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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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Commission File Number 0-28174
The Lamaur Corporation
(Exact name of registrant as specified in its charter)
Delaware 68-0301547
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
5601 East River Road, Fridley, MN 55432
(Address of principal executive offices) (Zip Code)
(763) 571-1234
(Registrant's telephone number, including area code)
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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 [ ]
At July 30, 2000, there were 7,372,573 shares of the Registrant's $.01 par value
Common Stock outstanding.
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Safe Harbor Cautionary Statement
This quarterly report on Form 10-Q contains historical information and
forward-looking statements including but not limited to those regarding future
performance of the retail brands, the Company's ability to attain any particular
level of sales, gross margin results, or to be profitable in the future, the
Company's ability to meet working capital requirements, and the Company's
ability to be in compliance with its loan agreement. Such forward-looking
statements are made pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. These statements involve known and
unknown risks and uncertainties that may cause the Company's actual results in
future periods to be materially different from any future performance suggested
herein. Actual results are particularly dependent upon management's ability to
continue to work with creditors until they are paid in full. Further, the
Company operates in an industry sector where securities values may be volatile
and may be influenced by economic and other factors beyond the Company's
control. In the context of the forward-looking information provided in this Form
10-Q and in other reports, please refer to the discussions of risk factors and
investment considerations detailed in, as well as the other information
contained in, the Company's filings with the Securities and Exchange Commission.
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2
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THE LAMAUR CORPORATION
Index to Form 10-Q
June 30, 2000
Page
----
Part I - Financial Information
Item 1 Condensed Financial Statements (Unaudited)
Balance Sheets as of June 30, 2000 and December 31, 1999 4
Statements of Operations for the Three and Six Months Ended
June 30, 2000 and 1999 5
Statements of Cash Flows for the Six Months Ended
June 30, 2000 and 1999 6
Notes to Condensed Financial Statements for the Three
and Six Months Ended June 30, 2000 and 1999 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Six and
Three Months Ended June 30, 2000 and 1999 10
Part II - Other Information
Item 1 Legal Proceedings 12
Item 2 Changes in Securities 13
Item 3 Defaults Upon Senior Securities 13
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 5 Other Information 13
Item 6 Exhibits and Reports on Form 8-K 13
Signature 13
3
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PART I. FINANCIAL INFORMATION
Item 1. CONDENSED FINANCIAL STATEMENTS
THE LAMAUR CORPORATION
CONDENSED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 466 $ 360
Accounts receivable, net 3,063 5,974
Inventories 3,556 5,286
Prepaid expenses and other current assets 364 258
-------- --------
Total current assets 7,449 11,878
Property, Plant and Equipment, Net 531 663
Other Assets 183 230
-------- --------
Total Assets $ 8,163 $ 12,771
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,700 $ 8,020
Accrued expenses 237 1,844
Accrued salaries, wages and employee-related expenses 1,074 1,230
Dividends payable 1,200 1,000
-------- --------
Total current liabilities 7,211 12,094
Long-Term Debt 1,284 --
Stockholders' Equity
Preferred stock, $.01 par value, 4,000,000 shares authorized:
Series A Preferred stock, $.01 par value, 1,000,000 shares issued
and outstanding at June 30, 2000 and December 31, 1999
($10.0 million liquidation preference) 8,500 8,500
Series B Preferred stock, $.01 par value, 763,500 shares issued
and outstanding at June 30, 2000 and December 31, 1999
($5.0 million liquidation preference) 5,000 5,000
Common stock, $.01 par value, 12,000,000 shares authorized,
7,372,573 and 7,422,573 shares issued and outstanding at
June 30, 2000 and December 31, 1999, respectively 74 74
Additional paid-in-capital 19,927 20,127
Stock subscriptions receivable (50) (50)
Treasury stock (6) --
Accumulated deficit (33,777) (32,974)
-------- --------
Total Stockholders' Equity (332) 677
-------- --------
Total Liabilities and Stockholders' Equity $ 8,163 $ 12,771
======== ========
</TABLE>
See notes to financial statements.
