EX-99.C.9 13 j0476003exv99wcw9.txt SPECIAL COMMITTEE DISCUSSION MATERIALS 9/29/03 EXHIBIT(c)(9) CONFIDENTIAL Discussion Materials For The Special Committee of [SYLVAN LOGO] September 29, 2003 LANE, BERRY & CO. International [SYLVAN LOGO] AGENDA 1. EXECUTIVE SUMMARY 2. SUMMARY OF PROPOSED TRANSACTION 3. OVERVIEW OF SYLVAN 4. ANALYSIS OF PROPOSED TRANSACTION 5. VALUATION OVERVIEW LANE, BERRY & CO. International 2 [SYLVAN LOGO] EXECUTIVE SUMMARY LANE, BERRY & CO. International 3 [SYLVAN LOGO] EXECUTIVE SUMMARY - SUMMARY OF PROPOSED TRANSACTION - Lake Pacific Partners has proposed to purchase all the outstanding shares of Common Stock, par value $0.001 per share (the "Common Stock") - After the Proposed Transaction, Sylvan will become a privately held company - CONSIDERATION FOR THE PROPOSED TRANSACTION - The shareholders deemed not to be Insiders (the "Outsiders" or "Outside Shareholders") receive $12.00 cash for each share of Common Stock which aggregates to [ ] million - The Inside Shareholders receive $11.50 cash for each share of Common Stock which aggregates to [ ] million - Lake Pacific Partners will contribute up to $40 million as equity - State of Wisconsin Investment Board will contribute up to $15 million as either equity or as a mezzanine security - Dennis Zensen, Sylvan's Chairman and CEO, will contribute at least [$4.3] million through a rollover of at least 50% of his [724,128] shares - The remaining source of funds will come from either renewing the existing bank loan with Citizens or a new senior debt financing - PROCESS & TIMING OF THE PROPOSED TRANSACTION - Sign the definitive merger, agreement by October 7, 2003 - File proxy statement with the SEC by October 15, 2003 - Receive approval from the SEC and mail proxies to the shareholders by November 26, 2003 - Hold special meeting and shareholder vote by the middle of December - Proposed Transaction Closes; a subsidiary to be created by Lake Pacific Partners merges with and into Sylvan pursuant to a [reverse triangular merger] by the end of December 2003 LANE, BERRY & CO. International 4 [SYLVAN LOGO] SUMMARY OF PROPOSED TRANSACTION LANE, BERRY & CO. International 5 [SYLVAN LOGO] SUMMARY OF KEY TERMS OF THE PROPOSED TRANSACTION THE LAKE PACIFIC PARTNERS OFFER INCLUDES THE FOLLOWING KEY ELEMENTS: DEAL CONSIDERATION - Two-tiered cash consideration for Sylvan's Common Stock - The Outside Shareholders receive $12.00 cash for each share of Common Stock - The Inside Shareholders receive $11.50 cash for each share of Common Stock TRANSACTION STRUCTURE - [Reverse triangular merger] PRINCIPAL CONDITIONS TO CLOSING - Shareholder vote approval - Dennis Zensen must have consummated his stock roll-over - Indebtedness of the Company must not exceed $40mm (1) - Lake Pacific Partners must obtain financing on terms at least as favorable as the terms in the commitment letters - Material adverse change out BREAK-UP FEE - 1.5% bid by Special Committee vs. $2.5mm ask by Lake Pacific Partners ---------- (1) As stated in Lake Pacific's preliminary bid letter. Exact amount to be negotiated. LANE, BERRY & CO. International 6 [SYLVAN LOGO] OVERVIEW OF SYLVAN LANE, BERRY & CO. International 7 [SYLVAN LOGO] KEY PERFORMANCE METRICS
($ in millions) 2003 2000 2001 2002 ---------------------------------------------------- -------------------------- Old Wrap. New Wrap. Rev. 2003 Current Actual Actual Actual Proj. Proj. Proj. Proj. ------ ------ ------ ----- ----- ----- ----- Net Sales $85.9 $85.9 $88.2 $88.9 $97.0 $95.9 Cost of Sales 47.9 49.8 52.1 53.0 61.9 61.4 ----- ----- ----- ----- ----- ----- Gross Profit 38.0 36.1 36.1 35.9 35.1 34.4 Selling and Administration 19.5 18.0 19.4 17.7 19.7 20.4 Lake Pacific Expenses and Fees 0.0 0.0 0.0 0.0 0.0 0.0 Research and Development 1.8 1.7 2.0 1.9 1.2 1.2 Depreciation 5.2 5.4 5.6 5.7 5.6 6.7 ----- ----- ----- ----- ----- ----- Operating Income 11.5 11.0 9.1 10.6 8.5 6.6 6.1 Depreciation 5.2 5.4 5.6 5.7 5.6 6.3 6.7 Other Amortization/Non-Cash Items (1) 0.7 0.8 0.2 0.2 0.9 1.1 0.2 ----- ----- ----- ----- ----- ---- ----- EBITDA 17.4 17.2 14.9 16.5 15.1 14.0 13.0 Public Company Expenses (2) 0.7 0.7 0.7 1.1 Management Annuity Expense (3) 0.4 0.4 0.4 0.4 ----- ----- ---- ----- Adjusted EBITDA 17.6 16.2 15.1 14.5
