As filed with the Securities and Exchange Commission on June 20, 1995
Registration No. 33-
============================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
Under The Securities Act of 1933
THE LORI CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 5190 36 - 2262248
- ------------------------------ ---------------- --------------
(State or other jurisdiction (Primary Standard (I.R.S Employer
of Industrial Identification No.)
incorporation or organization) Classification
Code Number)
--------------------
500 Central Avenue
Northfield, Illinois 60093
(708) 441-7300
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
--------------------
Philip E. Ruben, Esquire
Kwiatt, Silverman & Ruben, Ltd.
500 Central Avenue
Northfield, Illinois 60093
(708) 441-7676
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------
Copy to:
David G. Edwards, Esquire
Doepken Keevican Weiss & Medved
Professional Corporation
37th Floor, USX Tower
600 Grant Street
Pittsburgh, Pennsylvania 15219
(412) 355-2600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------
<PAGE>
(Cover page continued)
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement as
determined by market conditions and other factors.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basispursuant to Rule 415
under the Securities Act of 1933, check the following box. X
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CALCULATION OF REGISTRATION FEE
===============================================================================
<TABLE>
<CAPTION>
Title of Each Class of Amount to be Proposed Maximum Offering Proposed Maximum Amount of
Securities to be Registered Registered Price Per Share Aggregate Offering Price Registration Fee
=========================== ============ ========================= ======================== ================
<S> <C> <C> <C> <C>
Common Shares (no par value) 1,151,270 (1) $2.375 (2) $2,734,266 (2) $942.85
=========================== ============ ========================= ======================== ================
<FN>
(1) Includes up to 957,378 shares of common stock, no par value per share (the
"Common Stock"), of The Lori Corporation ("Lori" or the "Company") issuable
upon the exercise of the Company's warrants or options to purchase Common
Stock.
(2) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 457(c), the offering price and registration fee are
computed on the basis of the average of the high and low prices of the
Company's shares of Common Stock traded on the American Stock Exchange on
June 16, 1995.
</FN>
</TABLE>
The Company hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Company shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Form S-1 Registration Item and Heading Location in Prospectus
Item No. --------------------------------- ----------------------
--------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Front Forepart; Outside Front Cover Page
Cover Page of Prospectus...............................
2. Inside Front and Outside Back Cover Pages of Prospectus.. Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of Earnings Prospectus Summary; Risk Factors
to Fixed Charges ......................................
4. Use of Proceeds.......................................... Outside Front Cover Page; Prospectus Summary;
Plan of Distribution
5. Determination of Offering Price.......................... Not applicable
6. Dilution................................................. Not applicable
7. Selling Security Holders................................. Selling Stockholders
8. Plan of Distribution..................................... Outside Front Cover Page; Plan of Distribution
9. Description of Securities to be Registered............... Description of the Company's Securities
10. Interests of Named Experts and Counsel................... Not applicable
11. Information with Respect to the Company:
11.(a) Description of Business.................................. Business and Properties;
Index to Financial Statements
11.(b) Description of Property.................................. Business and Properties
11.(c) Legal Proceedings........................................ Legal Proceedings; Business and Properties
11.(d) Market Price of and Dividends on the
Company's Common Equity and
Related Stockholder Matters............................ Market Price of the Company's Common Stock
11.(e) Financial Statements..................................... Index to Financial Statements
11.(f) Selected Financial Data.................................. Prospectus Summary
11.(g) Supplementary Financial Information...................... Prospectus Summary
11.(h) Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... Management's Discussion and Analysis of
Financial Condition and Results of Operations
11.(i) Disagreements with Accountants on
Accounting and Financial Disclosure.................... Not applicable
11.(j) Directors and Executive Officers......................... Management
11.(k) Executive Compensation................................... Executive Compensation
11.(l) Security Ownership of Certain Beneficial
Owners and Management.................................. Principal Stockholders
11.(m) Certain Relationships and Related
Transactions........................................... Transactions with Management and Others
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................................ Indemnification of Officers and Directors
</TABLE>
<PAGE>
SUBJECT TO COMPLETION DATED JUNE 20, 1995
PROSPECTUS
1,151,270 Shares
THE LORI CORPORATION
COMMON STOCK
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. See "Risk Factors."
The Lori Corporation, a Delaware corporation (the "Company" or "Lori"), is
engaged, through its subsidiaries, in designing and distributing popular-priced
fashion jewelry.
All of the 1,151,270 shares of common stock of the Company (the "Common
Stock") offered hereby are being offered for sale, from time to time by or for
the account of certain existing security holders of the Company ("Selling
Stockholders"). See "Selling Stockholders." The Common Stock is listed on the
American Stock Exchange. The Selling Stockholders have indicated that they
propose from time to time to offer their shares, if any, for sale (a) in regular
way brokerage transactions on the American Stock Exchange, (b) in privately
negotiated transactions, or (c) through other means; that sales on or through
the facilities of the American Stock Exchange will be effected at such prices as
may be obtainable and are satisfactory to the respective Selling Stockholders;
and that no sales other than in accordance with the preceding clauses (a) or (b)
will be effected until after this Prospectus shall have been appropriately
amended or supplemented, if required, to set forth the terms thereof.
In certain cases the Selling Stockholders, brokers executing sales orders
on their behalf and dealers purchasing shares from the Selling Stockholders for
resale, may be deemed to be "underwriters," as that term is defined in Section
2(11) of the Securities Act of 1933, as amended (the "Securities Act"), and any
commissions received by them and any profit on the resale of Common Stock
purchased by them may be deemed underwriting commissions or discounts under the
Securities Act.
The Company will not receive any proceeds from sales of shares to which
this Prospectus relates. However, insofar as the holders of options or warrants
to purchase shares of the Common Stock are expected to exercise their warrants
or options in order to sell the underlying shares (which are registered hereby),
the Company will receive the amount of the exercise prices of any warrants or
options so exercised. See "Risk Factors - Dilution and Depression of Market
Price from Issuance of Additional Common Stock." As of the date hereof, the
aggregate amount of the exercise prices of all shares issuable by the Company
upon the exercise of options or warrants outstanding as of the date hereof and
subject to registration hereby is $[ ]. The Company cannot predict when or if it
will receive proceeds from the exercise of warrants or options, or the amount of
any such proceeds. None of the holders of options or warrants can reasonably be
expected to exercise their options or warrants unless the market price on the
American Stock Exchange of the Common Stock is in excess of the exercise price
therefor. The Company intends to use the proceeds, if any, received from the
exercise of warrants or options to retire or reduce indebtedness, to pay
expenses of the offering and for working capital purposes. See "Plan of
Distribution."
On ______________, 1995, the closing price of the Common Stock on the
American Stock Exchange was $[ ] per share. The Company will bear certain of the
expenses of this offering, estimated to be $[ ].
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1995.
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement on Form S-1 under the
Securities Act and the rules and regulations promulgated thereunder, with
respect to the Common Stock offered hereby. This Prospectus, which constitutes
part of the Registration Statement, omits certain information contained in said
Registration Statement and the exhibits and schedules thereto, as permitted by
the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
the Registration Statement, including the exhibits thereto and financial
statements, notes, and schedules filed as part thereof, which may be inspected
and copied at the public reference facilities of the Commission referred to
below. Statements herein concerning the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
the full text of such contract or other document filed with the Commission as an
exhibit to the Registration Statement, or otherwise, each such statement being
qualified and amplified in all respects by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy statements and other information with the Commission. Certain
information as of specified dates concerning directors and officers, their
remuneration, options granted to them, the principal holders of securities of
the Company, and any material interest of such persons in transactions with the
Company, is disclosed in proxy statements distributed to the Company's
stockholders and filed with the Commission. Such reports, proxy statements and
other information may be inspected at the Commission's public reference
facilities maintained at 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following SEC Regional Offices: Seven World Trade Center, 13th Floor, New
York, New York 10048; and Suite 1400, Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661. Copies of such material can be obtained
from the Public Reference Section of the Commission, Room 204, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
The Common Stock of the Company is listed on the American Stock Exchange
and such reports, proxy material and other information are also available for
inspection at the American Stock Exchange, 86 Trinity Place, New York, New York
10006.
Until , 1995, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters with respect to their unsold
allotments or subscriptions.
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain of the information contained in this
Prospectus and is qualified in its entirety by the more detailed information and
financial statements appearing elsewhere herein. Prospective investors should
carefully consider the information set forth under the caption "Risk Factors."
The Company
The Lori Corporation, a Delaware corporation (the "Company" or "Lori"), is
engaged, through its subsidiaries, in designing and distributing popular-priced
fashion jewelry. Unless the context otherwise requires, references herein to the
Company shall also include its subsidiaries. The Company maintains its principal
executive offices at 500 Central Avenue, Northfield, Illinois 60093, telephone
(708) 441-7300.
As of the date of this Prospectus, the Company carries on its jewelry
business through two wholly-owned operating subsidiaries: (i) Rosecraft, Inc., a
Delaware corporation ("Rosecraft"); and (ii) Lawrence Jewelry Corporation, a
Delaware corporation ("Lawrence"). ARTRA GROUP Incorporated ("ARTRA") owns 100%
of Fill-Mor Holding Inc., a Delaware corporation ("Fill-Mor"), which owns 64.3%
of the capital stock of Lori. The Company's New Dimension Accessories, Ltd.
("New Dimensions") terminated operations effective December 27, 1994.
See "Business and Properties".
The Offering
Lori is required under certain agreements it has entered into with
stockholders and warrantholders to register the shares of Common Stock held by
such stockholders or issuable upon the exercise of warrants held by such
warrantholders.
Existing securityholders of the Company are offering 1,151,270 shares of
Common Stock held by them or issuable to them upon the exercise of options or
warrants held by them.
<TABLE>
<S> <C>
Common Stock Offered by the Selling Stockholders ............. 1,151,270 shares*
Common Stock Outstanding ..................................... 3,415,004 shares
Common Stock Issuable Under Options and Warrants ............. 957,378 shares
Total Common Stock (including Options and Warrants) .......... 4,372,382 shares
American Stock Exchange Symbol ............................... LRC
- -----------------
*Includes Common Stock issuable under Options and Warrants
</TABLE>
See "Selling Stockholders" and "Plan of Distribution."
Use of Proceeds
The Company will not receive any proceeds from the sale of the Common
Stock offered hereby by the Selling Stockholders. However, if the holders of
options or warrants to purchase shares of Common Stock exercise their warrants
or options in order to sell the underlying shares (which are registered hereby),
the Company will receive the amount of the exercise prices of any warrants or
options so exercised. The Company cannot predict when or if it will receive
proceeds from the exercise of warrants or options, or the amount of any such
proceeds. The Company intends to use the proceeds, if any, received from the
exercise of warrants or options to retire or reduce indebtedness, to pay certain
expenses of the offering and for working capital purposes. See "Plan of
Distribution."
<PAGE>
Risk Factors
Prospective investors should carefully review the risk factors and other
information set forth herein, including under the heading "Risk Factors" which
discusses, among other things, significant risks associated with an investment
in the Company.
<PAGE>
Selected Financial Data
Following is a consolidated summary of selected financial data of the Company
for each of the five years in the period ended December 31, 1994 and for the
quarters ended March 31, 1994 and 1995 (in thousands, except per share data).
<TABLE>
<CAPTION>
Three Months Ended March 31,
Year Ended December 31, (unaudited)
--------------------------------------------------------- ---------------------------
1990 1991 1992 1993 1994 1994 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales ......................... $ 114,604 $ 106,834 $ 75,484 $ 46,054 $ 34,431 $ 9,269 $ 4,944
Earnings (loss)
before extraordinary credits (A) 1,651 (7,099) (34,619) (1,672) (18,502) (1,260) (250)
Extraordinary credits (B) ......... 35 -- -- 22,057 8,965 -- 6,657
Net earnings (loss) ............... 1,686 (7,099) (34,619) 20,385 (9,537) (1,260) 6,407
Earnings (loss) per share:
Earnings (loss)
before extraordinary credits . .53 (2.25) (10.99) (.45) (5.80) (.40) (.07)
Extraordinary credits ............. .01 -- -- 6.03 2.81 -- 1.79
Net earnings (loss) ............... .54 (2.25) (10.99) 5.58 (2.99) (.40) 1.72
Total assets (C) .................. 78,942 66,877 42,818 40,174 18,704 39,848 17,821
Long-term debt .................... 22,862 23,548 6,105 -- -- -- --
Due to ARTRA (D) .................. 17,902 15,981 16,025 -- 289 -- 382
Liabilities subject to compromise . -- -- 41,500 -- -- -- --
Debt subsequently discharged ...... -- -- -- -- 7,105 -- --
Cash dividends .................... -- -- -- -- -- -- --
<FN>
(A) The loss from continuing operations for the year ended December 31,
1994 includes a charge to operations of $10,800,000 representing a
write-off of New Dimensions goodwill. See Note 4 to the Company's
Consolidated Financial Statements for the year ended December 31, 1994.
The loss from continuing operations for the year ended December 31,
1992 includes charges to operations of $8,664,000 representing an
impairment of goodwill at December 31, 1992 and $8,500,000 representing
increased reserves for markdowns allowances and inventory valuation.
(B) The 1995 and 1994 extraordinary credits represent gains from net
discharge of indebtedness under terms of the Company's debt settlement
agreement with its bank. See Note 2 to the Company's Condensed
Consolidated Financial Statements for the quarter ended March 31, 1995.
The 1993 extraordinary credit represents a gain from a net discharge of
indebtedness due to the reorganization of the Company's New Dimensions
subsidiary. See Note 5 to the Company's Consolidated Financial
Statements for the year ended December 31, 1994. The 1990 extraordinary
credit represent gains on purchases of New Dimensions senior notes at
market prices lower than face value.
(C) As partial consideration for the debt settlement agreement, in
December, 1994 the Company's bank lender received all of the assets of
New Dimensions. See Note 4 to the Company's Consolidated Financial
Statements for the year ended December 31, 1994.
(D) In February, 1993, ARTRA transferred all of its notes to Lori's capital
account. In 1994, ARTRA made additional advances to Lori. Effective
December 29, 1994, ARTRA exchanged $2,242,000 of its notes and advances
for additional Lori preferred stock. See Note 14 to the Company's
Consolidated Financial Statements for the year ended December 31, 1994.
</FN>
</TABLE>
<PAGE>
RISK FACTORS
THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS INVOLVE A HIGH
DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, AMONG OTHER
THINGS, THE FOLLOWING RISK FACTORS INHERENT IN AND AFFECTING THE BUSINESS OF THE
COMPANY AND THIS OFFERING, TOGETHER WITH THE OTHER INFORMATION IN THIS
PROSPECTUS, BEFORE MAKING AN INVESTMENT DECISION.
1. Competitive Conditions and the Recessionary Environment in the Fashion
Jewelry Industry
The fashion jewelry business is highly competitive. The Company
competes primarily with other fashion jewelry designers and distributors.
Although the continuing recession in the fashion jewelry industry has resulted
in a number of competitors ceasing operations, other competitors in the fashion
jewelry industry segment have strengthened their positions in the market.
Accordingly, while there are fewer competitors today than prior to the recession
in the fashion jewelry industry (the commencement of which coincided with the
general economic recession in the United States in 1990-1991), those competitors
remaining are generally better positioned to deliver their products at lower
prices or otherwise react to market demands more quickly and efficiently.