4
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THE LAMAUR CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 5,997 $ 16,751 $ 13,971 $ 29,798
Cost of Goods Sold 3,953 12,176 9,215 20,950
-------- -------- -------- --------
Gross Margin 2,044 4,575 4,756 8,848
Selling, General and Administrative Expenses 2,368 5,058 5,530 10,294
-------- -------- -------- --------
Operating Loss (324) (483) (774) (1,446)
Interest Expense (17) (389) (42) (710)
Interest Income 1 2 13 6
-------- -------- -------- --------
Net Loss (340) (870) (803) (2,150)
Dividends on Series B Preferred Stock (100) (100) (200) (200)
-------- -------- -------- --------
Net Loss Available to Common Shareholders $ (440) $ (970) $ (1,003) $ (2,350)
======== ======== ======== ========
Basic Loss per Common Share $ (0.06) $ (0.13) $ (0.14) $ (0.34)
======== ======== ======== ========
Weighted Average Common Shares Outstanding - Basic 7,402 7,311 7,412 7,000
======== ======== ======== ========
Diluted Loss per Common Share $ (0.06) $ (0.13) $ (0.14) $ (0.34)
======== ======== ======== ========
Weighted Average Common Shares Outstanding - Diluted 7,402 7,311 7,412 7,000
======== ======== ======== ========
</TABLE>
See notes to financial statements.
5
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THE LAMAUR CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
------------------
2000 1999
------- -------
Cash Flows From Operating Activities:
Net loss $ (803) $(2,150)
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on disposal of assets -- (45)
Non-cash compensation expense -- 168
Depreciation and amortization 179 1,037
Effect of changes in:
Receivables 2,911 (259)
Inventories 1,730 (35)
Prepaid expenses and other assets (106) 69
Payables (3,320) (1,102)
Accrued expenses (1,752) (185)
------- -------
Net cash used in operating activities (1,161) (2,502)
Cash Flows From Investing Activities:
Additions to property, plant and equipment -- (195)
Proceeds from sale of assets -- 48
------- -------
Net cash used in investing activities -- (147)
Cash Flows From Financing Activities:
Borrowings under revolving credit agreement, net 1,284 3,174
Repayments of long-term debt (11) (260)
Payment of loan fees -- (145)
(Repurchase) proceeds from sales of common stock, net (6) 3
------- -------
Net cash provided by financing activities 1,267 2,772
------- -------
Net Increase in Cash and Cash Equivalents 106 123
Cash and Cash Equivalents at Beginning of Period 360 568
------- -------
Cash and Cash Equivalents at End of Period $ 466 $ 691
======= =======
See notes to financial statements.
6
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THE LAMAUR CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
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1. ORGANIZATION AND OPERATIONS
The Lamaur Corporation ("the Company") develops, formulates, and markets
personal hair care products, consisting of shampoos, conditioners, hair sprays,
and other styling aids, for the consumer market and, until December 1999,
manufactured these products. In addition, until December 22, 1999, the Company's
Custom Manufacturing Group developed, formulated, and manufactured for third
parties a variety of aerosol and other liquid products, consisting of hair care,
personal care, and household products.
On December 22, 1999, the Company completed the sale of its manufacturing
facility in Fridley, Minnesota, including real and personal property, to Tiro
Industries, Inc. ("Tiro") for net proceeds of $13.1 million and the assumption
of approximately $765,000 in lease obligations, thus achieving the Company's
planned strategy to improve asset liquidity. During the first quarter, the
Company closed its Mill Valley corporate office and consolidated it with its
sales, marketing, and product development operations in Fridley, Minnesota. The
Company is continuing its sales, marketing, and product development operations
in a portion of the Fridley facility as a tenant of Tiro for a term of two years
pursuant to a lease agreement. The Company retained ownership of personal
property necessary for its sales, marketing, and product development operations.
Tiro will manufacture products for the Company for three years from the closing
date pursuant to a manufacturing agreement.
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed financial statements are unaudited and include
all adjustments, consisting of only normal recurring accruals, that management
considers necessary to fairly present the results for such periods. These
financial statements should be read in conjunction with the financial statements
and notes contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999. Results for interim periods are not necessarily
indicative of results for the full year.
Reclassifications - Certain prior year amounts have been reclassified in
the accompanying financial statements in order to conform with the 2000
presentation.
Inventories are stated at the lower of weighted average cost or market and
include the following:
June 30, December 31,
2000 1999
------- ------------
(In thousands)
Finished goods $1,908 $3,340
Work in process 26 46
Raw materials 1,622 1,900
------ ------
Total $3,556 $5,286
====== ======
New Accounting Principles - In December 1999, the Securities and Exchange
Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101 "Revenue
Recognition in Financial Statements." SAB No. 101 summarizes certain of the SEC
staff's views in applying generally accepted accounting principles to selected
revenue recognition issues. SAB No. 101 is to be implemented by the Company no
later than the fourth quarter of 2000. Based on an initial review, the Company
does not expect it to have a significant effect on the financial position or
results of operations.