YTD July 2003 ----------------------------- Revised Actual Var. ------- ------ ---- Net Sales $53.3 $53.2 (0.2%) Cost of Sales 33.6 33.4 0.6% ----- ----- ---- Gross Profit 19.7 19.8 0.5% Selling and Administration 12.1 12.1 0.4% Lake Pacific Expenses and Fees 0.0 0.0 Research and Development 0.9 0.9 (1.3%) Depreciation 3.6 3.7 (1.0%) ----- ----- ---- Operating Income 3.1 3.2 3.6% Depreciation 3.6 3.7 (1.0%) Other Amortization/Non-Cash Items (1) 0.1 0.1 ----- ----- ---- EBITDA 6.8 7.0 2.2% Public Company Expenses (2) Management Annuity Expense (3) Adjusted EBITDA
---------- (1) In defining EBITDA, Lake Pacific Partners does not add-back non-cash pension related items of $670K per year. This difference is reflected in the variances between the Old and Current Projections figures for Other Amortization/Non-Cash Items. Additionally, YTD July 2003 Amortization expense is an estimate. (2) In the New Wrapper and Current projections, Public Company Expenses of $700K and $1.1mm, respectively, were eliminated from Corporate Expenses in 2004 and assumed to be eliminated thereafter in the amounts of $900K in 2005 and $800K in 2006 and 2007. (3) In the the New Wrapper and Current projections, Management Annuity expenses of $400K are assumed to be eliminated from Corporate Expenses beginning in 2004 which is reflected in the Adjusted EBITDA figures. LANE, BERRY & CO. International 8 [SYLVAN LOGO] KEY PERFORMANCE METRICS (CONT'D)
($ in millions) 2004 2005 ------------------------------ ------------------------------- New Wrap. Current New Wrap. Current Proj. Proj. Var. Proj. Proj. Var. ----- ----- ---- ----- ----- ---- Net Sales $99.4 $96.9 (2.6%) $101.5 $97.7 (3.8%) Cost of Sales 62.7 61.5 2.0% 63.4 61.8 2.5% ----- ----- ---- ------ ----- ---- Gross Profit 36.7 35.4 (3.5%) 38.1 35.9 (5.9%) Selling and Administration 19.6 19.5 0.7% 20.0 19.6 2.2% Lake Pacific Expenses and Fees 0.0 0.2 0.0 0.2 Research and Development 1.3 1.3 0.4% 1.3 1.3 2.3% Depreciation 5.5 6.3 (15.6%) 5.3 6.0 (12.1%) ----- ----- ---- ------ ----- ---- Operating Income 10.3 8.1 (21.2%) 11.5 8.8 (23.1%) Depreciation 5.5 6.3 (15.6%) 5.3 6.0 (12.1%) Other Amortization/Non-Cash Items (1) 0.9 0.2 78.3% 0.9 0.2 78.3% ----- ----- ---- ------ ----- ---- EBITDA 16.7 14.7 (12.3%) 17.8 15.0 (15.3%) Public Company Expenses (2) Management Annuity Expense (3) 0.4 0.4 0.0% 0.4 0.4 0.0% ----- ----- ---- ------ ----- ---- Adjusted EBITDA 17.1 15.1 (12.0%) 18.2 15.4 (15.0%) ===== ===== ==== ====== ===== ====
($ in millions) 2006 2007 ------------------------------- --------------------------------- New Wrap. Current New Wrap. Current Proj. Proj. Var. Proj. Proj. Var. ----- ----- ---- ----- ----- ---- Net Sales $103.3 $100.6 (2.6%) $104.0 $103.6 (0.4%) Cost of Sales 64.0 61.9 3.3% 64.4 62.2 3.5% ------ ------ ----- ------ ------ ---- Gross Profit 39.3 38.7 (1.5%) 39.6 41.4 4.7% Selling and Administration 20.3 20.1 0.8% 20.5 20.7 (0.9%) Lake Pacific Expenses and Fees 0.0 0.2 0.0 0.2 Research and Development 1.3 1.3 (0.2%) 1.3 1.3 (1.3%) Depreciation 5.2 5.7 (9.6%) 5.1 5.5 (8.0%) ------ ------ ----- ------ ------ ---- Operating Income 12.5 11.4 (8.9%) 12.6 13.7 8.3% Depreciation 5.2 5.7 (9.6%) 5.1 5.5 (8.0%) Other Amortization/Non-Cash Items (1) 0.9 0.2 78.3% 0.9 0.2 78.3% ------ ------ ------ ------ ------ ---- EBITDA 18.6 17.3 (7.2%) 18.6 19.4 3.9% Public Company Expenses (2) Management Annuity Expense (3) 0.4 0.4 0.0% 0.4 0.4 0.0% ------ ------ ----- ------ ------ ---- Adjusted EBITDA 19.0 17.7 (7.0%) 19.0 19.8 3.8% ====== ====== ====== ====== ====== ====