Despite the broad-based recovery in the United States economy which has
been evident at least since the third quarter of 1993, sales of fashion jewelry
products have not returned to pre-recession levels. Although the fashion jewelry
industry has traditionally been regarded as cyclical, the failure of fashion
jewelry sales to rebound with the economy suggest that the current industry
conditions reflect a fundamental adverse change in the industry rather than
merely the trough in a cycle. Among the factors which have been identified as
contributing to the recession in the fashion jewelry industry are (i) current
fashion, which favors a minimum of jewelry and adornment; (ii) the general trend
in the United States toward more casual attire in office and evening wear, with
which attire no jewelry or a minimum of jewelry is worn; and (iii) the
recessionary environment in the fine jewelry industry, which has resulted in
fine jewelry manufacturers and distributors lowering prices and making available
lower cost items, such as 10 karat gold jewelry, to increase market share at the
expense of fashion jewelry distributors.
Competitive pressure has also been introduced in the industry by
national discount department store chains. Tactics employed by these
increasingly powerful chains have included (i) direct sourcing of "knock-offs"
of the most successful lines or items sold, (ii) pressuring distributors such as
Lori's operating subsidiaries to accept returns of unsold goods, (iii) delaying
or withholding payments on other orders, threatening to suspend future business
or unilaterally terminating other orders, and (iv) selling competitors' jewelry
lines side-by-side. As these national chains continue to capture market share
and drive regional chains and independently-owned stores out of business, their
buying departments will have an increasing ability to dictate pricing in the
fashion jewelry industry.
Accordingly, no assurances can be given that either the business and
operations of Lori or the market conditions in the fashion jewelry industry
generally will improve in the foreseeable future. Unless Lori's financial
condition improves, management does not anticipate that Lori will be able to
continue its operations. One subsidiary, New Dimensions, terminated its
operations in December 1994. See "Business and Properties."
2. History of Losses
The Company has experienced losses from operations in each year since
1991. The Company incurred losses from continuing operations of $18,502,000 in
1994, $1,672,000 in 1993 and $34,619,000 in 1992, respectively and also incurred
a loss from operations of $250,000 in the quarter ended March 31, 1995. The
Company's New Dimensions subsidiary terminated
<PAGE>
operations in December, 1994, having previously filed for protection under
Chapter 11 of the Bankruptcy Code in February 1993. Although the Company
believes that management's efforts to improve efficiencies at the operating
company level (through implementation of cost reduction measures at Lawrence and
Rosecraft) will improve the Company's financial position, there can be no
assurance that losses from operations will not continue. See "Risk Factors -
Competitive Conditions in the Packaging Products Industry" and "Competitive
Conditions and the Recessionary Environment in the Fashion Jewelry Industry."
The Company's independent accountants, Coopers & Lybrand L.L.P., have
issued a "going-concern" opinion with respect to the Company, which expresses
substantial doubt as to the ability of the Company to continue as a going
concern as the Company has suffered recurring losses from operations, has a
deficiency of working capital and does not have financing facilities in place
for the coming year. The Consolidated Financial Statements do not include any
adjustments that might result from this uncertainty. See "Risk Factors -
Defaults on Indebtedness." If the Company ceases to operate as a going-concern,
an investor would be likely to lose his entire investment in the Company's
Common Stock.
3. History of Defaults, Inability to Obtain Working Capital Line of Credit
In recent years, due to significant operating losses, the Company was
in default of and unable to repay certain debt obligations which resulted in
significant discharges of indebtedness by the Company's creditors. See Notes 4
and 5 of the Consolidated Financial Statements for the year ended December 31,
1994. The Company presently has a loan outstanding of $850,000 due June 30, 1995
collateralized by substantially all of the Company's assets. Unless the Company
is successful in refinancing this indebtedness, of which there can be no
assurances, the lender, who is an outside director of the Company, could
foreclose on the assets of the Company. See paragraph 4 under "Transactions with
Management and Others" and Note 14 of the Consolidated Financial Statements for
the year ended December 31, 1994.
Lori has been negotiating with various lenders to obtain working
capital financing. As of the date of this Prospectus the Company has not been
successful in obtaining such financing. The failure of the Company to obtain
financing is expected to materially and adversely affect the Company's ability
to conduct its operations.
4. Dilution and Depression of Market Price from
Issuance of Additional Common Stock
As of June 15, 1995, there were 3,415,004 shares of the Company's
common stock outstanding, of which 1,031,186 shares (30.2%) were in the public
float. The Company's Board of Directors has the power to issue any and all
authorized but uninsured shares without stockholder approval. In addition, the
Company anticipates that holders of options and warrants will exercise their
options and warrants in order to sell the underlying shares registered hereby if
the exercise price is less than the market price of the Common Stock. Such an
exercise could result in a dilution of the interests of existing stockholders.
Purchasers of the Shares offered hereby should be aware that the issuance of
additional shares may result in a reduction in the market price of the Company's
Common Stock then outstanding. See also "Risk Factors - Limited Trading Volume."
5. Limited Trading Activity
During the six months ended May 31, 1995, the daily average number of
shares of Common Stock traded on the American Stock Exchange was approximately
3,570 shares. If such trading levels continue, it may be difficult for Selling
Stockholders to effect sales of their shares on the American Stock Exchange and,
the placement of a substantially larger number of sell orders could materially
and adversely impact the market price of the Common Stock. See also "Risk
Factors - Dilution and Depression of Market Price from Issuance of Additional
Common Stock."
<PAGE>
6. No Cash Dividends
The Company has not paid any cash dividends on its Common Stock in
recent years and does not anticipate paying any such dividends in the
foreseeable future.
7. Control by Existing Management
John Harvey and Peter R. Harvey, each of whom serves as a director of
Lori, control the management of the operations of Lori through their control of
ARTRA, which owns 61.0% of Lori's common stock. See "Principal Stockholders."
8. Negative Effect on Stockholders from
Possible Issuance of Preferred Stock
The Company is authorized to issue up to 1,000,000 shares of preferred
stock, par value $1,000 per share. The preferred stock may be issued in one or
more series, the terms of which may be determined at the time of issuance by the
Board of Directors, without further action by stockholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights
and sinking fund provisions. Except for the 9,701 shares Series C Preferred
Stock that have been issued, no preferred stock is currently outstanding and the
Company has no present plans for the issuance thereof. The issuance of any
preferred stock could affect the rights of the holders of Common Stock and, in
certain circumstances, reduce the value of the Common Stock. In particular,
specific rights granted to future holders of preferred stock could restrict the
Company's ability to merge with or sell its assets to a third party, thereby
preserving control of the Company by present owners. See "Description of the
Company's Securities."
9. Possible Delisting of Securities from the American Stock Exchange
The Company's Common Stock is currently listed on the American Stock
Exchange. The Company has been unable to maintain the standards for continued
listing on these exchanges, and the Company's securities could be subject to
delisting from these exchanges at any time. Trading of the Common Stock, if it
continues, might thereafter be conducted in the over-the-counter markets on the
electronic bulletin board established for securities that do not meet the
American Stock Exchange listing requirements or in what is commonly referred to
as the "pink sheets." If delisting were to occur, an investor could find it more
difficult to dispose of or to obtain accurate quotations regarding the price of
the Company's Common Stock and the market price of the Common Stock could
decline significantly.
10. Environmental Liabilities
Lori, formerly known as APECO Corporation (and prior thereto, as
American Photocopy Equipment Company), operated in excess of 20 manufacturing
facilities in the United States prior to its entry in the jewelry business in
1985. The former operations of the Company included the manufacture of photocopy
machines, photographic chemicals, paper coatings, pleasure boats, recreational
vehicles, modular and mobile homes, marine windshields and gasoline tanks. These
operations were sold or discontinued in the late 1970s and early 1980s. In
addition, Lori's Rosecraft subsidiary and its predecessors formerly used its
facility to manufacture, assemble and finish jewelry.
Certain of these facilities may have used and/or generated hazardous
materials and may have disposed of the hazardous substances, directly or through
third party waste disposal firms at various off-site waste disposal locations,
in most cases before laws had been enacted governing the safe disposal of
hazardous substances. The number of these off-site waste disposal locations that
may have been used by third party waste disposal contractors is neither known
nor reasonably determinable by the Company. Although Lori has been notified by
the Federal Environment Protection Agency that it is a potentially responsible
party for the disposal of hazardous substances by its predecessor company at a
site on Ninth Avenue in Gary, Indiana, it has no records indicating that it
<PAGE>
deposited hazardous substances at this site and intends to vigorously defend
itself in this matter.
Lori was unable to conduct a comprehensive audit of potential
environmental liability at the facilities formerly owned or operated by Lori or
its predecessors and their subsidiaries since it is no longer the owner or
operator of most of the properties at which it or its predecessors or their
affiliates conducted manufacturing operations and did not keep records of the
companies with which it contracted for the disposal of wastes before such
record-keeping became mandated by law. Although a comprehensive review of public
records located at the state, local and Federal levels, of internal documents
(if available) respecting off-site hazardous materials disposal and of available
computer data bases could reveal additional potential liabilities to Lori for
the costs of environmental clean-up, the cost of conducting such a review is
prohibitively expensive.
In addition, even if Lori is not found to be responsible for clean-up
costs at any particular site, the costs of defending itself in any proceedings
or inquiries instituted by the EPA, any state environmental agencies or private
parties could itself be significant. As described under "Risk Factors - Need for
Additional Funds," Lori has limited funds available to it, including for its
legal defense. In certain cases, Lori may be unable to raise the funds needed to
mount an adequate (or any) defense against the claims raised, even if it has
legal grounds to do so. This problem may become acute if the cases against Lori
proliferate due to the identification of additional off-site waste disposal
locations at which third party waste disposal contractors disposed of hazardous
substances generated by Lori and its predecessors, directly or through
subsidiaries.
See "Business and Properties - Environmental Concerns."
11. Dependence on Major Customers
Target Stores, a customer principally of Lori's Lawrence subsidiary,
accounted for approximately 37% of Lori's total sales in 1994 (excluding the
operations of New Dimensions, which terminated operations in December 1994).
Lawrence does not have a sales contract with Target Stores or any other
customers. Accordingly, although Company believes it has developed a strong
relationship with Target Stores and that its service program has historically
generated significant profits for this customer, Target could terminate its
relationship with Lawrence at any time. Any such termination could be expected
to have a materially adverse impact on the business and operations of Lori if
the Company were unable to replace sales to this customer on a timely basis. It
is not anticipated that, in the event of such a termination, this customer could
be easily replaced since Target Stores is among the largest retailers in the
United States. During the fourth quarter of 1994, New Dimensions lost its
account with Wal-Mart, which accounted for the principal portion of the
Company's sales to Wal-Mart (although Wal-Mart remains a Rosecraft customer).
The loss of the Wal-Mart account contributed to management's decision to assign
all of the assets of New Dimensions as consideration for the agreement with
Lori's bank lender to settle obligations due the bank under terms of the bank
loan agreements of Lori and its operating subsidiaries as discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 4 to the Company's Consolidated Financial Statements. As a
result, New Dimensions terminated operations in December 1994.
<PAGE>
CAPITALIZATION
(in thousands)
The following table sets forth the capitalization of the Company at
March 31, 1995. The following should be read in conjunction with the Company's
consolidated financial statements appearing elsewhere in this Prospectus.
Short-term debt:
Note payable to a related party $ 850
=======
Shareholders' equity:
Preferred stock, $.01 par value, authorized
1,000 shares, all series; Series C, issued 10 shares,
including accumulated dividends $19,515
Common stock, $.01 par value; authorized
10,000 shares, issued 3,415 share 33
Restricted common stock (100 shares), at cost (700)
Additional paid-in capital 65,728
Accumulated deficit (72,554)
-------
Total shareholders' equity $12,022
=======
Total capitalization $12,872
=======
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion supplements the information found in the consolidated
financial statements and related notes:
General
On February 8, 1985, Lori entered into the fashion costume jewelry
business through the acquisition of all of the outstanding shares of New
Dimensions. During 1986 the Company expanded the jewelry segment by acquiring
Rosecraft and Lawrence.
As discussed below in the "Liquidity and Capital Resources" section, on
February 5, 1993 the Company's New Dimensions subsidiary filed a petition for
reorganization under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of New York (Case No. 93 B 40653). On
April 9, 1993, New Dimensions' reorganization plan was confirmed by an order of
the Bankruptcy Court. On May 3, 1993, the consummation date of the
reorganization, New Dimensions emerged from Chapter 11 bankruptcy court
protection. As discussed below, under terms of a debt settlement agreement,
Lori's bank lender received all of the assets of New Dimensions and New
Dimensions terminated operations effective December 27, 1994.
In recent years, the Company suffered significant operating losses and
since December 31, 1993 Lori and its operating subsidiaries were not in
compliance with certain provisions of their respective bank loan agreements. On
August 18, 1994, as amended December 23, 1994, ARTRA, Lori's parent, Fill-Mor,
Lori and Lori's operating subsidiaries entered into and agreement with Lori's
bank lender to settle obligations due the bank under terms of the bank loan
agreements of Lori and its operating subsidiaries and Fill-Mor. See Note 2 to
the Condensed Consolidated Financial Statements for the quarter ended March 31,
1995 and discussion below in "Liquidity and Capital Resources."
Liquidity and Capital Resources
Cash and cash equivalents decreased $636,000 during the three months
ended March 31, 1995. Cash flows used by operating activities of $920,000
exceeded cash flows from investing activities of $191,000 and cash flows from
financing activities of $93,000. Cash flows used by operating activities were
principally attributable to the Company's loss from operations and an
installment payment made in January, 1995 for unsecured claims arising from the
May, 1993 reorganization of New Dimensions. Cash flows from investing activities
consisted of $550,000 deposited in trust in December, 1994 used to fund an
installment payment in January, 1995 for unsecured claims arising from the May,
1993 reorganization of New Dimensions, less expenditures for retail fixtures of
$338,000 and expenditures for equipment of $21,000. Cash flows from financing
activities were attributable to an $850,000 short-term loan from a director of
the Company used to fund the $750,000 payment due the Company's former bank
lender under terms of the debt settlement agreement.
During the three months ended March 31, 1995, the Company's working
capital deficiency increased by $467,000. The increase in working capital
deficiency is principally attributable to the Company's loss from operations.
Cash and cash equivalents increased $243,000 during the year ended
December 31, 1994. Cash flows from financing activities of $4,701,000 exceeded
cash flows used by operating activities of $3,211,000 and cash flows used by
investing activities of approximately $1,247,000. Cash flows from financing
activities were attributable to funds provided by ARTRA through advances and a
contribution of capital and to a net overall increase in borrowings. Cash flows
<PAGE>
used by operating activities were principally attributable to the Company's loss
from operations, before the effect of depreciation and amortization and other
noncash operating expenses. Expenditures for warehouse and office equipment and
retail fixtures during the year ended December 31, 1994 were $697,000.
During the year ended December 31, 1994, the Company's working capital
deficiency decreased by $16,879,000 to $846,000. The decrease in working capital
deficiency is principally attributable to a net discharge of indebtedness under
terms of the Company's debt restructuring agreement with its bank lender as
discussed below and in Note 4 to the Company's Consolidated Financial
Statements.