7
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THE LAMAUR CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (continued)
(Unaudited)
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3. LEGAL PROCEEDINGS
On November 2, 1998, a class action and derivative lawsuit was filed by
the stockholders (on behalf of themselves and the Company) in the Delaware Court
of Chancery in and for New Castle County alleging that the defendant members of
the Board of Directors breached their fiduciary duties to the Company and failed
to disclose certain information in the Company's 1998 Proxy Statement.
Plaintiffs seek injunctive relief, unspecified damages to the stockholders and
restitution of unspecified profits to the Company. Plaintiffs also seek a
rescission of all actions approved by stockholders at the November 2, 1998
Annual Meeting and demand a revised Proxy Statement. Any monetary judgment
resulting from Plaintiffs' derivative claims would accrue to the benefit of the
Company. The Company believes the lawsuit is without merit and will defend the
action in the best interest of the stockholders.
Certain of the Company's executives have severance agreements that provide
defined severance if the executive is involuntarily terminated (as defined)
within twenty-four months of a change of control (as defined). Three of the
Company's former executives have alleged that they entered into such agreements,
that they were the subject of an involuntary termination within twenty-four
months of a change of control, and that they are therefore entitled to certain
benefits. The total severance claimed is approximately $1.0 million. The Company
intends to vigorously oppose these claims. The Company does not believe that the
ultimate resolution of these matters will have a material adverse effect on the
Company's results of operations.
The Company is a party to other legal proceedings in the normal course of
business. It is the opinion of management that any losses in connection with
these matters will not have a material effect on its financial position or
operating results.
8
<PAGE>
THE LAMAUR CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (continued)
(Unaudited)
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4. SEGMENT INFORMATION
The Company's operating segments include the Retail Group, and, until the
December 1999 sale of the manufacturing facility, the Custom Manufacturing
Group. The Company evaluates performance based on contribution before fixed
expenses. The accounting policies of the segments are the same as those of the
Company.
The Company does not allocate fixed expenses by segment for internal
reporting or decision-making purposes and therefore has not disclosed operating
profit by segment. Until the sale of the manufacturing facility, the majority of
the Company's fixed expenses were shared expenses of both reporting segments and
consisted principally of administration and manufacturing overhead. The
Company's products were manufactured on common production lines and therefore
the Company did not analyze fixed assets or capital expenditures by segment. In
2000, the Company began to account for manufacturing costs from Tiro within cost
of goods sold. These costs were formerly part of fixed expenses.
The Company's reportable segments had separate sales departments, and
although the products are similar, they were sold and marketed differently. The
Retail Group sells hair care products including shampoos, conditioners, hair
sprays, and other styling aids. These products are distributed to consumer
retail outlets. Products sold by the Retail Group require substantial marketing
support to maintain their sales. Until December 1999, the Custom Manufacturing
Group developed and formulated hair care, personal care, and household products
for third parties. This group was service oriented and no significant marketing
was required to support its sales. During the three and six months ended June
30, 2000, sales by the Custom Manufacturing Group primarily represent
fulfillment of orders received prior to the sale of the manufacturing facility.
Sales by the Custom Manufacturing Group will continue to decline as the Company
sells through its remaining inventory of items related to the Custom
Manufacturing Group.
Following is the financial information related to the Company's segments
for the three and six months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Net sales
Retail Group $ 5,761 $ 8,291 $ 12,199 $ 16,114
Custom Manufacturing Group 236 8,460 1,772 13,684
-------- -------- -------- --------
Total net sales 5,997 16,751 13,971 29,798
Profit before fixed expenses
Retail Group 755 1,433 1,465 3,084
Custom Manufacturing Group 10 2,213 116 3,518
-------- -------- -------- --------
Total profit before fixed expenses 765 3,646 1,581 6,602
Fixed expenses 1,089 4,129 2,355 8,048
-------- -------- -------- --------
Operating loss (324) (483) (774) (1,446)
Interest expense (17) (389) (42) (710)
Interest income 1 2 13 6
-------- -------- -------- --------
Net loss $ (340) $ (870) $ (803) $ (2,150)
======== ======== ======== ========
</TABLE>
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE SIX AND THREE MONTHS ENDED JUNE 30,
2000 COMPARED TO THE SIX AND THREE MONTHS ENDED JUNE 30, 1999
Historical Results of Operations
Net sales for the six months ended June 30, 2000 were $14.0 million
compared with $29.8 million for the same period in 1999, a decrease of $15.8
million or 53.0%. Net sales for the three months ended June 30, 2000 were $6.0
million, compared with $16.8 million for the same period in 1999, a decrease of
$10.8 million or 64.3%. The decreases in sales for the six and three months
ended June 30, 2000 are due to reduced sales in the Custom Manufacturing Group
of $11.9 million and $8.2 million, respectively, and $3.9 million and $2.6
million sales reductions in the Company's retail brands, respectively. On
December 22, 1999, the Company sold its manufacturing facility and no longer
operates its Custom Manufacturing Group. Sales for the Custom Manufacturing
Group during the three and six months ended June 30, 2000 primarily represent
fulfillment of orders received prior to the sale of the facility. Sales of
Willow Lake(R), Style(R), Style Natural Reflections(R) and Perma Soft(R) (retail
brands) declined approximately $4.2 million and $2.5 million for the six and
three months ended June 30, 2000, respectively, as compared with the same
periods in 1999.
