 21, 2010), Lance traded in the range of approximately $16 to $19 per share, and
consistently above $20 before that. In addition, Merrill Lynch calculated three separate price
ranges for Lance after giving effect to the payment of the special dividend. (See Id. at 49
(comparable companies analysis); 50 (discounted cash flow and terminal values analysis); 52
(precedent transactions analysis)).
56. The Proxy Statement should disclose the amount of the free cash flows for
Snyder’s and Lance. The Proxy Statement states that Merrill Lynch performed a discounted
cash flow analysis for Snyder’s and Lance. (Proxy Statement at 50). Merrill Lynch did that, the
Proxy Statement states, “to calculate the estimated present value of the standalone unlevered
after-tax free cash flows that Snyder’s and Lance could each generate during fiscal years ending
December 31, 2010 through 2014 based on the Snyder’s forecasts and the Lance forecasts,
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respectively.” (Id.). The Proxy Statement, however, never discloses the amount of the free-cash
flows that Merrill Lynch calculated for both companies.
57. The Proxy Statement should disclose how Merrill Lynch arrived at the
discount rate of 8% to 9% that it used in calculating a share price range for Snyder’s. The
Proxy Statement states that in Merrill Lynch’s discounted cash flow analysis of Snyder’s, it
calculated terminal values for Snyder’s by applying perpetual growth rates ranging from 2.0% to
3.0% to Snyder’s adjusted 2014 estimated unlevered cash flow. (Proxy Statement at 50). The
Proxy Statement then says that Merrill Lynch discounted the cash flows and terminal values for
Snyder’s to present value as of June 30, 2010, “using discount rates ranging from 8.0% to 9.0%.”
(Id.). As a result, Merrill Lynch calculated an implied share price range for Snyder’s of $2,196
to $3,046 per share. (Id.). The Proxy Statement, however, fails to disclose how or why Merrill
Lynch chose an 8% to 9% discount rate for Snyder’s. If, for example, the 8% to 9% discount
rate was based on Snyder’s cost of capital, that fact and any others that went into Merrill Lynch’s
choice of this discount rate, should be disclosed.
58. The multiples, range, mean and median should be disclosed for the precedent
transactions analyzed for Snyder’s and Lance. According to the Proxy Statement, Merrill
Lynch conducted a “selected precedent transactions analysis” for Snyder’s and Lance. (Proxy
Statement at 50-52). Merrill Lynch reviewed public financial information relating to merger and
acquisition transactions involving target companies in the foods industry. With regard to
Snyder’s, Merrill Lynch considered 16 transactions. The Proxy Statement gives the date of the
acquisition, the acquirer, and the target company acquired. (Id. at 51). But no information is
given about the price paid for the target companies in these precedent transactions. No facts are
disclosed about the multiples of EBITDA earnings that were paid for them, or the mean and
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median prices that the stocks of these companies traded at. Without this information, the
disclosure of the names and dates of these prior transactions in the foods industry is of little
value to shareholders. Likewise, Merrill Lynch reviewed these same 16 precedent transactions,
plus 9 more transactions whose targets, like Lance’s, have private label businesses, for a total of
25 transactions. (Id. at 52). No financial data, however, for any of these transactions is
disclosed.
59. The implied per share price range for Lance based on Merrill Lynch’s
selected precedent transactions analysis is flawed. The Proxy Statement states that Merrill
Lynch “applied a range of selected multiples of last 12 months EBITDA derived from the Lance
selected precedent transactions to Lance’s last 12 months EBITDA.” (Proxy Statement at 52).
According to the Form S-4, this analysis resulted in the following implied share price value
reference range for Lance, after giving effect to payment of the special dividend: $15.76 to
$21.24. (Id.). Like the comparable companies analysis discussed above, the discussion on the
precedent transactions does not disclose how Merrill Lynch treated Lance’s expected payment of
the $3.75 special dividend. In addition, the precedent transactions analysis does not disclose any
of the financial data in the 25 precedent transactions that Merrill Lynch use to calculate the
“share price value reference range” for Lance of $15.76 to $21.24. This is a material omission;
shareholders cannot verify Merrill Lynch’s precedent transactions analysis, and this is
particularly troubling given the fact that Merrill Lynch assigns a value to Lance shares that is
below the stock’s current trading value and below its recent historical trading value, just as it did
in the comparable companies analysis, discussed above.