In recent years, the Company has suffered significant operating losses,
principally at its New Dimensions subsidiary. As a result of the significant
operating loss incurred in 1992, on February 5, 1993, New Dimensions filed a
petition for reorganization under Chapter 11 of the Bankruptcy Code. On April 9,
1993, New Dimensions' reorganization plan was confirmed by an order of the
Bankruptcy Court and on May 3, 1993, the consummation date of the
reorganization, New Dimensions emerged from Chapter 11 bankruptcy court
protection. The plan, among other things, provided for New Dimensions' bank
lender to have the right to receive all of the issued and outstanding shares or
assets of New Dimensions immediately prior to the consummation date. The bank
then assigned its rights to receive the New Dimensions stock to a newly formed
Lori subsidiary, which was then merged into New Dimensions, for consideration of
$2,500,000, evidenced by New Dimensions' term loan note originally scheduled to
be payable in varying quarterly installments, commencing March 31, 1994 through
December 31, 1996. Lori assumed and guaranteed the balance of New Dimensions'
pre-bankruptcy loans payable to the bank, amounting to $12,036,000, including
accrued interest, which included the New Dimensions former line of credit and
the New Dimensions former term loan, net of New Dimensions' direct obligation
payable to the bank of $2,500,000 as noted above. The bank also provided New
Dimensions with a revolving line of credit, including a letter of credit
facility. Borrowings were limited to the lesser of $1,600,000 or a calculated
borrowing base.
On February 5, 1993, Lawrence entered into a credit agreement with
Lori's bank that provided for a revolving line of credit, which includes a
letter of credit facility. Borrowings were limited to the lesser of $2,100,000
or a calculated borrowing base.
Effective March 31, 1993 Rosecraft entered into agreements with a bank
that provided for a term loan of $2,977,000 and a revolving line of credit. The
revolving line of credit provided for borrowings, including a letter of credit
facility. Borrowings were limited to the lesser of $1,000,000 or a calculated
borrowing base, less outstanding letters of credit. In addition to the revolving
line of credit, the bank has provided an overadvance credit commitment of
$1,200,000.
Since December 31, 1993, Lori and its operating subsidiaries were not
in compliance with certain provisions of their respective bank loan agreements.
At December 31, 1993, borrowings under the bank loan agreements of Lori and its
operating subsidiaries totaled $21,952,000. In addition to scheduled
maturitities of $2,833,000 under the bank loan agreements of Lori and its
operating subsidiaries, the remaining borrowings of $19,119,000 under the bank
loan agreements of Lori and its operating subsidiaries were reclassified as
currently payable at December 31, 1993.
Effective August 18, 1994, Lori and Lori's operating subsidiaries
(collectively, the "Borrowers"), ARTRA and Fill-Mor entered into an agreement
with Lori's bank lender to settle obligations due the bank under terms of the
bank loan agreements of Lori and its operating subsidiaries. On December 13,
1994, Lori and Lori's operating subsidiaries were notified by the bank of
certain defaults under the Settlement Agreement, including but not limited to a
$1,115,000 payment due the bank on December 8, 1994. Prior to receipt of the
default notice and thereafter, ARTRA and Lori entered into negotiations with the
bank to amend or restructure the terms of the August 18, 1994 Settlement
Agreement.
Effective December 23, 1994, the Borrowers, ARTRA and Fill-Mor and the
bank entered into an amendment to the August 18, 1994 Settlement Agreement
("Amended Settlement Agreement"). Per terms of the Amended Settlement Agreement,
borrowings due the bank under the loan agreements of the Borrowers and Fill-Mor
(approximately $25,000,000 as of December 23, 1994), plus amounts due the bank
for accrued interest and fees were reduced to $10,500,000 as of December 23,
1994 (of which $7,855,000 pertained to Lori's obligation to the bank and
$2,645,000 pertained to Fill-Mor's obligation to the bank).
<PAGE>
Upon the satisfaction of certain conditions of the Amended Settlement Agreement
in March 1995, as discussed below, the balance of this indebtedness was
discharged.
In conjunction with the Amended Settlement Agreement, ARTRA entered
into a $1,850,000 short-term loan agreement with a non-affiliated corporation,
the proceeds of which were used to fund amounts due the bank as discussed below.
The loan, due June 30, 1995, with interest payable monthly at 10%, is
collateralized by 100,000 shares of Lori common stock. These 100,000 Lori common
shares were originally issued to the bank under terms of the August 18, 1994
Settlement Agreement.
In exchange for the reduction of amounts due the bank, and as
additional consideration for the $1,850,000 short-term loan agreement from the
non-affiliated corporation, the Borrowers, ARTRA and Fill-Mor agreed to pay the
following consideration, which supersedes the consideration agreed to under
terms of the August 18, 1994 Settlement Agreement:
A) A cash payment to the bank of $1,900,000, which was made prior
to consummation of the Amended Settlement Agreement.
B) 400,000 shares of ARTRA common stock.. These 400,000 ARTRA
common shares were originally issued to the bank under terms
of the August 18, 1994 Settlement Agreement. The bank retained
100,000 shares and the non-affiliated corporation received
300,000 shares as additional consideration for its short-term
loan.
C) Assignment to the bank of all of the assets of Lori's New
Dimensions subsidiary.
D) A $750,000 note payable to the bank due March 31, 1995.
Additionally, ARTRA advanced $400,000 to Lori to be used to fund the
installment payment due December 31, 1994 for unsecured claims arising from the
May 3, 1993 reorganization of New Dimensions.
The August 18, 1994 settlement agreement required ARTRA to contribute
cash of $1,500,000 to Lori for working capital. ARTRA's cash contribution was
funded by private placements of ARTRA common stock. An officer/director of Lori
participated in the private placement of ARTRA common stock purchasing $150,000
of ARTRA common stock (37,500 shares), subject to the same terms and conditions
as the other outside investors.
Lori recognized an extraordinary gain of $8,965,000 ($2.81 per share)
in December 1994 as a result of the reduction of amounts due the bank under the
loan agreements of the Borrowers and Fill-Mor to $10,500,000 (of which
$7,855,000 pertained to Lori's obligation to the bank and $2,645,000 pertained
to Fill-Mor's obligation to the bank) as of December 23, 1994. Lori also
recorded a charge against operations of $10,800,000 in December 1994 to
write-off New Dimensions' remaining goodwill.
On March 31, 1995 the $750,000 note due the bank was paid and the
remaining indebtedness of Lori and Fill-Mor was discharged, resulting in an
additional extraordinary gain to Lori and Fill-Mor of $6,657,000 ($1.79 per
share) in the first quarter of 1995. The $750,000 note payment was funded with
the proceeds of a $850,000 short-term loan from a director of Lori. The loan
provides for interest at the prime rate plus 1%. As consideration for assisting
in the debt restructuring, the director received 150,000 Lori common shares
valued at $337,500 ($2.25 per share) based upon Lori's closing market value on
March 30, 1995.
In recent years, New Dimensions has experienced a pattern of operating
losses primarily due to a shift in the buying patterns of its major customers
(i.e. certain mass merchandisers) from participation in the New Dimension's
service program to purchases of costume jewelry and accessories directly from
manufacturers. In the fourth quarter of 1994, New Dimensions' largest customer,
Wal-Mart, ended its participation in New Dimension's service program.
Accordingly, the assignment to the Company's bank lender of all of the assets of
the New Dimensions subsidiary in accordance with terms of the Amended Settlement
Agreement, resulted in New Dimensions ceasing its operations effective December
27, 1994. New Dimensions cessation of operations is not expected to have a
material adverse effect on the financial condition, liquidity or results of
operations of the Company in the immediate future.
<PAGE>
Lori anticipates that the successful completion of the restructuring of
its debt, plus additional working capital borrowings either from ARTRA or
external sources will permit it to fund its capital requirements in 1995. In
addition, the Company continues to restructure its operations and is attempting
to increase sales such that operating results will improve. If Lori is unable to
obtain working capital borrowings to fund its operations in 1995 and improve the
results of operations, it may be forced to liquidate its assets or file for
protection under the Bankruptcy Code.
Lori's 1995 business plan is based on the continued dependence upon
certain major customers.
The common stock and virtually all the assets of the Company and its
operating subsidiaries were pledged as collateral for the Company's and its
operating subsidiaries' bank loan agreements at December 31, 1994. Under its
debt agreements the Company is limited in the amounts it can withdraw from its
operating subsidiaries. At December 31, 1994 substantially all cash and
equivalents on the Company's consolidated balance sheet were restricted to use
by and for the Company's operating subsidiaries. At March 31, 1995, the common
stock and virtually all the assets of the Company and its operating subsidiaries
have been pledged as collateral for $850,000 short-term loan from a director of
Lori, the proceeds of which were used to fund the $750,000 note payment to the
bank under terms of the debt settlement agreement.
Due to the limited ability of the Company to receive funds from its
operating subsidiaries in recent years, effective July 1, 1989, ARTRA placed a
moratorium on the accrual of interest and the declaration and accrual of
dividends on its Lori note and preferred stock, respectively. The moratorium has
been extended indefinitely. Additionally, Lori has not paid dividends on its
common stock in recent years and no dividend payments are anticipated in the
immediate future.
During the three months ended March 31, 1995, ARTRA made net advances
of $93,000 to Lori. During 1994, ARTRA made net advances to Lori of $2,531,000.
The advances consisted of a $1,850,000 short-term note with interest at 10%, the
proceeds of which were used to fund the $1,900,000 cash payment to the bank in
conjunction with the Amended Settlement Agreement with Lori's bank lender, and
certain non-interest bearing advances used to fund Lori working capital
requirements. In addition , subsequent to March 31, 1995, ARTRA advanced Lori an
additional $150,000 and Lori borrowed $500,000 from private investors, evidenced
by short -term notes. The proceeds from the above advances and loans were used
to fund working capital requirements.
Effective December 29, 1994 ARTRA exchanged $2,242,000 of its notes and
advances for additional Lori Series C preferred stock. Additionally, the August
18, 1994 Settlement Agreement required ARTRA to contribute cash of $1,500,000
and ARTRA common stock with a fair market value of $2,500,000 to Lori's capital
account.
In February, 1993, ARTRA transferred all of its notes (with a principal
value of $15,990,000) to Lori's capital account.
Rosecraft, Lawrence and Lori's corporate entity have no material
commitments for capital expenditures.
Results of Operations
Three Months Ended March 31, 1995 vs Three Months Ended March 31, 1994
The assignment to the Company's bank lender of all of the assets of the
New Dimensions subsidiary in accordance with terms of the debt settlement
agreement, resulted in New Dimensions terminating its operations effective
December 27, 1994. The results of operations for the three months ended March
31, 1994 included New Dimensions net sales of $3,551,000 and operating loss of
$485,000. New Dimensions terminated operations effective December 27, 1994
Net sales of $4,944,000 for the three months ended March 31, 1995 were
$4,325,000, or 46.7%, lower than net sales for the three months ended March 31,
1994. The 1995 sales decrease is principally attributable the termination of New
Dimensions operations effective December 27, 1994 and a soft retail environment
in 1995.
<PAGE>
The Company's cost of sales of $2,863,000 for the three months ended
March 31, 1995 decreased $2,234,000 as compared to the three months ended March
31, 1994. Cost of sales in the three months ended March 31, 1995 was 57.9% of
net sales compared to a cost of sales percentage of 55.0% for the three months
ended March 31, 1994. The 1995 cost of sales decrease is principally
attributable to the decrease in sales volume due to the termination of New
Dimensions operations effective December 27, 1994. The cost of sales percentage
increase of 2.9% is primarily attributable to a soft retail environment that
resulted in depressed operating margins.
Selling, general and administrative expenses in the three months ended
March 31, 1995 decreased $2,452,000 as compared to the three months ended March
31, 1994. Selling, general and administrative expenses were 43.1% of net sales
in the three months ended March 31, 1995 as compared to 49.4% of net sales in
the three months ended March 31, 1994. The decrease in selling, general and
administrative expenses is attributable to the decrease in sales volume due to
the termination of New Dimensions operations effective December 27, 1994. The
decrease in selling, general and administrative expenses as a percentage of net
sales is attributable to certain cost reduction efforts of the Company and its
operating subsidiaries.
Operating loss in the three months ended March 31, 1995 was $186,000 as
compared to operating loss of $773,000 in the year ended three months ended
March 31, 1994. The decreased 1995 operating loss is principally attributable to
New Dimensions, which terminated operations effective December 27, 1994.
Interest expense in the three months ended March 31, 1995 decreased
$429,000 as compared to the three months ended March 31, 1994. The 1995 decrease
is principally due the settlement agreement with the Company's bank lender. See
Note 2 to the Company's condensed consolidated financial statements.
The 1995 extraordinary credit represents a net gain from discharge of
bank indebtedness. No income tax expense is reflected in the Company's financial
statements resulting from the extraordinary credit due to the utilization of tax
loss carryforwards. Due to the Company's tax loss carryforwards and the
uncertainty of future taxable income, no income tax benefit was recognized in
connection with the Company's 1994 pre-tax loss.
Year Ended December 31, 1994 vs Year Ended December 31, 1993
Net sales of approximately $34,400,000 for the year ended December 31,
1994 were approximately $11,600,000, or 25.2%, lower than net sales for the year
ended December 31, 1993. The 1994 results of operations include New Dimensions
net sales of approximately $13,700,000 and operating loss of approximately
$2,100,000 before a write-off of goodwill. The 1994 sales decrease is
principally attributable to the combination of a soft retail environment, a
planned reduction of in-store inventory levels by certain major customers in
1994 and a shift in the buying patterns of certain mass merchandisers from
participation in the Company's service program to purchases of costume jewelry
and accessories directly from manufacturers.
The Company's cost of sales of approximately $21,100,000 for the year
ended December 31, 1994 decreased approximately $3,700,000 as compared to the
year ended December 31, 1993. Cost of sales in the year ended December 31, 1994
was 61.2% of net sales compared to a cost of sales percentage of 58.3% for the
year ended December 31, 1993. The 1994 cost of sales decrease is principally
attributable to the decrease in sales volume as noted above. The cost of sales
percentage increase of 3.9% is primarily attributable to a soft retail
environment that resulted in depressed operating margins.
Selling, general and administrative expenses in the year ended December
31, 1994 decreased approximately $1,500,000 as compared to the year ended
December 31, 1993. Selling, general and administrative expenses were 50.2% of
net sales in the year ended December 31, 1994 as compared to 40.8% of net sales
in the year ended December 31, 1993. The decrease in selling, general and
administrative expenses is attributable to the decrease in sales volume. The
increase in selling, general and administrative expenses as a percentage of net
sales is attributable to the semi-fixed nature of these expenses.
As partial consideration per the terms of its debt settlement agreement
with its bank lender the Company assigned the bank all of the assets of it's New
Dimensions subsidiary. Accordingly, the Company recorded a charge against
operations of $10,800,000 in December 1994 representing a write-off of New
Dimensions' remaining goodwill.
<PAGE>
Operating loss in the year ended December 31, 1994 was approximately
$16,200,000 as compared to operating earnings of approximately $900,000 in the
year ended December 31, 1993. The 1994 operating loss is principally
attributable to the write-off of New Dimensions goodwill, plus the combination
of a soft retail environment, a planned reduction of in-store inventory levels
by certain major customers in 1994 and a shift in the buying patterns of certain
mass merchandisers from participation in the Company's service program to
purchases of costume jewelry and accessories directly from manufacturers.