Sales of Style(R) and Perma Soft(R) have declined since the Company began
its turnaround efforts in the first quarter of 1996. Willow Lake(R) has declined
since the third quarter of 1998. The decline in sales of Willow Lake(R) is in
part attributable to the reduction in marketing support for Willow Lake(R). The
Company reduced its marketing support as a result of limited working capital.
Management is aggressively pursuing marketing and sales strategies to turn these
brands around. However, there can be no assurances that these efforts will be
successful and that the brands will not continue to decline. Partially
offsetting these sales declines were increases from Design Elements(R) by Salon
Style(R), a product line of hair styling aids introduced early in 1999.
Gross margin as a percentage of net sales was 34.0% for the six months
ended June 30, 2000, as compared with 29.7% for the same period in 1999. Gross
margin as a percentage of net sales was 34.1% for the three months ended June
30, 2000, as compared with 27.3% for the same period in 1999. The increase in
gross margin as a percentage of sales is due to retail brand sales, which are
higher margin sales than the Custom Manufacturing Group sales, representing a
greater percentage of net sales. Although the combined gross margin percentage
increased during the six and three months ended June 30, 2000, as compared with
the same periods in 1999, the Company did experience a reduction in gross margin
as a percentage of sales in both its Retail Group and Custom Manufacturing Group
as compared with the same periods in 1999. The reduction in the gross margin
percentage in the Retail Group was principally due to change in product mix,
sale of excess and close-out inventory at a lower margin, and a higher per unit
fill fee. Management believes that beginning in the third quarter of 2000 and
continuing through the end of the year it will realize a favorable per unit fill
fee as compared with the same periods in 1999.
Selling, general and administrative expenses (SG&A) were $5.5 million or
39.6% of net sales for the six months ended June 30, 2000, as compared with
$10.3 million or 34.5% of net sales for the same period in 1999, a decrease of
$4.8 million. SG&A expenses were $2.4 million or 39.5% of net sales for the
three months ended June 30, 2000, as compared with $5.1 million or 30.2% of net
sales for the same period in 1999, a decrease of $2.7 million. The decreases are
principally attributed to an overall reduction in general and administrative and
materials management costs of approximately $2.3 million and $1.1 million for
the six and three months ended June 30, 2000, respectively, related to the
downsizing of the Company from a sales and manufacturing company to a sales,
marketing, and product development company. The majority of this reduction
related to personnel expenses as a result of reduction in support staff. Also,
the Company anticipates savings in the second half of 2000 due to a realignment
of executive staff positions. In addition, the decrease in SG&A during the six
and three months ended June 30, 2000 is also due to a reduction in marketing
expenses of $2.0 million and $1.3 million, respectively, and reduced freight and
brokerage costs as a result of the decrease in sales. The decrease in marketing
is in part due to limited working capital. Because of the Company's limited
working capital and the competitive environment of hair care products, there can
be no assurance concerning the future performance of Willow Lake(R), Design
Elements(R) by Salon Style(R), Style(R) and other brands or the Company's
ability to attain any particular level of sales or to be profitable in the
future with the lower level of marketing support.
Interest expense decreased to $42,000 for the six months ended June 30,
2000, as compared with $710,000 in the same period in 1999. Interest expense
decreased to $17,000 for the three months ended June 30, 2000, as compared with
$389,000 in the same period in 1999. The decrease in interest expense is
principally attributable to reduced borrowings under the Company's revolving
line of credit with Congress Financial Corporation.