60. Merrill Lynch’s past compensation by Lance should be disclosed. The Proxy
Statement states that Merrill Lynch has provided services for Lance in the past and expects to
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provide investment banking, commercial banking, and other financial services to Lance in the
future with respect to the new company. (Proxy Statement at 54). According to the Proxy
Statement, in the past, Merrill Lynch has acted as administrative agent, bookrunner, arranger,
and lender for Lance’s existing credit facilities; as placement agent for certain debt offerings of
Lance; and has provided treasury management services for Lance. (Id.). The amount of
compensation that Lance has paid Merrill Lynch for these past services bears on Merrill Lynch’s
independence and should be disclosed, and to the extent future compensation is now known,
those figures should also be disclosed.
CLASS ACTION ALLEGATIONS
61. Plaintiff brings Count II individually and as a class action under Rule 23, Fed. R.
Civ. P., on behalf of the holders of Lance common stock (the “Class”). Excluded from the Class
are defendants herein and any person, firm, trust, corporation, or other entity related to or
affiliated with any of the defendants.
62. Count II is properly maintainable as a class action because:
a. The class is so numerous that joinder of all members is impracticable. As
of February 26, 2010, there were approximately 32 million shares of Lance common stock
outstanding beneficially owned by thousands of shareholders.
b. There are questions of law and fact which are common to the class
including inter alia, the following:
i. Whether the Individual Defendants have breached their fiduciary
and other common law duties owed by them to plaintiff and the other members of the Class;
ii. Whether Defendants are unlawfully preventing the Company’s
public shareholders from maximizing the value of their Lance holdings; and,
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iii. Whether the Class is entitled to injunctive relief or damages as a
result of defendants’ wrongful conduct.
c. Plaintiff is committed to prosecuting this claim and has retained competent
counsel experienced in litigation of this nature. Plaintiff’s claim in Count II is typical of the
claims of other members of the Class and plaintiff has the same interests as the other members of
the Class.
d. Defendants have acted in a manner which affects plaintiff and all other
members of the Class alike, thereby making appropriate injunctive relief and/or corresponding
declaratory relief with respect to the Class as a whole.
COUNT I
Violation of 15 U.S.C. §78n(a) and Rule 14a-9/Individual Claim
63. Plaintiff incorporates by reference the prior allegations set forth above, except any
class allegations including those contained in the Class Action Allegations section, above.
64. This count is brought by Plaintiff solely in his individual capacity.
65. This count is brought against Lance, Snyder’s, and the Individual Defendants.
66. The Proxy Statement contained material omissions about the valuation of Lance
and the methodologies used by Merrill Lynch, as alleged above.
67. Rule 14a-9, promulgated pursuant to Section 14(a) of the Securities Exchange Act
of 1934, provides that no proxy statement shall contain “any statement which, at the time and in
the light of the circumstances under which it was made, is false or misleading with respect to any
material fact, or which omits to state any material fact necessary in order to make the statements
therein not false or misleading.” 17 C.F.R. §240.14a-9(a).
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68. The material omissions in the Proxy Statement violate Section 14(a) and Rule
14a-9 because they omitted material facts about the valuation of Lance, how Merrill Lynch gave
effect to the $3.75 dividend, material information about the comparable companies analysis, the
discount cash flow analysis, and the selected precedent transactions analysis, as alleged above.
69. In the exercise of reasonable care, the Defendants should have known that the
Proxy Statement was materially false and misleading and omitted material facts. All of the
Individual Defendants signed the Proxy Statement. (Proxy Statement at Part II-3 to II-4).
70. The misrepresentations and omissions are material to Plaintiff to be able to
determine whether fair value is being given for his Lance shares and whether Plaintiff should
vote in favor of or against the proposed Merger with Snyder’s. The Proxy Statement was an
essential link in the accomplishment of the Defendants’ attempt to consummate the Merger
without affording Plaintiff the opportunity of making an informed vote.
71. Plaintiff was damaged as a result of the material omissions and misrepresentations
in the Proxy Statement. Defendants should disclose the omitted material information before the
shareholder vote is held on the Merger.