Interest expense in the year ended December 31, 1994 increased
approximately $400,000 as compared to the year ended December 31, 1993. The 1994
increase is principally due the effect of an increase in the prime rate.
Due to the Company's tax loss carryforwards and the uncertainty of
future taxable income, no income tax benefit was recognized in connection with
the Company's 1994 and 1993 pre-tax losses from continuing operations. The 1994
and 1993 extraordinary credits represent net gains from discharge of
indebtedness. No income tax expense is reflected in the Company's financial
statements resulting from the extraordinary credits due to the utilization of
the Company's tax loss carryforwards.
Year Ended December 31, 1993 vs Year Ended December 31, 1992
Net sales of approximately $46,100,000 for the year ended December 31,
1993 were approximately $29,400,000, or 38.9%, lower than net sales for the year
ended December 31, 1992. The 1993 sales decrease is primarily attributable to
the New Dimensions reorganization which resulted in a reduction of New
Dimensions' operating focus to certain product lines which management believes
will permit New Dimensions to continue its ongoing operations. In early 1993,
Wal-Mart ended its participation in New Dimensions' "Contempra" service program,
although Wal-Mart continued to be a significant customer for New Dimensions'
"Sarah Coventry" line of ladies costume jewelry and Trilko key chains through
New Dimensions' service program. Due primarily to the discontinuance of the
"Contempra" service program with Wal-Mart and other New Dimensions customers, in
conjunction with its Chapter 11 reorganization, New Dimensions terminated its
in-house service staff early in 1993 and contracted with the Lori's Lawrence
subsidiary to conduct its remaining service program. Additionally, in June, 1992
Rosecraft closed its Ladies line of fashion costume jewelry in order to
concentrate on its higher margin Children's line of fashion costume jewelry and
accessories.
The Company's cost of sales of approximately $24,800,000 for the year
ended December 31, 1993 decreased approximately $29,500,000 as compared to the
year ended December 31, 1992. Cost of sales in the year ended December 31, 1993
was 53.8% of net sales compared to a cost of sales percentage of 72.0% for the
year ended December 31, 1992. The 1993 cost of sales decrease is principally
attributable to the decrease in sales volume as noted above. The cost of sales
percentage decrease of approximately 18.2% is primarily attributable to
management's efforts to concentrate on higher margin lines of jewelry and
accessories in 1993, and to costs incurred in 1992 related to discontinued lines
of business.
Selling, general and administrative expenses in the year ended December
31, 1993 decreased approximately $19,300,000 as compared to the year ended
December 31, 1992. Selling, general and administrative expenses were 40.8% of
net sales in the year ended December 31, 1993 as compared to 50.4% of net sales
in the year ended December 31, 1992. The decrease in selling, general and
administrative expenses is primarily attributable to a combination of the 1993
decrease in sales volume and to management's aggressive cutting of fixed
overhead costs that began in the second half of 1992.
Depreciation and amortization expense decreased approximately $600,000
in the year ended December 31, 1993 as compared to the year ended December 31,
1992. The decrease is primarily attributable to the New Dimensions
reorganization.
As of December 31, 1992, the Company's New Dimensions subsidiary
recorded a charge to operations of $8,664,000 representing an impairment of
goodwill at December 31, 1992.
During 1992 the Company's subsidiaries incurred restructuring costs
aggregating $1,575,000. In June, 1992, Lori's Rosecraft subsidiary closed its
Ladies line of fashion costume jewelry in order to concentrate on its higher
margin Children's line of fashion costume jewelry and accessories. The closing
of Rosecraft's Ladies line resulted in a charge to operations of $900,000
representing principally inventory liquidation costs, lease termination costs
and employee severance costs. In the fourth quarter of 1992,
<PAGE>
Lori's New Dimensions subsidiary closed certain of its "Whims" retail outlet
stores and made the decision to close additional "Whims" retail outlet stores
and its New York City sales and executive office in 1993. The closing of the
"Whims" retail outlet stores and the New York City sales and executive office
resulted in a charge to operations of $675,000 representing principally
inventory liquidation costs, lease termination costs and employee severance
costs.
Operating earnings in the year ended December 30, 1993 were
approximately $900,000 as compared to an operating loss of approximately
$29,200,000 in the year ended December 31, 1992. The 1993 operating earnings are
principally attributable to the New Dimensions reorganization which resulted in
a reduction of New Dimensions' operating focus to certain product lines which
management believed would be better received in the market than discontinued
lines and to costs incurred in 1992 related to discontinued lines of business.
Due to the Company's tax loss carryforwards and the uncertainty of
future taxable income, no income tax benefit was recognized in connection with
the Company's 1993 pre-tax loss from continuing operations. The 1993
extraordinary credit represents a gain from a net discharge of indebtedness at
Lori's New Dimensions subsidiary. No income tax expense is reflected in the
Company's financial statements resulting from the extraordinary credit due to
the utilization of Lori's tax loss carryforwards. Due to the Company's tax loss
carryforwards, no income tax benefit was recognized in connection with the
Company's 1992 pre-tax loss.
Seasonality
Retail sales of the Company's products are higher during the Spring
(February through April) and Christmas (September through November) seasons. As
a result of these seasonal factors, the Company's inventories of finished goods
reach peak levels just prior to these periods and are generally lower during the
balance of the year.
Impact of Inflation and Changing Prices
Inflation has become a less significant factor in our economy; however,
to the extent permitted by competition, the Company generally passes increased
costs to its customers by increasing sales prices over time.
<PAGE>
BUSINESS AND PROPERTIES
General
The Lori Corporation ("Lori" or "the Company"), a Delaware Corporation
incorporated in 1969, operates in one industry segment (a designer and
distributor of popular-priced fashion costume jewelry). Lori's operations are
conducted through its wholly-owned subsidiaries:
Lawrence Jewelry Corporation ("Lawrence")
Rosecraft, Inc. ("Rosecraft")
During most of 1994, the Company also conducted operations its
wholly-owned subsidiary, New Dimensions Accessories, Ltd. ("New Dimensions"),
formerly R. N. Koch, Inc. See "Business and Properties - Operating
Subsidiaries."
On February 8, 1985, the Company acquired all of the capital stock of
New Dimensions. On June 4, 1986, Lori acquired all of the capital stock of
Rosecraft. Finally on October 22, 1986, Lori acquired all of the capital stock
of Lawrence.
ARTRA GROUP Incorporated ("ARTRA"), a public company whose shares are
traded on the New York Stock Exchange, owns, through a wholly-owned subsidiary,
approximately 64.3% of the outstanding common stock of Lori and Lori's entire
preferred stock issue. At December 31, 1994, ARTRA's interest in Lori common
stock and Lori preferred stock was pledged as collateral for a bank loan to a
wholly-owned ARTRA subsidiary that is the parent of Lori.
The fashion jewelry business is highly competitive. The Company
competes primarily with other fashion jewelry designers and distributors. Sales
of fashion jewelry have not returned to the levels experienced prior to the
general economic recession in the United States in 1990-1991. Despite the
broad-based recovery in the United States economy which has been evident at
least since the third quarter of 1993, sales of fashion jewelry products have
not returned to pre-recession levels. Although the fashion jewelry industry has
traditionally been regarded as cyclical, the failure of fashion jewelry sales to
rebound with the economy suggests that the current industry conditions reflect a
fundamental adverse change in the industry rather than merely the trough in a
cycle. Among the factors which have been identified as contributing to the
recession in the fashion jewelry industry are (i) current fashion, which favors
a minimum of jewelry and adornment; (ii) the general trend in the United States
toward more casual attire in office and evening wear, with which attire no
jewelry or a minimum of jewelry is worn; and (iii) the recessionary environment
in the fine jewelry industry, which has resulted in fine jewelry manufacturers
and distributors lowering prices and making available lower cost items, such as
10 karat gold jewelry, to increase market share at the expense of fashion
jewelry distributors.
The continuing recession in the fashion jewelry industry has resulted
in a number of competitors ceasing operations (in what is commonly referred to
as a "shake out" in the industry). Many of the remaining competitors have taken
steps designed to strengthen their positions in the markets or, in certain
instances, simply to enable them to survive. These steps include improving
operating efficiencies in the manufacturing or sourcing of goods, reducing
staff, pressuring suppliers to lower costs or identifying new suppliers willing
to do so, and accepting lower profit margins or increasing the use of service
programs under which goods unsold by the retailer are accepted for return (or,
alternatively, increasing the guaranteed profit margins of the retailers). The
implementation of these steps by various competitors has resulted in
significantly heightened competition in the fashion jewelry industry.
Competitive pressure has also been introduced in the industry by
national discount department store chains. Tactics employed by these
increasingly powerful chains have included (i) direct sourcing of "knock-offs"
of the most successful lines or items sold, (ii) pressuring distributors such as
Lori's operating subsidiaries to accept returns of unsold goods, (iii) delaying
or withholding payments on other orders, threatening to suspend future business
or unilaterally terminating other orders, and (iv) selling competitors' jewelry
lines side-by-side. As these national chains continue to capture market share
and drive regional chains and independently-owned stores out of business, their
buying departments will have an increasing ability to dictate pricing in the
fashion jewelry industry.
<PAGE>
Due to the conditions noted above, in recent years, the Company has
suffered significant operating losses. No assurances can be given that either
the business and operations of Lori or the market conditions in the fashion
jewelry industry generally will improve in the immediate future.
Since December 31, 1993 and during 1994, Lori and its operating
subsidiaries were not in compliance with certain provisions of their respective
bank loan agreements. As discussed in Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations," on August 18, 1994,
as amended December 23, 1994, ARTRA, Lori's parent, Fill-Mor Holding, Inc.
("Fill-Mor"), Lori and Lori's operating subsidiaries entered into an agreement
with Lori's bank lender to settle obligations due the bank under terms of the
bank loan agreements of Lori and its operating subsidiaries and Fill-Mor. Under
terms of the amended settlement agreement, as partial consideration, the bank
lender received all of the assets of New Dimensions and New Dimensions
terminated operations effective December 27, 1994. The operations of the
Company's other subsidiaries, Lawrence and Rosecraft, are continuing as
discussed below.
Operating Subsidiaries
Each of the Lori operating subsidiaries is a distributor of fashion
jewelry. The Lori operating subsidiaries contract with outside sources for the
manufacture of the jewelry it sells. Management believes that the loss of any
one of its suppliers would not have a material adverse effect on its business
because an adequate number of other suppliers are available. This jewelry is
manufactured from readily available materials, which include gold, brass, steel,
copper, zinc, plastics, glass stones, lacquer and enamel. Management believes
that there is currently an ample supply of the raw materials needed by its
suppliers to manufacture its jewelry and that multiple sources of supply exist.
Lawrence. Lawrence is engaged in the distribution and sale of a full
line of popular-priced fashion costume jewelry and fashion accessories to mass
merchandise retailers, department stores and specialty stores throughout the
United States. Lawrence's sales are subject to seasonal fluctuations with peak
selling seasons consisting of Spring (March/April), Back-to-School and Christmas
(October/November). A majority of Lawrence's annual sales involve the sale of
fashion costume jewelry. Lawrence markets over 3,500 different styles of costume
jewelry items annually. Approximately 95% of Lawrence's products are marketed
though its full service sales program, designed to provide customers with a
continuous flow of merchandise. Services provided under this program include
packaging, price pre-ticketing, stocking, merchandise display and inventory
control.
Lawrence has approximately 20 customers with approximately 2,500 retail
outlets in the United States. Among them are department stores, mass
merchandisers, chain stores, specialty stores, boutiques, children's stores and
gift stores. Lawrence sells all of its products directly to its customers who,
on a limited basis, may be offered extended payment terms beyond 30 days
depending upon their trade practices and financial strength. Lawrence does not
have sales contracts with its customers.
Lawrence believes it is one of a number of significant costume jewelry
companies. Some of these, however, are national suppliers which have greater
financial resources than Lawrence. Lawrence competes largely through the ability
of its full time staff of professional marketing and service representatives to
meet customers' needs for continuity and timeliness of service and through the
ability of its staff to identify fashion trends and develop appropriate
products.
Lawrence has recently expanded its business to include outside retail
support services to non-jewelry companies. Lawrence views this relatively new
market as a potentially significant source of additional revenue.
Rosecraft. Rosecraft is a creator, designer, importer and distributor
on a direct basis of popular-priced fashion costume jewelry and related
accessories for children which is sold in junior specialty chains, department
and specialty stores and mass merchandise retailers throughout the United
States. Rosecraft offers over 1,700 styles of earrings, necklaces, bracelets,
hair and other fashion accessories. Many items are sold under the trademark
"Rosecraft Kids", which is a recognized name in children's fashion jewelry and
related accessories. Rosecraft employs designers to develop fashion costume
jewelry and accessories to satisfy consumer demand and is responsible for
creating items to provide new merchandise for Rosecraft's customers.
Approximately 80% of Rosecraft's products are imported from the Far East with
the remaining 20% of its products purchased
<PAGE>
from domestic manufacturers. Rosecraft believes that multiple sources of supply
exist for its line of children's fashion costume jewelry and accessories.
Rosecraft has approximately 275 active customers with approximately
4,000 retail outlets in the United States. Rosecraft sells all of its products
directly to its customers who, on a limited basis, may be offered extended
payment terms beyond 30 days depending upon their trade practices and financial
strength.
Rosecraft does not have sales contracts with its customers.
Rosecraft believes that it competes in a fragmented industry with many
regional suppliers and a few national suppliers, some of whom have greater
financial resources than Rosecraft. Rosecraft competes on the basis of design,
price, quality, delivery time and customer service.
In June, 1992, Rosecraft closed its Ladies line of fashion costume
jewelry in order to concentrate on its higher margin Children's line of fashion
costume jewelry and accessories. During the year ended December 31, 1992, the
Ladies line accounted for approximately 16% of Rosecraft's sales. The closing of
Rosecraft's Ladies line resulted in a charge to operations of $900,000. The
restructuring charge included inventory liquidation costs, lease termination
costs and employee severance costs.
New Dimensions. As discussed above, under terms of the amended
settlement agreement, Lori's bank lender received all of the assets of New
Dimensions and New Dimensions terminated operations effective December 27, 1994.
Previously, New Dimensions was principally engaged in the design, distribution
and sale of popular-priced fashion costume jewelry and key chains to mass
merchandise retailers throughout the United States. New Dimensions' operations
were conducted principally through its service program in which New Dimensions
provided product, packaging, price pre-ticketing, stocking, merchandise display
and inventory control of the costume jewelry sold through its customers' retail
outlets.
Plan of Operations
During the balance of 1995, management intends to consolidate the
purchasing, warehousing and distribution functions of the two operating
subsidiaries in order to reduce overhead costs as well as to standardize the
inventory control, sales reporting and accounting functions of these
subsidiaries. Lori will, however, preserve the distinct sales, account
management and creative/design functions of the operating subsidiaries. No
assurances can be given that the Company's objectives will be realized.