---------- (1) In defining EBITDA, Lake Pacific Partners does not add-back non-cash pension related items of $670K per year. This difference is reflected in the variances between the Old and Current Projections figures for Other Amortization/Non-Cash Items. Additionally, YTD July 2003 Amortization expense is an estimate. (2) In the New Wrapper and Current projections, Public Company Expenses of $700K and $1.1mm, respectively, were eliminated from Corporate Expenses in 2004 and assumed to be eliminated thereafter in the amounts of $900K in 2005 and $800K in 2006 and 2007. (3) In the the New Wrapper and Current projections, Management Annuity expenses of $400K are assumed to be eliminated from Corporate Expenses beginning in 2004 which is reflected in the Adjusted EBITDA figures. LANE, BERRY & CO. International 9 [SYLVAN LOGO] STOCK PRICE / VOLUME SEPTEMBER 26, 2001 - SEPTEMBER 26, 2003 [LINEGRAPH DEPICTING STOCK PRICE/VOLUME SEPTEMBER 26, 2001 - SEPTEMBER 26, 2003] LANE, BERRY & CO. International 10 [SYLVAN LOGO] ANALYSIS OF PROPOSED TRANSACTION LANE, BERRY & CO. International 11 [SYLVAN LOGO] SUMMARY TRANSACTION MULTIPLES
(USD in millions, except per share data) ---------------------------------------- Purchase Price Per Share $12.00 Fully Diluted Shares Outstanding 5.2 ------ EQUITY VALUE 62.7 Expected Debt as of 12/31/03: Revolver 30.0 Other Debt 1.3 Minority Interest 2.1 Cash and cash equivalents 4.0 ------ ENTERPRISE VALUE 92.1 Implied LTM Revenue Multiple 1.0x Implied FY'03E Revenue Multiple 1.0x Implied LTM EBITDA Multiple 6.6x Implied FY'03E EBITDA Multiple (1) 7.1x Implied FY'03E Adjusted EBITDA Multiple (2) 6.4x Implied LTM P/E Ratio 16.9x Implied FY'03E P/E Ratio (1) 22.1x
---------- (1) Financial figures assume Sylvan remains a public company. EBITDA does not include the management annuity add-back of $400K and the Lake Pacific fees and expenses of $200K and it does include all public company expenses which are $1.1mm in 2003. (2) Financial figures assume Sylvan becomes a private company. EBITDA adjusted for add-backs of $1.1mm and $400K for elimination of public company expenses and executive annuity expenses respectively in 2003. LANE, BERRY & CO. International 12 [SYLVAN LOGO] SUMMARY OF FIRST SYLVAN SALES PROCESS - LBCI CONTACTED A TOTAL OF 35 PROSPECTIVE BUYERS - 8 OF THE 14 STRATEGIC BUYERS RECEIVED A "TEASER" AND 1 OF THESE 8 RECEIVED A CONFIDENTIALITY AGREEMENT - None of the strategic buyers executed a Confidentiality Agreement; therefore, no strategic buyer received a "Wrapper" - The other 6 strategic buyers immediately declined further interest - 15 OF THE 21 FINANCIAL BUYERS RECEIVED A "TEASER" AND 10 OF THESE 15 EXECUTED A CONFIDENTIALITY AGREEMENT AND RECEIVED A "WRAPPER" - Some financial buyers that did not receive a "Teaser" or execute a Confidentiality Agreement evaluated the merits of a deal by using public filings - TWO FINANCIAL BUYERS, AMERICAN SECURITIES CAPITAL PARTNERS AND CADIGAN INVESTMENT PARTNERS, SUBMITTED A NON-BINDING INDICATION OF INTEREST - American Securities Capital Partners valued Sylvan at $10.00 - $11.00 per share - Cadigan Investment Partners valued Sylvan at $12.50 - $13.50 per share - THESE BUYERS WERE PROVIDED 2003E REVENUE AND EBITDA ESTIMATES OF $88.9 MILLION AND $16.5 MILLION RESPECTIVELY - American Securities Capital Partners' bid range: 1.0x 2003E Revenue & 5.2x 2003E EBITDA - 1.0x 2003E Revenue & 5.6x 2003E EBITDA - Cadigan Investment Partners' bid range: 1.1x 2003E Revenue & 6.1x 2003E EBITDA - 1.2x 2003E Revenue & 6.5x 2003E EBITDA