As a result of the foregoing factors, the net loss for the six months and
three months ended June 30, 2000, was $803,000 and $340,000, respectively,
compared with $2.2 million and $0.9 million, respectively, for the same periods
in 1999.
10
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Liquidity and Capital Resources
Cash and cash equivalents increased by $0.1 million from December 31,
1999. Inventory and accounts receivable decreased by $1.7 million and $2.9
million, respectively, from December 31, 1999 levels.
The decrease in inventory is primarily attributable to the reduction in
the Contract Manufacturing Group's inventory and raw materials, principally
chemicals. As a result of the sale of the Company's manufacturing facility to
Tiro, the Company no longer operates its Custom Manufacturing Group. The Company
will continue to sell its inventory related to the Custom Manufacturing Group,
but is not replenishing it. Tiro will manufacture products for the Company for
three years pursuant to a manufacturing agreement. As part of the agreement,
Tiro purchases the chemicals used in the production of the Company's products
and the Company will continue to purchase packaging components.
The Company currently has a revolving loan facility with Congress
Financial Corporation ("Congress") for $10.3 million that is payable in full in
May 2002. The interest rate on the revolving loan with Congress is prime plus
0.75% (10.25% at June 30, 2000). In May 2000, the Company paid the second half
of the $200,000 closing fee incurred in conjunction with the loan agreement.
The revolving loan with Congress is secured by virtually all of the assets
of the Company. Additionally, the loan agreement restricts the payment of
dividends other than on the Company's Series B Preferred Stock, restricts the
Company's ability to incur additional indebtedness and requires the Company to
comply with certain financial loan covenants. As of June 30, 2000, the Company
was not in compliance with the net worth covenant in its credit facility. The
Company has obtained a waiver from the lender and is currently negotiating new
financial loan covenants.
As of June 30, 2000, the amount outstanding under the Company's revolving
loan facility was $1.3 million compared with no amounts outstanding at December
31, 1999. The Company uses its loan facility for working capital and to meet its
obligations to the creditors who signed the forbearance agreement described
below.
Because of financial difficulty in prior years, the Company was unable to
pay its vendors within their normal terms. In January 2000, the Company assisted
certain key creditors in forming a creditors committee to negotiate a payment
plan for the Company's payables to its unsecured creditors. In the first quarter
of 2000, the creditors committee signed a forbearance agreement on behalf of all
general unsecured creditors of the Company whereby the committee agreed until
December 31, 2001 to forbear from exercising any remedies they may have against
the Company as a result of their status as unsecured creditors. Although the
creditors committee has entered into the forbearance agreement, there can be no
assurance that all of the creditors will sign the agreement. The committee has
agreed to use good-faith efforts to contact any creditor who engages in
collection efforts against the Company and solicit such creditor to be bound by
the terms of the forbearance agreement. The forbearance agreement provides for a
100% payment plan through December 31, 2001 to the creditors who sign the
forbearance agreement.
As of July 31, 2000, the Company entered into forbearance agreements or
settled the payables with creditors in the aggregate amount of approximately
$5.8 million and has made payments to these creditors according to the
forbearance agreement in the amount of approximately $2.6 million.
The Company estimates the original total payables exceeding normal terms
before payments noted above was approximately $6.3 million. There can be no
assurance that the remaining creditors will sign the forbearance agreement or
that payments can continue to be made under the payment plan to creditors or
that creditor actions will not cause production interruptions, which would have
a material adverse effect on the Company.
As of June 30, 2000, the Company was $1,200,000 in arrears on the payment
of dividends on its Series B Preferred Stock. The Preferred Stock provides for
an annual dividend of $400,000, payable in quarterly installments.
In July 2000, the Company announced a licensing agreement with The Procter
& Gamble Company. In the agreement, The Procter & Gamble Company has licensed
certain formulations and technology know-how for hair care products developed by
the Company. The formulations and technology are intended to be used for various
Procter & Gamble hair care products.
The Company's ability to continue operations is dependent on its ability
to generate sufficient cash flow to meet its current obligations as they become
due, to comply with the payment terms of the forbearance agreement, to comply
with the terms and conditions of the loan facility, maintain adequate gross
margins, and attain sales and profitable operating levels.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On November 2, 1998, a class action and derivative lawsuit was filed by
the stockholders (on behalf of themselves and the Company) in the Delaware Court
of Chancery in and for New Castle County alleging that the defendant members of
the Board of Directors breached their fiduciary duties to the Company and failed
to disclose certain information in the Company's 1998 Proxy Statement.