Major Customers
Two major customers, Target Stores and Wal-Mart, accounted for sales of
approximately $12,700,000 and $11,300,000, respectively, in 1994. The Company
believes it has developed a strong relationship with Target Stores and that its
service program has historically generated significant profits for this
customer. Nevertheless, there can be no assurance that Target Stores will
continue its business relationships with the Company. Termination of this
relationship would have a material adverse effect on the Company's sales and
earnings if the Company was not able to replace sales to this customer on a
timely basis. During the fourth quarter of 1994, New Dimensions lost its account
with Wal-Mart, which accounted for the principal portion of the Company's sales
to Wal-Mart (although Wal-Mart remains a Rosecraft customer). The loss of the
Wal-Mart account contributed to management's decision to assign all of the
assets of New Dimensions as consideration for the agreement with Lori's bank
lender to settle obligations due the bank under terms of the bank loan
agreements of Lori and its operating subsidiaries as discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 4 to the Company's Consolidated Financial Statements. Accordingly, New
Dimensions terminated operations effective December 27, 1994.
<PAGE>
Employees
At December 31, 1994, the Company employed approximately 600 persons,
including approximately 350 part-time service representatives engaged by the
Lawrence subsidiary. The Company considers its relationships with its employees
to be good.
Environmental Concerns
Unless otherwise stated, management is unable to assess whether Lori
will be found liable in the matters described below or to predict the amount of
liability, if any.
Lori, formerly known as APECO Corporation (and prior thereto, as
American Photocopy Equipment Company), operated in excess of 20 manufacturing
facilities in the United States prior to its entry in the jewelry business in
1985. The former operations of the Company included the manufacture of photocopy
machines, photographic chemicals, paper coatings, pleasure boats, recreational
vehicles, modular and mobile homes, marine windshields and gasoline tanks. These
operations were sold or discontinued in the late 1970s and early 1980s. In
addition, Lori's Rosecraft subsidiary and its predecessors formerly used its
facility to manufacture, assemble and finish jewelry.
Certain of these facilities may have used and/or generated hazardous
materials and may have disposed of the hazardous substances, directly or through
third party waste disposal firms at various off-site waste disposal locations,
in most cases before laws had been enacted governing the safe disposal of
hazardous substances. The number of these off-site waste disposal locations that
may have been used by third party waste disposal contractors is neither known
nor reasonably determinable by the Company.
Although the controlling stockholder and current management had no
involvement in any manufacturing operations other than the jewelry operations,
the Company could ultimately be held to be responsible for clean-up costs at all
of these manufacturing sites or at off-site waste disposal locations under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), or under other Federal or state environmental laws now or hereafter
enacted. This responsibility would include activities which occurred prior to
the Company's filing of a petition under Chapter 11 of the Bankruptcy Code in
November 1977. Leading Federal courts have held that environmental liabilities
under CERCLA are not discharged by a bankruptcy petition filed prior to the
enactment of CERCLA in 1980, as in the Company's case, since no claims could
have arisen prior to the filing of the petition. Although Lori has been notified
by the Federal Environment Protection Agency that it is a potentially
responsible party for the disposal of hazardous substances by its predecessor
company at a site on Ninth Avenue in Gary, Indiana, it has no records indicating
that it deposited hazardous substances at this site and intends to vigorously
defend itself in this matter.
Lori was unable to conduct a comprehensive audit of potential
environmental liability at the facilities formerly owned or operated by Lori or
its predecessors and their subsidiaries since it is no longer the owner or
operator of most of the properties at which it or its predecessors or their
affiliates conducted manufacturing operations and did not keep records of the
companies with which it contracted for the disposal of wastes before such
record-keeping became mandated by law. Although a comprehensive review of public
records located at the state, local and Federal levels, of internal documents
(if available) respecting off-site hazardous materials disposal and of available
computer data bases could reveal additional potential liabilities to Lori for
the costs of environmental clean-up, the cost of conducting such a review is
prohibitively expensive.
In addition, even if Lori is not found to be responsible for clean-up
costs at any particular site, the costs of defending itself in any proceedings
or inquiries instituted by the EPA, any state environmental agencies or private
parties could itself be significant. As described under "Risk Factors - Need for
Additional Funds," Lori has limited funds available to it, including for its
legal defense. In certain cases, Lori may be unable to raise the funds needed to
mount an adequate (or any) defense against the claims raised, even if it has
legal grounds to do so. This problem may become acute if the cases against Lori
proliferate due to the identification of additional off-site waste disposal
locations at which third party waste disposal contractors disposed of hazardous
substances generated by Lori and its predecessors, directly or through
subsidiaries.
<PAGE>
Properties
The following table sets forth a brief description of the properties of
the Company and its subsidiaries. Lori and its subsidiaries believe that all of
their facilities are adequate for their present and reasonably anticipated
future business requirements.
<TABLE>
<CAPTION>
Location General Description Ownership
----------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
Eden Prairie, MN Headquarters and distribution facility of approximately Leased, expiring in 1995
42,000 sq. ft.
New York, NY Showroom of approximately 4,300 sq. ft. Leased, expiring in 1996
Woonsocket, RI Distribution facility of approximately 86,200 sq. ft. Leased, expiring in 1996
</TABLE>
LEGAL PROCEEDINGS
In addition to the matters described below, reference is made to
"Business and Properties - Environmental Concerns," under which pending and
potential proceedings involving environmental matters are discussed. Unless
otherwise stated, management is unable to assess whether Lori will be found
liable in the cases discussed or to predict the amount of liability, if any.
1. On February 5, 1993, Lori's New Dimensions subsidiary filed a
petition for reorganization under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the Southern District of New York (Case No.
93 B 40653). On April 9, 1993, New Dimensions' reorganization plan was confirmed
by an order of the Bankruptcy Court. On May 3, 1993, the consummation date of
the reorganization, New Dimensions emerged from Chapter 11 bankruptcy court
protection. See Note 5 to the Company's Consolidated Financial Statements for a
discussion of the terms of New Dimensions' plan of reorganization.
2. As a result of the time required to complete the restructuring of
New Dimensions and the financial significance to Lori of the restructuring, Lori
did not timely file Form 10-K for the year ended December 31, 1992 and Form 10-Q
for the quarter ended March 31, 1993 and has also been late in previous annual
and quarterly filings with the Securities and Exchange Commission ("SEC"). As a
result of discussions with the SEC, in June, 1993, Lori readily consented to a
Final Judgment of Permanent Injunction to file with the SEC Form 10-K for the
year ended December 31, 1992 and Form 10-Q for the quarter ended March 31, 1993
by late July and to meet future filing requirement deadlines.
<PAGE>
MARKET PRICE OF THE COMPANY'S COMMON STOCK
The Company's common stock, $.01 par value, is traded on the American
Stock Exchange ("AMEX"). The Company currently does not meet certain of the
requirements for maintaining its listing on the AMEX and the AMEX is reviewing
the status of the Company's listing on the exchange.
The high and low sales prices for Lori's common stock, as reported by
the AMEX during the past two years, were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------------------- ----------------------- ----------------------
High Low High Low High Low
------- --------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
First quarter 3 - 7/8 1 - 15/16 6 5 2 - 1/8 3/4
Second quarter 7 - 1/8 3 - 1/8 3 2
Third quarter 8 - 1/8 5 - 1/4 5 - 3/4 2 - 3/8
Fourth quarter 6 - 3/8 1 - 7/8 8 - 1/2 5 - 3/8
</TABLE>
No dividends were paid in 1994 or 1993, nor are any anticipated in
1995. In recent years the Company was prohibited from paying dividends to its
stockholders pursuant to the terms of its bank loan agreement. In addition, the
Company's operating subsidiaries were prohibited from or restricted in paying
dividends or making distributions to Lori under their respective bank loan
agreements (except for limited overhead allocations payable to the parent
entity). Accordingly, even if Lori were permitted to pay dividends to its
stockholders, the restrictions or limitations on its operating subsidiaries in
upstreaming payments had prohibited the payment of dividends by Lori. Due to
current working capital restraints, the payment of dividends to Lori's
stockholders in the foreseeable future is considered unlikely. See Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of the loan agreements of the Company and its
operating subsidiaries.
As of June 15, 1995, there were approximately 5,600 shareholders of
record.
<PAGE>
DESCRIPTION OF THE COMPANY'S SECURITIES
General
The authorized capital stock of the Company consists of (i) 10,000,000
shares of common stock having a par value of $.01 per share, of which 3,315,004
shares have been issued and are outstanding as of the date hereof, and (ii)
1,000,000 shares of Preferred Stock, par value $1,000 per share, which may be
issued in one or more series with such rights and preferences as determined by
the Board of Directors, of which 9,701 shares of a series designated "Series C
Preferred Stock" have been issued and are outstanding as of the date hereof. As
of June 15, 1995, there were approximately 5,600 holders of record of the
Company's common stock.
As of June 15, 1995, ARTRA owned 9,701 shares (being all of the issued
and outstanding shares) of Lori's Series C Preferred Stock. The Series C
Preferred Stock has no voting rights for the election of Directors; however, the
approval of 66-2/3% of the outstanding Series C Preferred Stock is required for
significant corporate actions, including, in certain circumstances, business
combinations and charter amendments affecting its preferences.
Common Stock
The Company has not paid any cash dividends on its common stock in
recent years and does not anticipate paying any such dividends in the
foreseeable future. The Company is prohibited from paying dividends to its
stockholders pursuant to the terms of the Schroder Loan. In addition, the
Company's operating subsidiaries, New Dimensions, Lawrence and Rosecraft, are
also prohibited under the terms of the Schroder Loan from paying cash dividends
to the Company. Accordingly, even if Lori were permitted to pay dividends to its
stockholders, the restrictions or limitations on these operating subsidiaries in
upstreaming payments would make payment of dividends by Lori unlikely.
Payment of dividends by Lori is further unlikely due to the significant
cumulated dividends on Lori's Series C Preferred Stock which must be paid prior
to the payment of dividends on the common stock. ARTRA, as the holder of all of
Lori's common stock, is entitled to dividends or other distributions if, as and
when declared out of funds legally available therefor after payment of any
dividends required to be paid in respect of any preferred stock then
outstanding. Upon liquidation, each share of common stock is entitled to share
equally in any assets remaining after payment of liabilities and any liquidation
preferences to the holders of any preferred stock then outstanding. Since Series
C Preferred Stock is presently outstanding, no dividends may be declared and
paid upon or accrued for the common stock unless and until ARTRA, as the holder
of the Series C Preferred Stock, has received all accrued, unpaid dividends to
which it is entitled, as described below under "Description of the Company's
Securities - Series C Preferred Stock."
As described under "Description of the Company's Securities - Blank
Check Preferred Stock," pursuant to the Certificate of Incorporation of the
Company, the Board of Directors may, without stockholder approval authorize the
issuance of such other series of preferred stock with dividend rights and
liquidation preferences prior and superior to those of the common stock. In the
event the Board of Directors authorizes one or more additional series of
preferred stock, the ability of the Company to pay dividends or other
distributions to the holders of the common stock may be further limited and
could have the effect of making the acquisition of the Company more difficult or
unattractive or uneconomic for a potential hostile acquirer.
The no par value common stock of the Company is not subject to any
conversion or redemption provisions and the holders thereof are not provided any
pre-emptive rights. All outstanding shares of the common stock of the Company
are fully-paid and non-assessable.
See also "Description of the Company's Securities - Series C Preferred
Stock."
<PAGE>
Series C Preferred Stock
Following is a brief description of the rights and preferences of the
Series C Preferred Stock. No shares of Series C Preferred Stock are being
offered hereby, but the rights of the holders of common stock are affected by
the rights and preferences of the Series C Preferred Stock.
The holder of the Series C Preferred Stock is entitled to receive
dividends at the per annum rate of 13% of the Liquidation Value thereof (as
described below), and no distributions in liquidation of the assets of the
Company may be paid in respect of the common stock unless and until the holder
of the Series C Preferred Stock has received a distribution equal to the
Liquidation Value. The Liquidation Value of the Series C Preferred Stock is
presently $2,011.65 per share or $19,515,000 in the aggregate, being the sum of
(i) initial selling price thereof ($1,1288.94 per share or $12,504,000 in the
aggregate) and (ii) the amount of unpaid, cumulated dividends thereon ($722.71
per share or $7,011,000 in the aggregate).
The designation of rights and preferences of the Series C Preferred
Stock provides that dividends on the Series C Preferred Stock shall cumulate
quarterly until paid. Dividends on the Series C Preferred Stock were cumulated
quarterly from the date of issuance until July 1, 1989. On July 1, 1989, a
moratorium on the cumulation of dividends on the Series C Preferred Stock became
effective. This moratorium has been extended indefinitely by agreement of ARTRA
and Lori; however, no assurances can be given that the moratorium will not be
lifted, in which event preferential dividends will again cumulate in respect of
the Series C Preferred Stock. As noted above, through July 1, 1989, $7,011,000
of dividends had accumulated.
No dividends or distributions upon liquidation may be paid to the
holders of common stock if there is any deficiency in the payment of Series C
Preferred Stock dividends and, in the case of distributions upon liquidation, of
a liquidation preference equal to the Liquidation Value above described.
The Series C Preferred Stock is subject to optional redemption at a
redemption price equal to the Liquidation Value plus a premium. Lori does not at
present have available funds to do so.
The Series C Preferred Stock is not convertible into common stock and
no pre-emptive rights have been granted with respect to the Series C Preferred
Stock.
Stockholder Voting
Each share of common stock has equal voting rights and each share shall
be entitled to one vote in all matters in which stockholders shall be entitled
to vote. The Certificate of Incorporation provides for cumulative voting in the
election of directors. Therefore, every stockholder entitled to vote for
directors shall have the right, in person or by proxy, to multiply the number of
votes to which he or she may be entitled by the total number of directors to be
elected in the same election, and he or she may cast the whole number of such
votes for one candidate or may distribute them among any two or more candidates.
Without cumulative voting, the holders of a majority of the shares present or
represented at an annual meeting would be able to elect all the directors to be
elected at that meeting, and no person could be elected without the support of a
majority of the stockholders.
Except for certain extraordinary matters, including those described
below, the holders of Series C Preferred Stock do not have any voting rights.
The designation of rights and preferences of the Series C Preferred Stock
provides that the favorable vote of 66-2/3% of the outstanding shares of Series
C Preferred Stock is required to approve any amendment to the Company's
Certificate of Incorporation which adversely affects the rights and preferences
of the Series C Preferred Stock. The designation of rights and preferences of
the Series C Preferred Stock further provides that the holders of 66-2/3% of the
Series C Preferred Stock must approve the Company's merger or consolidation with
another corporation, its sale of all or substantially all of its assets or its
liquidation, unless the Company is the surviving corporation in a merger or
consolidation, the rights and preferences of the Series C Preferred Stock are
not changed or the outstanding shares of Series C Preferred Stock are not
exchanged for cash, property or securities. In addition, the designation of
rights and preferences of the Series C Preferred Stock provides that, without
the consent of the holders of 66-2/3% of the Series C Preferred Stock, the
Company shall not (i) issue any equity security which is senior to or on parity
with the Series C Preferred Stock or permit any subsidiary to issue any equity
<PAGE>
security, except, in either case, pursuant to stock option plans, (ii) pay any
dividend on the common stock of the Company or of any subsidiary of the Company
prior to the payment of all cumulated dividends on the Series C Preferred Stock,
or (iii) purchase, redeem or acquire any common stock.