CALL TEASER BOOK BID ---- ------ ---- --- STRATEGIC 14 8 0 0 FINANCIAL 21 15 10 2 -- -- -- -- TOTAL 35 23 10 2 == == == ==
LANE, BERRY & CO. International 13 [SYLVAN LOGO] SUMMARY OF SECOND SYLVAN SALES PROCESS - LBCI AND MORGAN JOSEPH CONTACTED A TOTAL OF 73 PROSPECTIVE BUYERS - 13 OF THE 32 STRATEGIC BUYERS RECEIVED A "TEASER" AND 1 OF THESE 13 EXECUTED A CONFIDENTIALITY AGREEMENT AND RECEIVED A "WRAPPER" - The other 19 strategic buyers immediately declined further interest - 27 OF THE 41 FINANCIAL BUYERS RECEIVED A "TEASER" AND 12 OF THESE 27 EXECUTED A CONFIDENTIALITY AGREEMENT AND RECEIVED A "WRAPPER" - Some financial buyers that did not receive a "Teaser" or execute a Confidentiality Agreement evaluated the merits of a deal by using public filings - THE FOLLOWING FOUR FINANCIAL BUYERS SUBMITTED A NON-BINDING INDICATION OF INTEREST: AMERICAN SECURITIES CAPITAL PARTNERS, KEY KOSMONT, LAKE PACIFIC PARTNERS AND THE TOKARZ GROUP (1) - THESE BUYERS WERE PROVIDED 2003E REVENUE AND EBITDA ESTIMATES OF $97.0 MILLION AND $15.1 MILLION RESPECTIVELY
CALL TEASER BOOK BID ---- ------ ---- --- STRATEGIC 32 13 1 0 FINANCIAL 41 27 12 4 -- -- -- - TOTAL 73 40 13 2 == == == =
------------- (1) The Tokarz Group is run by Michael Tokarz who is the Chairman of Cadigan Investment Partners. LANE, BERRY & CO. International 14 [SYLVAN LOGO] PRELIMINARY BID DETAILS THE COMPREHENSIVE SALES PROCESS CONDUCTED BY LBCI AND MORGAN JOSEPH PRODUCED FOUR PRELIMINARY BIDS WHICH ARE SUMMARIZED BELOW:
PRICE PER FINANCING PROSPECTIVE BUYER SHARE RANGE IMPLIED MULTIPLES (1) SOURCES ----------------- ----------- --------------------- ------- AMERICAN SECURITIES $8.00 0.8x 2003E Revenue Not disclosed CAPITAL PARTNERS 5.0x 2003E EBITDA KEY KOSMONT $7.00 - $9.00 0.7x - 0.8x 2003E Revenue Not disclosed 4.6x - 5.3x 2003E EBITDA LAKE PACIFIC PARTNERS $11.50 Equity: Submitted a second two- Lake Pacific tiered preliminary bid: SWIB $12.00 for Outsiders 1.0x 2003E Revenue Dennis Zensen $11.50 for Insiders 6.4x 2003E EBITDA (2) Senior Debt THE TOKARZ GROUP $10.00 0.9x 2003E Revenue Equity 5.7x 2003E EBITDA Senior Debt
PROSPECTIVE BUYER COMMENTS ----------------- -------- AMERICAN SECURITIES - Submitted verbal bid CAPITAL PARTNERS KEY KOSMONT - Tender offer - 5% - 10% management ownership - Lock-up agreements with large shareholders LAKE PACIFIC PARTNERS - Merger - Agreement by D. Zensen to roll half of his shares - Obtain financing from SWIB and bank lenders THE TOKARZ GROUP - Tender offer or statutory merger
---------------- (1) Implied Revenue and EBITDA multiples calculated from projected 2003 financials on prior page. (2) Implied Revenue and EBITDA multiples assume $12.00 per share is paid in cash to all Sylvan shareholders. LANE, BERRY & CO. International 15 [SYLVAN LOGO] VALUATION OVERVIEW LANE, BERRY & CO. International 16 [SYLVAN LOGO] PUBLIC EQUITY COMPARABLES OVERVIEW METHODOLOGY - To determine the current public market value and trading multiples of companies similar to Sylvan, thereby imputing a "public market" valuation range COMPANY SELECTION - LBCI analyzed a range of public food and agricultural producers and selected three sectors comprising six trading comparables for analysis:
Food Processors: Fresh Produce Companies: Agricultural Companies: ---------------- ------------------------ ----------------------- Archer Daniels Midland Chiquita Brands Delta and Pine Bunge Fresh Del Monte Hines Horticulture
ISSUES - No control premium is reflected in the results of the public market valuation - There are no direct public company comparables to the Company - Many of the listed companies are substantially larger than the Company which affects their direct applicability vis-a-vis valuation LANE, BERRY & CO. International 17 [SYLVAN LOGO] PUBLIC EQUITY COMPARABLES ANALYSIS