Plaintiffs seek injunctive relief, unspecified damages to the shareholders and
restitution of unspecified profits to the Company. Plaintiffs also seek a
rescission of all actions approved by stockholders at the November 2, 1998
Annual Meeting and demand a revised Proxy Statement. Any monetary judgment
resulting from Plaintiffs' derivative claims would accrue to the benefit of the
Company. The Company believes the lawsuit is without merit and will defend the
action in the best interest of the stockholders.
Dominic LaRosa, the Company's former President and CEO - Lamaur Division,
commenced an arbitration action against the Company in January of 2000,
asserting a claim for severance payments. Mr. LaRosa's employment with the
Company terminated on April 15, 1999. Mr. LaRosa alleges that he entered into a
severance agreement with the Company on July 7, 1997 and that this severance
agreement provided for certain payments in the event of an Involuntary
Termination (as defined in the severance agreement) of his employment within 24
months of a Change of Control (as defined in the severance agreement) of the
Company. Mr. LaRosa alleges that he was the subject of an Involuntary
Termination within 24 months of a Change of Control and that he is entitled to
receive severance payments from the Company. He is seeking an award of: one and
one-half times his most recent annual full-time base compensation at the
Company; medical, dental and basic life insurance benefits for the shorter of
eighteen months from his termination or when new insurance is obtained from a
new employer; moving expenses of up to 25% of his most recent annual full-time
base compensation at the Company; a low interest rate loan of up to one and
one-half times his most recent annual full-time base compensation at the
Company; and unspecified attorney's fees and costs. The Company has answered the
arbitration demand and has denied that it is liable to LaRosa for severance
payments. Among other things, the Company has denied that there was a Change of
Control as defined in the severance agreement. The parties have exchanged
written discovery but have not taken any depositions. The arbitration hearing is
scheduled to commence on September 12, 2000. The Company intends to vigorously
oppose this claim.
Ronald Williams, the Company's former Executive Vice President - Lamaur
Division, commenced an arbitration action against the Company on March 17, 2000.
Mr. Williams' arbitration demand does not specify the details of his claim.
Prior to instituting the arbitration action, however, Mr. Williams sent
correspondence to the Company, in which he demanded payment of severance
benefits under a severance agreement that he entered into with the Company on
July 1, 1997. Mr. Williams resigned his employment with the Company on February
29, 2000. The severance agreement entered into between Mr. Williams and the
Company provided for certain payments in the event of an Involuntary Termination
(as defined in the severance agreement) of his employment within 24 months of a
Change of Control (as defined in the severance agreement) of the Company. Mr.
Williams alleges that he was the subject of an Involuntary Termination within 24
months of a Change in Control and that he is entitled to receive severance
payments from the Company. He is seeking an award of: one and one-half times his
most recent annual full-time base compensation at the Company; medical, dental
and basic life insurance benefits for the shorter of eighteen months from his
termination or when new insurance is obtained from a new employer; moving
expenses of up to 25% of his most recent annual full-time base compensation at
the Company; a low interest rate loan of up to one and one-half times his most
recent annual full-time base compensation at the Company; and unspecified
attorneys' fees and costs. This arbitration proceeding is at an early stage. No
discovery has been taken and no date for the arbitration hearing has been
established. The Company intends to vigorously oppose this claim.
On February 3, 2000, Donald E. Porter, the Company's former Vice President
- Corporate Development, filed a Demand for Arbitration with the American
Arbitration Association alleging that the Company failed to pay him severance
pay in accordance with the Employee Severance Agreement, executed on July 1,
1997. Mr. Porter also alleges that the Company failed to reimburse him for
approved expenses, was to repurchase stock, and was responsible for unspecified
amounts for costs of arbitration, attorneys fees and interest. Subsequent to
June 30, the Company and Mr. Porter resolved his claim. The Company made no
admission of any fault or liability on its part in connection with this
resolution. The Company resolved Mr. Porter's claim in order to avoid the costs
and burden of litigation.
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<PAGE>
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
On June 30, 2000, the Company failed to pay a dividend of $100,000 on its
Series B Preferred Stock and is in arrears in the aggregate amount of
$1,200,000.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
SIGNATURE
Pursuant to the requirements 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.
THE LAMAUR CORPORATION
(Registrant)
/s/ Jay T. Olson
--------------------------------
DATE: August 11, 2000 JAY T. OLSON
Vice President - Finance
(Principal Financial and
Accounting Officer)
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