Certain provisions of the Delaware General Corporation Law are designed
to deter hostile takeovers. If the directors of a target company oppose a
takeover but an interest in the target company is nonetheless acquired by an
"interested stockholder" (defined below) or any affiliates or associates
thereof, the target company is not permitted to enter into a "business
combination" (defined below) with any interested stockholder for a three year
period unless the transaction is approved by the board of directors and 66-2/3%
of the stockholders who are not interested stockholders. These restrictions do
not apply if the board of the target company approves a person's becoming an
interested stockholder and in certain cases in which the board approves a
takeover by another person and the interested stockholder competitively bids for
shares of the target company. A "business combination" includes a merger, the
sale of assets, transactions which increase the interested stockholder's
percentage ownership interest of the company's stock and, with certain
exceptions, transactions in which the interested stockholder receives a
financial benefit by or through the company. Subject to certain exceptions, an
"interested stockholder" is the beneficial owner of 15% or more of the target
company's voting stock.
"Blank Check" Preferred Stock
The Certificate of Incorporation of the Company authorizes its Board of
Directors to establish series or classes of preferred stock and fix the rights,
preferences, privileges and restrictions thereof. The Board is authorized to
issue up to 1,000,000 shares of preferred stock, of which 7,459 shares of Series
C Preferred Stock have been issued and are outstanding as of the date hereof.
Delaware law provides that if any proposed amendment to the certificate
of incorporation of a corporation adversely affects the preferences, limitations
or special rights of any class of shares, then the holders of shares of such
class are entitled to vote as a class as to such amendment. However, since the
holders of common stock approved an amendment to the certificate of
incorporation of the Company which permits the Board of Directors to authorize
the issuance of new series of preferred stock with such rights (including voting
rights) and preferences as fixed by the Board of Directors, the holders of
common stock will not have the right to vote, whether as class or otherwise, to
authorize the issuance of new series of preferred stock with preferences as to
dividends and distributions on liquidation.
By authorizing and issuing preferred stock with particular rights, Lori
might be able to deter a hostile acquisition. For example, Lori could issue
shares of preferred stock with extraordinary voting rights or liquidation
preferences to make it more difficult for a hostile acquirer to gain control of
Lori. In addition to the anti-takeover effect of the issuance of preferred
stock, holders of preferred stock have a preferred position over holders of
common stock on liquidation, the right to a fixed or minimum dividend before any
dividend is paid (or accrued) on common stock, and the right to approve certain
extraordinary corporate matters.
MANAGEMENT
Information Regarding Directors
John Harvey, age 63. Chief Executive Officer from December 1990 to
April 1993, Chairman of the Board since 1985 and a Director since 1982. Chairman
of the Executive Committee. Chairman of the Board and Chief Executive Officer of
ARTRA GROUP Incorporated ("ARTRA") (fashion jewelry, flexible packaging and
investments), the owner of 61.0% of Lori's common stock, since 1968; a Director
of Plastic Specialties and Technologies, Inc. ("PST") (textiles, hose and
tubing); and a Director of Ozite Corporation, the parent of PST ("Ozite")
(textiles, hose and tubing).
<PAGE>
Peter R. Harvey, age 60. Director since 1982. Chairman of Committee on
Compensation and Options and member of the Executive Committee. President, Chief
Operating Officer and a Director of ARTRA since 1968; a Director and Chief
Operating Officer of SoftNet Systems, Inc. ("Softnet"), formerly The Vader Group
Inc. (image processing and health care cost containment); Vice President and
Director of PST; and a Director of Ozite.
Austin A. Iodice, age 53. Director of Lori since December 1990, Vice
Chairman of Lori since October 1992, and President and Chief Executive Officer
of Lori since April 1993. Chairman of the Board and Chief Executive Officer of
Lori's New Dimensions subsidiary, from November 1992 to January 1993 and since
May 1993. President, Chairman of the Board and a Director of Lori's Rosecraft
subsidiary since February 1993. Chief Executive Officer, Chairman of the Board
and a Director of Lori's Lawrence subsidiary since January 1993. President of
Ansa Company, Inc. (baby bottles and accessories) from May 1990 to present.
Associated with Technical Tape Incorporated (pressure sensitive tape) from 1964
to February 1989 in various capacities, including as a director and most
recently as president and chief executive officer from 1980 until February 1989.
Mr. Iodice served as the Chairman and Chief Executive Officer of New Dimensions
until shortly before it filed a voluntary petition under Chapter 11 of the
Bankruptcy Code in February 1993. New Dimensions was reorganized and emerged
from the protection of the Bankruptcy Code in May 1993, at which time Mr. Iodice
was reappointed to these offices.
Alexander Verde, age 62. Director since December 19, 1990. President of
AVS Marketing Specialists Incorporated (sales and marketing) from 1974 to
present.
Each director shall hold office until the next annual meeting of the
stockholders or until their successors have been duly elected and qualified.
Messrs. John Harvey and Peter R. Harvey are brothers. ARTRA is the
parent of Lori. New Dimensions, Lawrence and Rosecraft are subsidiaries of Lori.
PST, Softnet and Ozite are affiliates of Lori.
Information Regarding Executive Officers
James D. Doering, age 58. Vice President and Chief Financial Officer of
Lori since February 1988. Mr. Doering has also served as the Vice President,
since 1980, Treasurer, since 1987, Chief Financial Officer, since 1988, and
Controller, from 1980 to 1987, of ARTRA.
Lawrence D. Levin, age 43. Controller of Lori since December 1989 and
Assistant Chief Financial Officer of Lori since April 1993. Mr. Levin has also
served as the Controller, since May 1987, and Assistant Controller, from January
1980 to May 1987, of ARTRA.
Richard Mandra, age 46. Assistant Controller of Lori since April 1993.
Vice President and Treasurer of Lori from January 1985 to April 1993.
Edwin Rymek, age 65, Secretary of Lori since December 1982. Mr. Rymek
is also the Secretary of ARTRA.
See "Management - Information Regarding Directors" for a description of
the positions held by John Harvey and Austin A. Iodice, each of whom serves as
an executive officer of Lori.
Officers are appointed by the boards of directors of Lori and its
subsidiaries and serve at the pleasure of each respective board. Except for the
relationship of Peter R. Harvey (a director) and John Harvey (a director and
executive officer), who are brothers, there are no family relationships among
the executive officers and/or directors, nor are there any arrangements or
understandings between any officer and another person pursuant to which he was
appointed to office except as may be hereinafter described. See, in particular,
paragraph 1 under "Transactions with Management and Others."
<PAGE>
EXECUTIVE COMPENSATION
Directors' Compensation Directors' fees of $1,000 per quarter were
earned in 1994 by each non-employee director of Lori. The Chairman, John Harvey,
earned a fee of $2,000 per month in 1994. Such fees were accrued but not paid in
1994.
Executive Officer Compensation
The following table shows all compensation paid by Lori and its
subsidiaries for the fiscal years ended December 31, 1994, 1993 and 1992, to the
chief executive officer of Lori. No other executive officers of Lori received
compensation in excess of $100,000 in 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------- ------------
Options -
Name and Salary Number of All Other
Principal Positions Year Paid Bonus Shares Compensation
------------------- ---- ---- ----- ------ ------------
<S> <C> <C> <C> <C> <C>
Austin A. Iodice, Vice 1994 $260,000 $-0- -0- $-0-
Chairman, Chief Executive 1993 260,000 -0- 370,419(2) -0-
Officer and President(1) 1992 125,000 -0- -0- -0-
- ----------------------------------
<FN>
(1) As of December 31, 1992, Mr. Iodice did not hold the title of chief
executive officer of Lori but acted in such capacity. In November and December
1992, Mr. Iodice was engaged as a management consultant to New Dimensions by New
Dimension's bank lender. The consulting fees earned by Mr. Iodice (for which the
bank lender was reimbursed by Lori in 1993), $125,000, are included in the
salary column for Mr. Iodice for 1992.
(2) See note 4 under "Principal Stockholders - Securities Ownership of
Management" and paragraph 1 under "Transactions with Management and Others" for
a description of the option granted to Mr. Iodice.
</FN>
</TABLE>
<PAGE>
The following table sets forth information concerning the aggregate
number and values of options held by Austin A. Iodice, the Chief Executive
Officer of the Company, as of December 31, 1994. Mr. Iodice exercised no options
in 1994.
AGGREGATED OPTION VALUES AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at 12-31-94 In-the-Money Options at
Shares Acquired Value Exercisable/ 12-31-94 Exercisable/
Name on Exercise Realized Unexercisable(1) Unexercisable(2)
- ---------------- --------------- -------- --------------------- -----------------------
<S> <C> <C> <C> <C>
Austin A. Iodice 0 $ 0 370,419/ 0 $648,233/ $0
- ----------------------------------
<FN>
(1) See the notes under "Principal Stockholders - Securities Ownership
of Management" for a description of the terms of the option granted to Mr.
Iodice, as well as other options granted to other executive officers of the
Company.
(2) The listed option was issued at per share exercise price of $1.125
per share. The market price of the Company's common stock as of the close of
trading on December 31, 1994 on the American Stock Exchange was $2.875. The
value shown in this column for in-the-money options is the amount by which the
market price at December 31, 1994 for all of the shares issuable upon Mr.
Iodice's exercise of his option exceeded the exercise price thereof.
</FN>
</TABLE>
Compensation Committee Interlocks and Insider Participation
Authority to determine the compensation of executive officers is
conferred upon the Company's Board of Directors or, in the case of officers paid
by New Dimensions, Rosecraft or Lawrence, by the respective boards of these
subsidiaries. However, except as described below in the case of Austin Iodice,
none of these boards considered the compensation of its officers in 1994. The
decisions concerning the 1994 compensation of all of the executive officers of
Lori, except for Mr. Iodice, were made by Mr. Iodice. Mr. Iodice's compensation
was fixed by the terms of an employment agreement approved by the Board of
Directors of Lori. John Harvey, Austin Iodice and Peter Harvey are currently
executive officers and members of the Board of Directors of Lori. Although Lori
has a Committee on Compensation and Options, this committee did not meet in
1994.
PRINCIPAL STOCKHOLDERS
Securities Ownership of Certain Beneficial Owners
The following table sets forth the number of shares and percentage of
Common Stock beneficially owned as of June 15, 1995 by the only stockholder
known by management of Lori to own 5% or more of Lori's $.01 par value Common
Stock as of June 15, 1995. As of such date, there were 3,315,004 shares of
common stock issued and outstanding.
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percentage of Shares
Beneficial Owner (1) Beneficially Owned Beneficially Owned
-------------------- ------------------ ------------------
<S> <C> <C>
ARTRA GROUP Incorporated 2,101,036 61.0%
500 Central Avenue
Northfield, Illinois 60093
- -----------------------
<PAGE>
<FN>
(1) See also note 3 to the table under "Principal Stockholders -
Securities Ownership of Management." As described therein, if the Lori shares
owned by ARTRA are deemed to be beneficially owned by John Harvey and Peter R.
Harvey, each of them would also be deemed to own 5% or more of Lori's common
stock. Each such person maintains a business address at 500 Central Avenue,
Northfield, Illinois 60093.
</FN>
</TABLE>
ARTRA, through a wholly-owned subsidiary, Fill-Mor Holding, Inc.
("Fill-Mor"), a Delaware corporation (hereinafter all holdings of Fill-Mor are
referred to as ARTRA's), presently owns 2,101,036 shares of record (61.0% of the
outstanding common stock of Lori) and 9,701 shares of Lori's Series C Preferred
Stock, as described below, (which constitutes 100% of the outstanding
preferred). In September 1989, Lori's New Dimensions subsidiary entered into a
loan agreement with IBJ Schroder Bank and Trust Company which was collateralized
by, inter alia, ARTRA's interest in all of Lori's common and preferred stock.
ARTRA also owned 50,000 Common Stock Purchase Warrants (22.0% of the 227,370
then outstanding Common Stock Purchase Warrants) which were convertible into
Lori common stock at the rate of 0.375 shares of Lori common stock for each
warrant. In September 1990, ARTRA converted such warrants and received 18,750
shares of Lori common stock therefor.
As of June 15, 1995, ARTRA owned 9,701 shares (being all of the issued
and outstanding shares) of Lori's Series C Preferred Stock. The Lori Series C
Preferred Stock has no voting rights for the election of Directors; however, the
approval of 66-2/3% of the outstanding Series C Preferred Stock is required for
significant corporate actions, including, in certain circumstances, business
combinations and charter amendments affecting its preferences.
The Series C Preferred Stock calls for payment of dividends at a rate
of 13% per annum, which dividends cumulate quarterly until paid. A moratorium on
the accrual of dividends on the Series C Preferred Stock became effective July
1, 1989 and has been extended indefinitely by agreement of ARTRA and Lori. As of
June 15, 1995, $7,011,000 of dividends had accumulated. The Series C Preferred
Stock may be redeemed by Lori at various prices based upon a formula plus
cumulative dividends and a redemption premium that increases each year, until
1995. The Company may not issue any additional stock (preferred or common)
without the consent of the holder of the Series C Preferred Stock.
Securities Ownership of Management
The following table sets forth the number and percentage of Lori's $.01
par value Common Stock known by management of the Company to be beneficially
owned as of June 15, 1995 by (i) all directors of Lori, (ii) Austin A. Iodice,
the only executive officer included in the Summary Compensation Table, and (iii)
all directors, executive officers and other key employees of Lori as a group ( 8
persons). Unless stated otherwise, each person so named exercises sole voting
and investment power as to the shares of Common Stock so indicated.
<TABLE>
<CAPTION>
Name of Number of Shares Percentage of Shares
Beneficial Owner Beneficially Owned Beneficially Owned
<S> <C> <C>
John Harvey(1)(3) 69,000 2.0%
Peter R. Harvey(2)(3) 40,500 1.2%
Austin A. Iodice(4) 370,419 9.7%
Alex Verde(5) 165,000 4.8%
Directors and officers as a group (8 813,318 19.8%
persons)(6)(3)
- ----------------------------------
<PAGE>
<FN>
(1) The shares beneficially owned by John Harvey consist of 69,000
shares issuable upon the exercise of an option held directly by him (granted
under the Company's Long-Term Stock Investment Plan (the "Option Plan") which
expires March 15, 2003 at an exercise price of $1.125 per share.
(2) The shares beneficially owned by Peter Harvey consist of (i)
indirect ownership of 500 shares owned by a retirement trust under which he has
voting power, and (ii) 40,000 shares issuable upon the exercise of an option
held directly by him (granted under the Option Plan) which expires March 15,
2003 at an exercise price of $1.125 per share.
(3) John Harvey and Peter R. Harvey, each of whom serves as a director
of Lori, control the management and operations of Lori through their control of
ARTRA, which owns 61.0% of Lori's common stock. Insofar as they are deemed
beneficial owners of the Lori shares owned of record by ARTRA, John Harvey owns
2,170,036 shares (61.8%), Peter R. Harvey owns 2,141,536 shares (61.5%) and all
of the Company's directors and executive officers as a group own 2,913,654
shares (70.9%). See "Securities Ownership of Certain Beneficial Owners," above.
(4) The shares beneficially owned by Mr. Iodice consist of 370,419
shares issuable upon the exercise of an option held by Nitsua, Ltd., a
corporation wholly-owned by Mr. Iodice (granted under the Option Plan), which
expires March 15, 2003 at an exercise price of $1.125 per share. See paragraph 1
under "Transactions with Management and Others."