(USD in Millions) STOCK % OF FD EV / REVENUE EV / EBITDA PRICE 52-WEEK EQUITY ENTERPRISE ---------------------- ---------------------- COMPANY 9/25/03 HIGH VALUE VALUE LTM CY'03E CY'04E LTM CY'03E CY'04E ------- ------- ---- ----- ----- --- ------ ------ --- ------ ------ SYLVAN $10.05 82% $ 51.7 $ 85.6 0.9X 0.9X 0.9X 6.1X 6.6X 6.0X FOOD PROCESSING COMPANIES Archer-Daniels Midland (1) $12.99 90% $8,397.0 $10,506.6 0.3x 0.3x 0.3x 7.3x 6.8x 6.2x Bunge (2) 27.55 88% 2,780.4 5,155.4 0.3x 0.2x 0.2x 7.6x 6.4x 4.8x FRESH PRODUCE COMPANIES Chiquita Brands (3) 18.25 95% 734.7 913.9 0.3x 0.4x 0.3x 8.8x 5.7x 4.8x Fresh DelMonte 25.22 85% 1,443.8 1,577.9 0.7x 0.6x 0.6x 5.2x 5.2x 4.8x AGRICULTURAL COMPANIES Delta and Pine 22.71 89% 899.3 787.6 2.8x 2.7x NA 11.9x 11.8x NA Hines Horticulture (4) 3.35 96% 73.9 321.2 1.0x NA NA 6.2x NA NA HIGH 96% 2.8X 2.7X 0.6X 11.9X 11.8X 6.2X MEDIAN 89% 0.5X 0.4X 0.3X 7.4X 6.4X 4.8X LOW 85% 0.3X 0.2X 0.2X 5.2X 5.2X 4.8X
(USD in Millions) P/E ----------------------------- COMPANY LTM CY'03E CY'04E ------- --- ------ ------ SYLVAN 14.2X 18.5X 21.8X FOOD PROCESSING COMPANIES Archer-Daniels Midland 18.6x 15.7x 13.0x Bunge 7.3x 10.8x 9.8x FRESH PRODUCE COMPANIES Chiquita Brands NM 9.6x 6.8x Fresh DelMonte 6.2x 6.6x 6.4x AGRICULTURAL COMPANIES Delta and Pine 29.8x 31.1x NA Hines Horticulture 10.0x 1.9x NA HIGH 29.8X 31.1X 13.0X MEDIAN 10.0X 10.2X 8.3X LOW 6.2X 1.9X 6.4X
REVENUE ADJUSTED EBITDA EARNINGS PER SHARE ------------------------- ------------------------------ -------------------------------- LTM CY'03E CY'04E LTM CY'03E (5) CY'04E (5) LTM CY'03E (5) CY'04E (5) --- ------ ------ --- ---------- ----------- --- ----------- ---------- SYLVAN FINANCIALS $ 91.9 $ 95.9 $96.9 $ 14.0 $ 13.0 $ 14.2 $ 0.71 $ 0.54 $0.76 IMPLIED SYLVAN PRICE PER SHARE HIGH $42.86 $44.27 $4.55 $25.76 $23.21 $10.46 $21.12 $16.87 $9.84 MEDIAN $ 2.49 NM NM $13.69 $ 9.46 $ 6.70 $ 7.09 $ 5.52 $6.31 LOW NM NM NM $ 7.58 $ 6.55 $ 6.52 $ 4.38 $ 1.04 $4.84
-------------------- (1) Pro forma for the acquisition of Minnesota Corn Processsors LLC. (2) Pro forma for the acquisition of Cereol S.A. and for the sale of its Lesieur bottled oil business. (3) Pro forma for the acquisition of Scipio and the sale of Chiquita Processed Foods. LTM as of 3/31/03. (4) Pro forma for the 9/11/03 issuance of $175mm in senior notes. (5) Financial figures assume Sylvan remains a public company. CY'03E and CY'04E EBITDA, and CY'03E and CY'04E EPS do not include the management annuity add-back of $400K and the Lake Pacific fees and expenses of $200K, and do include all public company expenses, which are $1.1mm in 2003 and $700K in 2004. LANE, BERRY & CO. International 18 [SYLVAN LOGO] M&A COMPARABLES OVERVIEW METHODOLOGY - To determine the historical private market value and transaction multiples of companies similar to the Company, thereby imputing a "transaction" valuation range ISSUES - Multiples paid in the transaction analysis may reflect potential synergies an acquiror could realize as a result of the target's operating scale - There are no direct M&A comparable transactions LANE, BERRY & CO. International 19 [SYLVAN LOGO] M&A COMPARABLES ANALYSIS
(USD in Millions) ANN. DATE ACQUIROR TARGET --------- -------- ------ 6/2/03 Fox Paine and Co. Seminis 2/4/03 Riviana Foods ACH Food Companies, Rice Business 12/18/02 Investor Group Dole Food Company 7/22/02 Bunge Cereol S.A. 1/7/02 Kerry Group Stearns & Lehman 8/17/01 Nippon Suisan Gorton's Seafood & Bluewater Seafoods 2/20/01 Lesaffre et Compagnie Sensient Technologies' Red Star Yeast & Products (1) 12/21/00 Investor Group Michael Foods 10/17/00 Kerry Group Armour Food Ingredients 12/17/99 Moneys Mushrooms Vlasic Foods, Vlasic Farms Fresh Mushrooms Business 9/16/98 Pictsweet LLC United Foods Inc.