COUNT II
Breach of Fiduciary Duty/Class Claim
72. Plaintiff incorporates by reference the prior allegations set forth above.
73. Plaintiff asserts this claim on a class-wide basis. This claim is asserted against the
Individual Defendants and against Lance for aiding and abetting the Individual Defendants’
breach of fiduciary duty.
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74. The Individual Defendants owe Plaintiff and other Lance shareholders a fiduciary
duty of due care, honesty, candor, and loyalty.
75. The Individual Defendants, aided and abetted by Lance and Snyder’s, breached
those fiduciary obligations to Plaintiff and other class members by agreeing to accept a
consideration for the shares of Lance that is substantially less than their value. The Individual
Defendants have breached their obligations to maximize the value of Plaintiff’s and other class
members’ Lance shares.
76. In addition, in breach of the duty of candor, the Individual Defendants, aided and
abetted by Lance and Snyder’s, failed to disclose material information in the Proxy Statement, as
alleged above, about the valuation of Lance, how Merrill Lynch gave effect to the $3.75
dividend, material information about the comparable companies analysis, the discount cash flow
analysis, and the selected precedent transactions analysis.
77. The Individual Defendants’ breach of fiduciary duty has caused injury to Plaintiff
and other Lance shareholders. Each of the Individual Defendants has colluded in, aided and
abetted, and rendered substantial assistance in the accomplishment of the wrongdoing
complained of herein. In taking the actions, as particularized herein, to substantially assist the
wrongs complained of, all defendants acted with an awareness of the primary wrongdoing and
realized that their conduct would substantially assist the accomplishment of that wrongdoing and
were aware of their overall contribution to the conspiracy, common scheme and course of
wrongful conduct.
78. Plaintiff has no adequate remedy at law.
79. To remedy Defendants' breaches of fiduciary duty and other misconduct, Plaintiff
seeks, inter alia: (i) injunctive relief preventing consummation of the Merger, unless and until
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the Company adopts and implements a procedure or process to obtain a transaction that provides
the best possible terms for shareholders; (ii) injunctive relief preventing consummation of the
Merger, unless and until the Company’s disclosure of all material facts concerning the Merger,
its terms, and valuation; (iii) an order directing the Individual Defendants to exercise their
fiduciary duties to obtain a transaction in the best interests of Lance shareholders; and (iv)
rescission of the Merger Agreement, if the Merger is ultimately consummated. Furthermore,
Snyder’s and Lance knowingly aided and abetted the Individual Defendants’ breaches of
fiduciary duty.
JURY TRIAL DEMANDED
80. Plaintiff hereby demands a trial by jury.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
A. Determining that Count II may proceed as a proper class action and certifying
Plaintiff as class representative;
B. Preliminarily and permanently enjoining defendants and all persons acting in
concert with them, from proceeding with, consummating or closing the proposed merger unless
and until the non-disclosures complained of are cured;
C. In the event the proposed merger is consummated, rescinding it and setting it
aside or awarding rescissory damages to the Class;
D. Directing Defendants to account to Class members for their damages sustained as
a result of the wrongs complained of herein;
E. Awarding Plaintiff the costs of this action, including a reasonable allowance for
Plaintiff’s attorneys’ and experts’ fees; and
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F. Granting such other and further relief as the Court may deem just and proper.
Dated: September 3rd, 2010
s/Norris A. Adams, II Norris A. Adams, [email protected]. Bar No. 32552
s/Marc Gustafson Marc [email protected]. Bar No. 34429
ESSEX RICHARDS, P.A.1701 South Blvd.Charlotte, NC 28203Tel: 704-377-4300Fax: 704-372-1357
Attorneys for Plaintiff andLocal Rule 83.1 Counsel
Ronen SarrafJoseph GentileSARRAF GENTILE LLP116 John Street, Suite 2310New York, NY 10038Tel: 212-868-3610Fax: 212-918-7967
Kenneth J. VianaleVIANALE & VIANALE LLP2499 Glades Road, Suite 112Boca Raton, Florida 33431Tel: 561-392-4750Fax: 561-392-4775
Attorneys for Plaintiff
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