(5) The shares beneficially owned by Mr. Verde consist of 150,00 shares
owned directly by Mr. Verde and 15,000 shares issuable upon the exercise of an
option held directly by him (granted under the Option Plan) which expires March
15, 2003 at an exercise price of $1.125 per share.
(6) The shares beneficially owned by these persons include 662,419
shares in the aggregate issuable upon the exercise of options granted under the
Option Plan held by such officers and directors as a group (including those
shares issuable pursuant to options described in notes 1, 2, 4 and 5 above),
which options expire March 15, 2003, at an exercise price of $1.125 per share.
</FN>
</TABLE>
TRANSACTIONS WITH MANAGEMENT AND OTHERS
1. On August 5, 1982, ARTRA acquired 36.6% of the issued and
outstanding common shares of Lori plus preferred shares for $2,250,000 (the
"Investment"). The Investment was carried at cost plus equity in undistributed
earnings (loss) since the date of acquisition, less the amortization over a
25-year period of the excess of cost over the equity in Lori's net assets at the
date of acquisition.
On February 8, 1985, Lori acquired in an arms-length transaction
negotiated by management of ARTRA, through a wholly-owned subsidiary, all of the
issued and outstanding shares of New Dimensions, a creator and distributor of
fashion jewelry, for consideration of $28,500,000 including cash of $21,850,000,
a $3,000,000 9% promissory note due February 8, 1990 (which was prepaid), an
earnout equal to 20% of New Dimension's pre-tax earnings during the calendar
years 1985 through 1989 and 200,000 shares of Common Stock delivered from its
treasury with an agreed fair market value of $20.00 per share or $4,000,000. The
delivery of ARTRA's shares to the former stockholders of New Dimensions was
approved by ARTRA's stockholders at their July 18, 1985 annual meeting.
In exchange for the 200,000 shares of its Common Stock, ARTRA received
534,878 shares of Lori's common stock (thereby increasing its ownership of Lori
from 36.6% to 55.9%) and 10,000 shares of Lori's Series B Preferred Stock
convertible into additional Lori common shares. In exchange for the cancellation
of advances by ARTRA to Lori, amounting to $6,457,000 as of January 31, 1985,
and an additional cash advance by ARTRA to Lori of $7,300,000, which latter sum
was used by Lori to acquire New Dimensions, ARTRA received 10,000 shares of Lori
Series A Preferred Stock.
On August 13, 1985, Lori stockholders approved a 1-for-30 reverse split
of all authorized, issued, outstanding and reserved shares of common stock,
increased the number of resulting authorized shares of Lori common stock from
1,833,333 to 6 million and approved a 1-for-10 reverse split of all issued,
<PAGE>
outstanding and reserved shares of its preferred stock. ARTRA then converted its
shares of Lori Series B Preferred Stock into 1,099,108 shares of Lori common
stock, thereby increasing its ownership interest in Lori to 72.8%.
In December 1985 ARTRA purchased 50,000 Lori common stock purchase
warrants (14.4% of the 347,600 outstanding common stock purchase warrants) for
$391,000. The warrants were issued in conjunction with a 1985 New Dimensions
bond offering. The warrants, as adjusted, provided for the purchase of 75,000
Lori shares at $12.00 per share and were convertible into Lori common stock at
the rate of 0.375 shares of Lori common stock for each warrant. In September
1990 ARTRA converted such warrants and received 18,750 shares of Lori common
stock therefor. Although the conversion of these warrants increased the number
of shares of Lori common stock owned by ARTRA, the conversion of warrants by
others at the same time resulted in a decrease of ARTRA's ownership of Lori
common stock from 68% to 66.7%. As of June 15, 1995, ARTRA's ownership of Lori
common stock was 61.0%.
ARTRA and a wholly-owned subsidiary of ARTRA held notes from Lori at
February 1, 1993 in the amount of $15,990,000 which were due April 1, 1994. Due
to the limited ability of Lori to receive funds from its operating subsidiaries,
effective July 1, 1989 ARTRA placed an indefinite moratorium on the accrual of
interest on its Lori note and declaration of dividends on its Lori preferred
stock. In February 1993, ARTRA and this wholly-owned subsidiary transferred
these notes to Lori's capital account.
During the three months ended March 31, 1995, ARTRA made net advances
of $93,000 to Lori. During 1994, ARTRA made net advances to Lori of $2,531,000.
The advances consisted of a $1,850,000 short-term note with interest at 10%, the
proceeds of which were used to fund the $1,900,000 cash payment to the bank in
conjunction with the amended settlement agreement with Lori's bank lender
(described in paragraph 4 of "Transactions with Management and Others"), and
certain non-interest bearing advances used to fund Lori working capital
requirements. Effective December 29, 1994, ARTRA exchanged $2,242,000 of its
notes and advances for additional Lori Series C preferred stock. Additionally,
the settlement agreement entered into with Lori's bank lender required ARTRA to
contribute cash of $1,500,000 and ARTRA common stock with a fair market value of
$2,500,000 to Lori's capital account in August 1994.
ARTRA provides certain financial, accounting and administrative
services for the Company's corporate entity. Additionally, the Company's
corporate entity leases its administrative office space from ARTRA. During 1994,
1993 and 1992 fees for these services amounted to $151,000, $115,000 and
$307,000, respectively. Prior to February, 1993, these fees were added to the
Company's note to ARTRA. During 1993 and 1992 the Company made net payments
(borrowings) on the ARTRA note of $35,000 and $(44,000), respectively. In
February, 1993, ARTRA contributed its notes to Lori's capital. Subsequent to
February 1993, the Company made net payments to ARTRA of $139,000 and $115,000
in 1994 and 1993, respectively, for administrative services.
2. In April 1993, Lori entered into a management agreement with Nitsua,
Ltd. ("Nitsua"), a corporation wholly-owned by Austin A. Iodice, a director and
nominee for director, the Vice Chairman of the Board, the President and the
Chief Executive Officer of Lori. This management agreement was approved and
accepted by Lori's New Dimensions, Rosecraft and Lawrence subsidiaries (the
"Jewelry Subsidiaries"). Pursuant to the terms of this agreement, Iodice (or
another designated individual agent approved by Lori and the Jewelry
Subsidiaries) shall have all of the duties and responsibilities of the chief
executive officer of Lori and the Jewelry Subsidiaries (subject to the
supervision of the boards of directors of Lori and the Jewelry Subsidiaries).
The agreement terminates on March 31, 1996, subject to earlier termination by
Lori for "cause." "Cause" includes the disability of Mr. Iodice (or other
designated agent), breach of the agreement by Mr. Iodice (or other designated
agent), fraud, dishonesty, commission of a felony or the like, or the other
failure of Mr. Iodice (or other designated agent) to reasonably perform its
duties under the agreement.
As compensation for its services under the agreement, Nitsua is
entitled to receive (i) a management fee of $260,000 per annum, (ii)
reimbursement of all documented expenses reasonably incurred by Nitsua in
connection with the performance of its duties, (iii) options to purchase 370,419
shares of Lori common stock at an exercise price of $1.125 per share or stock
appreciation rights, exercisable for a period of ten (10) years, subject to
certain conditions described below, and (iv) an annual bonus in an amount equal
to two percent of the pre-tax income of Lori, before amortization of goodwill,
certain New Dimensions bankruptcy costs and credits (including any gains
<PAGE>
realized by the settlement of claims or forgiveness of debt or liabilities of
New Dimensions pursuant to New Dimensions' bankruptcy proceedings or otherwise),
and certain bank fees in connection with the financing of Lawrence.
The agreement to grant to Nitsua fully vested options (under the Option
Plan) to acquire 370,419 shares of Lori's common stock is subject to the
following conditions: If, in the opinion of Lori's tax advisors, the exercise of
these options would more likely than not cause Lori to be unable to utilize a
substantial amount of its net operating loss carryforwards ("NOL's") for Federal
income tax purposes, then the options cannot be exercised to the extent the
exercise would result in Lori being unable to utilize its NOL's. In the event
any of these options cannot be exercised, the number of shares prohibited from
being exercised will convert into stock appreciation rights and provide a cash
payment equal to the gain in market price from the date of grant to the date of
exercise on such prohibited shares. The Option Plan was approved by Lori's
stockholders at the December 16, 1993 annual meeting.
3. On October 1, 1993, Austin A. Iodice, a director and nominee for
director, the Vice Chairman of the Board, the President and the Chief Executive
Officer, made a short term loan to BCA Holdings Inc. and A G Holding Corp.,
subsidiaries of Lori's parent, ARTRA, in the principal amount of $150,000
bearing interest at the rate of 15% per annum. This loan was repaid in January
1994. As consideration for making this loan, Mr. Iodice received Warrants to
purchase 15,000 shares of ARTRA's common stock at an exercise price of $5.375
per share, which Warrants expire October 1, 1998.
4. As described in Note 4 to the Consolidated Financial Statements for
the year ended December 31, 1994, the Company, its operating subsidiaries, ARTRA
and Fill-Mor Holding Inc., a wholly-owned subsidiary of ARTRA ("Fill-Mor"),
entered into a settlement agreement with its bank lender, IBJ Schroder Bank &
Trust Company ("Schroder") on August 18, 1994, as amended December 23, 1994, to
discharge the indebtedness of the Company, its operating subsidiaries and
Fill-Mor aggregating approximately $25,000,000. Upon payment of certain sums and
satisfaction of certain conditions, this indebtedness was reduced to $10,500,000
(of which $7,855,000 was attributable to the obligations of the Company and its
subsidiaries and $2,645,000 was attributable to the obligations of Fill-Mor).
Under the terms of the amended settlement agreement with Schroder, this
remaining indebtedness was to be discharged upon payment to Schroder of $750,000
by March 31, 1995 and upon ARTRA's registration of certain shares of its common
stock.
The Company did not have sufficient funds available to repay this
indebtedness. Accordingly, on March 31, 1995, Alex Verde, a director of the
Company, entered into an assignment agreement with Schroder to purchase this
indebtedness for $750,000, and advanced an additional $100,000 to the Company.
In this connection , Mr. Verde and the Company also entered into an agreement
whereby he reduced this indebtedness to $850,000. As consideration for assisting
in the Company's debt restructuring, Lori issued Mr. Verde 150,000 shares of its
common stock. Under the terms of this agreement, the Company is required to
repay the $850,000 balance, together with interest accruing thereon from and
after March 31, 1995, at the prime rate plus 1% per annum, by June 30, 1995.
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information, as of June 15,
1995, when 3,415,004 shares of Common Stock were issued and outstanding
regarding the shares of Common Stock held by the persons ("Selling
Stockholders") offering shares pursuant to this Prospectus. Included in certain
of the shares owned and offered by Selling Stockholders are shares issuable upon
the exercise of warrants, as described in the notes to the table.
In cases where the Selling Stockholder serves or has served within the
past three years as an officer, director or employee of the Company or any of
its subsidiaries, this relationship is noted. In most instances shares of Common
Stock issuable upon the exercise of options or warrants are being registered. In
certain instances, shares of Common Stock of Selling Stockholders being
registered were acquired as additional consideration for extending short-term
loans to the Company. Because the Selling Stockholders may offer all or some
part of the Common Stock that they hold pursuant to the offering contemplated by
this Prospectus, and because this offering is not being underwritten (on a firm
commitment or any other basis), no estimate can be given as to the amount of
Common Stock that will be held by Selling Stockholders upon termination of this
offering.
<PAGE>
<TABLE>
<CAPTION>
Before the Offering After the Offering (10)
------------------------------ -------------------------------
Number of Percent of Number of Percent of
Shares Total Shares Shares Shares Total Shares
Name of Beneficial Owner Beneficially Outstanding (9) Offered Hereby Beneficially Outstanding (9)
Owned Owned
---------------------------- ------------ --------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Argosy Securities Group, 25,000 * 25,000 0 0
Ltd. (1)
Boeckman Investments 5,882 * 5,882 0 0
John P. Conroy (2) 30,000 * 30,000 0 0
Robert Cutler (3) 10,000 * 10,000 0 0
Dobbins Partners, L.P. 5,882 * 5,882 0 0
James D. Doering (2) 63,000 1.8 63,000 0 0
Anthony Giglio (2) 185,209 5.1 185,209 0 0
Matthew A. Gohd 5,882 * 5,882 0 0
Robert S. Gruber (2) 20,000 * 20,000 0 0
John G. Hamm (2) 25,000 * 25,000 0 0
John Harvey (2) 69,000 2.0 69,000 0 0
Peter R. Harvey (2) 40,500 1.2 40,000 500 *
Austin A. Iodice (4) 370,419 9.7 370,419 0 0
Lawrence D. Levin (2) 45,000 1.3 45,000 0 0
Ross Llewelyn, Inc. (5) 5,532 * 5,532 0 0
Richard E. Mandra (6) 35,066 1.0 35,066 0 0
Manufacturers Indemnity and 11,765 * 11,765 0 0
Insurance Co.
Deb Oetjeas (3) 5,000 * 5,000 0 0
Sue Pimental (3) 3,000 * 3,000 0 0
Edwin G. Rymek (7) 25,133 * 25,133 0 0
Alex Verde (8) 165,000 * 165,000 0 0
--------- ---- --------- --- ---
Total 1,151,270 26.2 1,150,770 500 *
========= ==== ========= === ===
- ----------------------------------
* Less than 1%.
<FN>
(1) The shares offered by Argosy Securities Group, Ltd. are (i) 16,250
shares issuable to it upon his exercise of a warrant at an exercise price of
$4.00 per share, which option expires 90 days after the date hereof, and (ii)
8,750 shares owned of record by it.
(2) The shares offered hereby are issuable to the beneficial owner upon
his exercise of an option (granted under the Option Plan) to purchase the number
of shares shown in the "Shares Offered Hereby" column, which option expires
March 15, 2003 at an exercise price of $1.125 per share.
<PAGE>
(3) The shares offered hereby are issuable to the beneficial owner upon
the exercise of an option (granted under the Option Plan) to purchase the number
of shares shown in the "Shares Offered Hereby" column, which option expires
August 25, 2003 at an exercise price of $3.125 per share.
(4) The shares offered by Mr. Iodice hereby are 370,419 shares issuable
to the Nitsua, Ltd., a corporation wholly-owned by Mr. Iodice, upon its exercise
of an option (granted under the Option Plan) at an exercise price of $1.125 per
share, which option expires March 15, 2003.
(5) The shares offered hereby are owned of record by Ross Llewelyn,
Inc.
(6) The shares offered by Mr. Mandra hereby are (i) 35,000 shares
issuable to the him upon his exercise of an option (granted under the Option
Plan) at an exercise price of $1.125 per share, which option expires March 15,
2003, and (ii) 66 shares owned of record by him.
(7) The shares offered by Mr. Rymek hereby are (i) 25,000 shares
issuable to the him upon his exercise of an option (granted under the Option
Plan) at an exercise price of $1.125 per share, which option expires March 15,
2003, and (ii) 133 shares owned of record by his individual retirement account.
(8) The shares offered by Mr. Verdi hereby are (i) 15,000 shares
issuable to the him upon his exercise of an option (granted under the Option
Plan) at an exercise price of $1.125 per share, which option expires March 15,
2003, and (ii) 150,000 shares owned of record by him.