TRANSACTION VALUE / LTM (USD in Millions) TRANS. ------------------ ANN. DATE DESCRIPTION VALUE REVENUE EBITDA --------- ----------- ------ ------- ------ 6/2/03 Worldwide producer and marketer of vegetable and fruit seeds. $625.0 1.3x 7.8x 2/4/03 Producer of rice products. 24.0 0.7x NA 12/18/02 Producer and marketer of fruits and vegetables. 2,500.0 0.6x 6.4x 7/22/02 Manufacturer of seed oils and olive oils. 1,496.3 0.3x 5.5x 1/7/02 Stearns & Lehman is a manufacturer of coffeehouse chain, 26.0 1.3x NA foodservice and branded Italian-style flavoured syrups. 8/17/01 Gorton's is a retail frozen seafood brand in 175.0 0.7x 8.8x the U.S. & Bluewater is a brand in Canada. 2/20/01 Supplier of yeast to the commercial bakery market. 122.0 1.0x 7.1x 12/21/00 Producer and distributor of food products in four areas: egg 747.2 0.7x 5.5x products refrigerated distribution, dairy products and potato products. 10/17/00 Provide a wide range of specialty food ingredients. 35.0 0.9x NA 12/17/99 Producer of fresh mushrooms. 50.0 0.4x NM 9/16/98 Grower, processor, marketer and distributor of food products. 63.1 0.3x 4.9x HIGH $2,500.0 1.3X 8.8X MEDIAN $ 122.0 0.7X 6.4X LOW $ 24.0 0.3X 4.9X
LTM ------------------ REVENUE EBITDA ------- ------ SYLVAN FINANCIALS $ 91.9 $ 14.0 IMPLIED SYLVAN PRICE PER SHARE HIGH $17.34 $17.25 MEDIAN $ 5.75 $10.83 LOW NM $ 6.79
---------- (1) Revenue is an actual figure, EBITDA is an estimate. LANE, BERRY & CO. International 20 [SYLVAN LOGO] LBO ANALYSIS OVERVIEW METHODOLOGY - To determine the potential price a financial buyer could pay assuming certain benchmarks of financial leverage and required returns - This analysis uses "private company" figures to reflect the operations as if the Company were no longer a public company BENCHMARK SELECTION - LBCI identified the following key benchmarks in performing its analysis: - Maximum pro forma Senior Debt / 2003E Adjusted EBITDA of 3.25x - Maximum pro forma Total Debt / 2003E Adjusted EBITDA of 4.25x - Minimum equity returns of approximately 17% to the mezzanine debt holders - Minimum equity returns to the sponsor of approximately 25% LANE, BERRY & CO. 21 International [SYLVAN LOGO] LBO ANALYSIS SOURCES & USES OF FUNDS (USD IN MILLIONS)
CUM. MULT. FY03E SOURCES AMT. % TOTAL ADJUSTED EBITDA USES AMT. ------- ---- ------- --------------- ---- ---- Revolver (1) $27.1 29.7% 1.9x Equity Purchase Price $56.1 Term Loan A 20.0 21.9% 3.3x Refinance Debt 31.3 Mezzanine 14.5 15.9% 4.3x Transaction Fees & Expense 3.9 ----- ----- Subtotal 61.6 67.4% 4.3x Sponsor Equity 29.7 32.6% 6.0x ----- ----- ----- TOTAL SOURCES $91.4 100.0% 6.0x TOTAL USES $91.4 ===== ===== =====
TRANSACTION SUMMARY Current Stock Price $ 10.00 PURCHASE PRICE PER SHARE 10.75 Shares Outstanding 5.2 --------- Equity Value 56.1 Plus: Existing Debt 31.3 Plus: Existing Minority Interest 2.1 Less: Existing Cash 4.0 --------- Total Enterprise Value 85.6 TEV AS A MULTIPLE OF: FY'02A EBITDA 5.8x FY'03E EBITDA (2) 6.6x FY'03E Adjusted EBITDA (3) 5.9x ---------
OWNERSHIP TABLE
PF DILUTED VALUE IN OWNER. WARRANTS OWNER. 2008 IRR ------ -------- ------ ---- --- Sponsor Group 94.5% 0.0% 94.5% $ 91.3 25.2% Mezzanine (12.0%) 0.0% 5.5% 5.5% 21.6 17.2% ---- --- ---- -------- ---- TOTAL 94.5% 5.5% 100.0% 112.9 ==== === ===== ========
SUMMARY CREDIT AND LEVERAGE STATISTICS
PROJECTED FISCAL YEARS ENDING DECEMBER 31, PRO FORMA -------------------------------- 12/31/03E 2004 2005 2006 2007 --------- ---- ---- ---- ---- Bank Debt / Adj. EBITDA (3) 3.3x 2.8x 2.4x 1.7x 1.1x Total Debt / Adj. EBITDA (3) 4.3 3.8 3.3 2.5 1.8 Adj. EBITDA / Interest Expense (3) 3.2 3.3 3.6 4.5 5.6 Adj. EBITDA-CapEx / Int Expense (3) 2.4 2.5 2.7 3.5 4.5
RETURNS TO SPONSOR'S EQUITY
PURCHASE PRICE PER SHARE ------------------------------------------------------------ $9.75 $10.25 $10.75 $11.25 $11.75 $12.25 ----- ------ ------ ------ ------ ------ 5.50X 27.8% 25.3% 23.0% 20.9% 19.1% 17.4% 2008 5.75X 29.3% 26.7% 24.4% 22.3% 20.4% 18.7% ADJ. EBITDA 6.00X 30.6% 28.0% 25.7% 23.6% 21.7% 19.9% EXIT MULTIPLE (3) 6.25X 31.9% 29.3% 27.0% 24.8% 22.9% 21.2% 6.50X 33.2% 30.5% 28.2% 26.0% 24.1% 22.3%
---------------- (1) Assumes a $30mm revolver that is drawn $27.1mm at close. Also, assumes that $1.3mm of other debt is refinanced as well. (2) Financial figures assume Sylvan remains a public company. EBITDA does not include the management annuity add-back of $400K and the Lake Pacific fees and expenses of $200K and it does include all public company expenses which are $1.1mm in 2003, $700K in 2004, $900K in 2005, $800K in 2006-2008. (3) Financial figures assume Sylvan becomes a private company. EBITDA adjusted for add-backs of $1.1mm and $400K for elimination of public company expenses and executive annuity expenses respectively in 2003 and for aforementioned amounts in all future periods. LANE, BERRY & CO. International 22 [SYLVAN LOGO] DCF ANALYSIS OVERVIEW METHODOLOGY - To determine the present value of the projected after-tax free cash flows of the Company utilizing an EBITDA exit multiple terminal value and a range of discount rates VARIABLES
VARIABLE SELECTED RANGE -------- --------------- -- EBITDA Exit Multiple (2008): -- 5.50x-6.50x -- Discount Rate Range: -- 12.0%-14.0%
LANE, BERRY & CO. International 23 [SYLVAN LOGO] DCF ANALYSIS
YEAR ENDING DECEMBER 31, ------------------------------------------------- (USD in Millions) 2004 2005 2006 2007 2008 TV ------ ------ ------ ------ ------ ------ SUMMARY FINANCIALS: REVENUE $96.9 $97.7 $100.6 $103.6 $106.7 Growth % -- 0.8% 3.0% 3.0% 3.0% ADJUSTED EBITDA (1) 14.2 14.3 16.7 18.8 19.4 Margin % 14.6% 14.7% 16.6% 18.1% 18.1% EBIT 7.6 8.1 10.8 13.1 13.8 Margin % 7.9% 8.3% 10.7% 12.6% 12.9% FREE CASH FLOW ANALYSIS: EBIT * (1 - Tax Rate) 5.0 5.3 7.1 8.6 9.1 Plus: Depreciation 6.3 6.0 5.7 5.5 5.3 Plus: Amortization 0.2 0.2 0.2 0.2 0.2 Plus: Change in Working Capital (0.1) (0.1) (0.4) (0.4) (0.6) Less: Capital Expenditures 3.9 3.9 3.9 3.9 3.9 ----- ----- ------ ------ ------ FREE CASH FLOW 7.5 7.5 8.8 10.0 10.1 EBITDA (2008) 19.4 EBITDA Multiple 6.00X ----- TERMINAL VALUE 116.2 Total Free Cash Flow 7.5 7.5 8.8 10.0 10.1 116.2 Weighted Average Cost of Capital 13.0% PRESENT VALUE OF FCF 6.7 5.9 6.1 6.1 5.5 63.0 ===== ===== ====== ====== ====== =====
IMPLIED ENTERPRISE VALUE: TOTAL ENTERPRISE VALUE $ 93.3 Less: Net Debt 29.4 ------ EQUITY VALUE 63.9 FD Shares Outstanding 5.1 IMPLIED PRICE PER SHARE $12.43 ======
SENSITIVITY ANALYSIS:
5.50X 5.75X 6.00X 6.25X 6.50X ------- ------- ------- ------- ------- 12.0% $12.07 $12.61 $13.14 $13.67 $14.21 12.5% 11.73 12.26 12.78 13.30 13.82 13.0% 11.40 11.92 12.43 12.94 13.45 13.5% 11.08 11.58 12.08 12.58 13.08 14.0% 10.77 11.26 11.75 12.24 12.73
-------------- (1) Financial figures assume Sylvan remains a public company. EBITDA does not include the management annuity add-back of $400K and the Lake Pacific fees and expenses of $200K and it does include all public company expenses which are $1.1mm in 2003, $700K in 2004, $900K in 2005, $800K in 2006-2008. LANE, BERRY & CO. International 24 [SYLVAN LOGO] WACC ANALYSIS
TOTAL DEBT & COMPARABLE COMPANIES COST OF EQUITY TOTAL PREFERRED EFFECTIVE UNLEVERED PREF'D STOCK/ (USD in Millions) BETA (1) EQUITY (2)(8) VALUE DEBT STOCK TAX RATE BETA (3) CAPITAL ----------------------- -------- ------------ ---------- ---------- --------- --------- --------- ----------- Archer-Daniels Midland 0.60 9.7% $ 8,397.0 $ 3,873.0 $ 0.0 28.5% 0.45 31.6% Bunge 0.58 10.0% 2,823.8 2,439.0 0.0 26.3% 0.35 46.3% Chiquita Brands 1.00 13.5% 741.3 179.2 0.0 12.0% 0.82 19.5% Delta and Pine 0.47 9.9% 966.6 (110.9) 0.0 35.5% 0.51 (13.0%) Fresh DelMonte 0.69 11.1% 1,493.7 150.2 0.0 8.5% 0.63 9.1% Hines Horticulture NA NA 61.4 247.3 0.0 41.0% NA 80.1% MEAN 0.67 10.8% $ 2,414.0 $ 1,129.6 $ 0.0 25.3% 0.55 28.9% MEDIAN 0.60 10.0% $ 1,230.1 $ 213.2 $ 0.0 27.4% 0.51 25.5% SYLVAN 0.46 17.5% 51.9 36.3 0.0 34.5% 0.33 38.0%
ASSUMPTIONS Pretax Cost of Debt (Kd)(6) 5.0% Risk-Free Rate (Rf)(7) 5.1% Equity Risk Premium (Rm-Rf)(8) 7.0% Size Premia (Sp)(9) 9.2% Tax Rate For Target (Tr) 34.5% Equity Political Risk Premium (Rp) 0.0% Other Risk Premium (Ro) 0.0%
WEIGHTED AVERAGE COST OF CAPITAL (4) UNLEVERED ------------------------------------------ BETA TARGET DEBT & PREF'D / ENTERPRISE VALUE ------------------------------------------ 35.0% 40.0% 45.0% ----- ----- ----- Equity Risk Premium (Rm-Rf)(8) 0.45 13.2% 12.6% 12.0% Size Premia (Sp)(9) 0.50 13.5% 12.9% 12.3% Tax Rate For Target (Tr) 0.55 13.8% 13.2% 12.6% Equity Political Risk Premium (Rp) 0.60 14.1% 13.5% 12.9% Other Risk Premium (Ro) 0.65 14.4% 13.8% 13.2%
LEVERED COST OF EQUITY (5) ----------------------------------------------- TARGET DEBT & PREF'D / ENTERPRISE VALUE ----------------------------------------------- 35.0% 40.0% 45.0% ----- ----- ----- Equity Risk Premium (Rm-Rf)(8) 18.5% 18.8% 19.1% Size Premia (Sp)(9) 19.0% 19.3% 19.6% Tax Rate For Target (Tr) 19.5% 19.8% 20.2% Equity Political Risk Premium (Rp) 19.9% 20.3% 20.7% Other Risk Premium (Ro) 20.4% 20.8% 21.2%
------------------ (1) Source: two years of weekly data vs. the S&P 500 from Bloomberg. (2) Cost of Equity = Risk-Free Rate (Rf) + (Equity Beta (Be) * Equity Risk Premium (Rm-Rf)) + Size Premia (Sp). (3) Unlevered Beta = Be / (1+(D*(1-Tr) + P) / E). (4) WACC= [(Rf +Be * (Rm-Rf) + Sp + Rp) *%E] +[Kd * (1-Tr) * % D] + Ro. Assumes pretax cost of debt remains constant. (5) Levered Cost of Equity = [Rf + Be * (Rm-Rf) + Sp +Rp)] +Ro. (6) Any political risk premium (Rp) associated with debt is included in the pretax cost of debt (Kp). (7) Risk-Free Rate based on 30-year U.S. Treasury Yield as of 09/24/03. (8) Source: 2003 Ibbotson Risk Premia Report. Based on the differences of large company total arithmetic mean returns minus long-term bond income returns from 1926-2002. (9) Cost of equity premia based on equity market capitalization. Micro-cap (within $0.5mm - $64.8mm) =9.2%. Amounts per 2003 Ibbotson Risk Premia Report. LANE, BERRY & CO. International 25