(9) The ownership percentages are calculated based on the assumption
that all shares issuable to selling stockholders upon the exercise of options or
warrants have been issued.
(10) The number and percentage owned following the offering is based on
the assumption that all shares offered hereby will be sold.
</FN>
</TABLE>
PLAN OF DISTRIBUTION
The manner in which the Common Stock covered by this Prospectus are to
be distributed is set forth on the cover page hereof. Any sales effected through
securities brokers or dealers will be on an "agency" basis, unless as a result
of a privately negotiated transaction a broker or dealer enters into an
agreement with a Selling Stockholder to purchase shares for its own account. At
the date of this Prospectus, none of the Selling Stockholders contemplate
entering into such a contractual relationship with a broker or dealer, although
one or more of them may decide to do so in the future.
To comply with certain states' securities laws, if applicable, the
Common Stock will be sold in such states only through brokers or dealers. In
addition, in certain states the Common Stock may not be sold unless they have
been registered or qualify for sale in such states or an exemption from
registration or qualification is available and is complied with. From time to
time, to the extent required by the rules of the Securities and Exchange
Commission, the Company will distribute Prospectus Supplements.
The Selling Stockholders and any broker-dealers who participate in a
sale of their shares of Common Stock may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, and any commissions received
by them, and proceeds of any such sales as principal, may be deemed to be
underwriting discounts and commissions under the Securities Act.
All expenses of the registration of Common Stock offered hereby,
estimated to be approximately $211,370, will be borne by the Company. As and
when the Company is required to update this Prospectus, it may incur additional
expenses inexcess of this estimated amount. Normal commission expenses and
<PAGE>
brokerage fees, as well as any applicable transfer taxes, are payable
individually by the Selling Stockholders.
Since the Selling Stockholders will be subject to the anti-manipulation
rules promulgated under the Exchange Act, including Rule 10b-2, 10b-6 and 10b-7,
in connection with transactions in the Common Stock during the effectiveness of
the Registration Statement of which this Prospectus is a part, the Company
advised the Selling Stockholders to consult competent securities counsel prior
to initiating any such transaction. The Company will notify each Selling
Stockholder of the Commission's rules and, as a condition to agreeing the
register the shares of a Selling Stockholder, will require that such Selling
Stockholder agree to comply with such rules.
The Company will not receive any proceeds from the sale of the Common
Shares offered hereby by the Selling Stockholders. However, insofar as the
holders of options or warrants to purchase shares of the Common Stock are
expected to exercise their warrants or options in order to sell the underlying
shares (which are registered hereby), the Company will receive the amount of the
exercise prices of any warrants or options so exercised. The Company cannot
predict when or if it will receive proceeds from the exercise of warrants or
options, or the amount of any such proceeds. The Company intends to use the
proceeds, if any, received from the exercise of warrants or options to retire or
reduce indebtedness, to pay certain expenses of the offering and for other
working capital purposes. The offering is being conducted to satisfy certain
contractual obligations to holders of options, as well as to provide a vehicle
for certain of its officers, directors and advisors to exercise their options to
purchase the Company's stock (at exercise prices which are currently lower than
the market price of the Company's stock) and sell the stock acquired upon such
exercise. See "Selling Stockholders."
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Delaware law permits a corporation to indemnify its directors,
officers, employees and agents, including in connection with a proceeding that
is settled. Under Delaware law, a director may be indemnified only if a
determination is made that the director acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
except that a director cannot be indemnified in respect of any matter in which
he is adjudged to be liable to the corporation unless the court determines that
the director is fairly and reasonably entitled to indemnification in light of
the circumstances of the case. Under Delaware law, the determination is to be
made (i) by majority vote of a quorum of directors who are not parties to the
action, (ii) if a quorum in not obtainable or if otherwise directed by the
disinterested directors, by legal counsel or (iii) by the stockholders.
Officers, employees and agents are entitled to be indemnified on the same basis
as directors under Delaware law.
The indemnity provisions in the Bylaws of the Company provide that (i)
the Company is required to indemnify its directors, officers and employees to
the full extent permitted by law, including those circumstances in which
indemnification would otherwise be discretionary; (ii) the Company is required
to advance expenses to its directors, officers and employees as incurred,
including expenses relating to obtaining a determination that such directors,
officers and employees are entitled to indemnification, provided that they
undertake to repay the amount advanced if it is ultimately determined that they
are not entitled to indemnification; (iii) directors, officers and employees may
bring suit against the Company if a claim for indemnification is not timely
paid; (iv) the Company is authorized to enter into indemnification agreements
with its officers and directors; and (v) the Company may not retroactively amend
the Bylaw provision in a way which is adverse to its officers or directors or
former officers or directors. Amounts paid to directors, officers and employees,
under the Indemnity Provision will come from Company funds to the extent not
provided by directors' and officers' liability insurance coverages. The
indemnity provisions in the Bylaws of the Company are expressly stated to be
contractual in nature.
The Bylaws of the Company provide for a different procedure for
determining entitlement to indemnification than is provided under the Delaware
General Corporation Law. Under the Bylaws, the determination is to be made by
(i) a majority of the disinterested directors, (ii) by independent legal
counsel, if a change in control of the Company has occurred and the director,
officer or employee seeking indemnity so requests or if a majority of
disinterested directors so directs (or there are no disinterested directors), or
(iii) by the stockholders, if a majority of the disinterested directors
determines to submit the matter to the stockholders. In addition, a director,
officer or employee will be deemed to be entitled to indemnification if the
persons charged with responsibility for making the determination fail to do so
within 90 days of a request, and a director, officer or
<PAGE>
employee may appeal an adverse determination to a court or arbitrator. Subject
to certain exceptions, a director, officer or employee is also entitled to
indemnification, notwithstanding an adverse determination, if successful on the
merits in any proceeding or if the proceeding is terminated without a
determination of liability or without any payments in settlement being made by
the director, officer or employee.
The Company has no present intention of entering into separate
indemnification agreements with its current directors, officers, or employees
but may do so in the future. It may also enter into contracts with anyone else
it is permitted to indemnify under Delaware law, but has no present intention of
doing so.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers or
persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
EXPERTS
The consolidated balance sheets of The Lori Corporation and
Subsidiaries as of December 31, 1994 and 1993, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1994 included in this
Prospectus, have been incorporated herein in reliance on the report, which
includes an explanatory paragraph indicating substantial doubt about the
Company's ability to continue as a going concern, of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or a solicitation of any offer to buy any
securities in any jurisdiction in which such an offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall under any circumstances create any implication that there has been no
change in the affairs of the Company since the date hereof.
TABLE OF CONTENTS
Heading Page
Additional Information
Prospectus Summary
Risk Factors
Capitalization
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Business and Properties
Legal Proceedings
Market Price of the Company's Common Stock
Description of the Company's Securities The Lori Corporation
PROSPECTUS
Management June ____, 1995
Executive Compensation
Principal Stockholders
Transactions with Management and Others
Selling Stockholders
Plan of Distribution
Indemnification of Officers
and Directors
Experts
Index to Financial Statements
<PAGE>
INDEX TO FINANCIAL STATEMENTS
THE LORI CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheet as of March 31, 1995 (Unaudited)
Condensed Consolidated Statements of Operations
for the three Months ended March 31, 1995 and March 31, 1994 (Unaudited)
Condensed Consolidated Statement of Changes in Shareholders'
Equity (Deficit) for the three Months ended March 31, 1995 (Unaudited)
Condensed Consolidated Statements of Cash Flows
for the three Months ended March 31, 1995 and March 31, 1994 (Unaudited)
Notes to Condensed Consolidated Financial Statements (Unaudited)
Report of Independent Accountants
Consolidated Balance Sheets as December 31, 1994 and 1993
Consolidated Statements of Operations
for the years ended December 31, 1994, 1993 and 1992
Consolidated Statements of Changes in Shareholders' Equity (Deficit) for the
years ended December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows
for the years ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
Schedules:
I. Condensed Financial Information of Registrant
II. Valuation and Qualifying Accounts
Schedules other than those listed are omitted as they are not applicable or
required or equivalent information has been included in the financial statements
or notes thereto.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1995
(Unaudited in thousands)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and equivalents .................................................. $ 147
Receivables, less allowance for doubtful accounts
and markdowns of $984 ............................................. 1,216
Inventories ........................................................... 1,935
Other ................................................................. 186
--------
Total current assets ...................................... 3,484
--------
Property, plant and equipment ............................................ 1,584
Less accumulated depreciation and amortization ........................... 1,151
--------
433
--------
Other assets:
Excess of cost over net assets acquired,
net of accumulated amortization of $3,520 .......................... 13,035
Other ................................................................. 869
--------
13,904
--------
$ 17,821
========
LIABILITIES
Current liabilities:
Note payable to a related party .................................... $ 850
Accounts payable ................................................... 2,568
Accrued expenses ................................................... 997
Due to ARTRA ....................................................... 382
--------
Total current liabilities .............................. 4,797
--------
Other noncurrent liabilities .......................................... 1,002
--------
Commitments and contingencies
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value, authorized 1,000 shares,
all series; Series C, issued 10 shares, including accrued dividends 19,515
Common stock, $.01 par value; authorized 10,000 shares;
issued 3,415 shares ................................................ 33
Less restricted common stock (100 shares) ............................. (700)
Additional paid-in capital ............................................ 65,728
Accumulated deficit ................................................... (72,554)
--------
12,022
--------
$ 17,821
========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------
1995 1994
-------- --------
<S> <C> <C>
Net sales ........................................... $ 4,944 $ 9,269
-------- --------
Costs and expenses:
Cost of goods sold ............................... 2,863 5,097
Selling, general and administrative .............. 2,129 4,581
Depreciation and amortization .................... 138 364
-------- --------
5,130 10,042
-------- --------
Operating loss ...................................... (186) (773)
-------- --------
Other income (expense):
Interest expense ................................. (62) (491)
Other income, net ................................ 9
-------- --------
(62) (482)
-------- --------
Loss before income taxes and extraordinary credit ... (248) (1,255)
Provision for income taxes .......................... (2) (5)
-------- --------
Loss before extraordinary credit .................... (250) (1,260)
Extraordinary credit, net discharge of indebtedness . 6,657
-------- --------
Net earnings (loss) ................................. $ 6,407 ($ 1,260)
======== ========
Earnings (loss) per share:
Loss before extraordinary credit ................. $ (0.07) ($ 0.40)
Extraordinary credit ............................. 1.79
-------- --------
Net earnings (loss) .................. $ 1.72 ($ 0.40)
======== ========
Weighted average number of shares of common stock and
common stock equivalents outstanding ............. 3,731 3,163
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited in thousands, except share data)
<TABLE>
<CAPTION>
Restricted Total
Preferred Stock Common Stock Common Stock Additional Shareholders'
--------------- ---------------- ---------------- Paid-in Accumulated Equity
Shares Dollars Shares Dollars Shares Dollars Capital (Deficit) (Deficit)
------ ------- -------- ------- ------ ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 9,701 $ 19,515 3,265,019 $ 32 100,000 ($700) $ 65,392 ($ 78,961) $ 5,278
Net earnings ............ 6,407 6,407
Common stock issued as
consideration for debt
restructuring ......... 150,000 1 336 337
Fractional shares purchased (24)
------ ------- --------- --- ------- ---- ------- -------- -------
Balance at March 31, 1995 .. 9,701 $ 19,515 3,414,995 $ 33 100,000 ($700) $ 65,728 ($ 72,554) 12,022
====== ======= ========= === ======= ==== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------
1995 1994
------ ------
<S> <C> <C>
Net cash flows used by operating activities ...... $ (920) $ (211)
------ ------
Cash flows from investing activities:
Payment of liabilites with restricted cash .... 550
Additions to property, plant and equipment .... (21) (18)
Retail fixtures ............................... (338) (97)
------ ------
Net cash flows from (used by) investing activities 191 (115)
------ ------
Cash flows from financing activities:
Net increase (decrease) in short-term debt .... 850 (36)
Proceeds from long-term borrowings ............ 1,150
Reduction of long-term debt ................... (750) (375)
Other ......................................... (7) 2
------ ------
Net cash flows from financing activities ......... 93 741
------ ------
Increase (decrease) in cash and cash equivalents . (636) 415
Cash and equivalents, beginning of period ........ 783 540
------ ------
Cash and equivalents, end of period .............. $ 147 $ 955
====== ======
Supplemental cash flow information: Cash paid during the period for:
Interest ................................... $ 36 $ 108
Income taxes paid, net ..................... 3 20
Supplemental schedule of noncash investing and financing activities:
Common stock issued as consideration
for debt restructuring ................... 337
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
ARTRA GROUP INCORPORATED ("ARTRA"), a public company whose shares are traded on
the New York Stock Exchange, owns, through its wholly-owned subsidiary Fill-Mor
Holding, Inc. ("Fill-Mor"), approximately 63.4% of the common stock and all of
the outstanding preferred stock of The Lori Corporation ("Lori" or the
"Company"). Lori is operating in one industry segment (popular-priced fashion
costume jewelry and accessories) through its two wholly-owned subsidiaries
Lawrence Jewelry Corporation ("Lawrence") and Rosecraft, Inc. ("Rosecraft").
The Company's condensed consolidated financial statements are presented on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. In the opinion of
the Company, the accompanying condensed consolidated financial statements
reflect all normal recurring adjustments necessary to present fairly the
financial position as of March 31, 1995, and the results of operations and
changes in cash flows for the three month periods ended March 31, 1995 and March
31, 1994. The Company has incurred losses from continuing operations in recent
years, has a deficiency of working capital of $1,113,000 at March 31, 1995 and
no financing in place for the coming year. No assurances can be given that
either the business and operations of Lori or the market conditions in the
fashion jewelry industry generally will improve in the immediate future. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Lori anticipates that the successful completion of the restructuring of its debt
(see Note 2), plus additional working capital borrowings either from ARTRA or
external sources will permit it to fund its capital requirements in 1995. In
addition, Lori continues to restructure its operations and is attempting to
increase sales such that operating results will improve. If Lori is unable to
obtain working capital borrowings to fund its operations in 1995 and improve the
results of operations, it may be forced to liquidate its assets or file for
protection under the Bankruptcy Code.
Lori's business plan for 1995 is based on the continued dependence upon certain
major customers.
These condensed consolidated financial statements are presented in accordance
with the requirements of Form 10-Q and consequently do not include all the
disclosures required in the Company's annual report on Form 10-K. Accordingly,
the Company's annual report on Form 10-K for the fiscal year ended December 31,
1994, as filed with the Securities and Exchange Commission, should be read in
conjunction with the accompanying consolidated financial statements. The
condensed consolidated balance sheet as of December 31, 1994 was derived from
the audited consolidated financial statements in the Company's annual report on
Form 10-K.
Reported interim results of operations are based in part on estimates which may
be subject to year-end adjustments. In addition, these quarterly results of
operations are not necessarily indicative of those expected for the year.
2. DEBT RESTRUCTURING
Effective August 18, 1994, as amended December 23, 1994, ARTRA, Fill-Mor, Lori
and Lori's operating subsidiaries, (including New Dimensions Accessories, Ltd.,
"New Dimensions", which ceased operations effective December 27, 1994) entered
into an agreement with Lori's bank lender to settle obligations due the bank
under terms of the bank loan agreements of Lori and its operating subsidiaries
and Fill-Mor.
Per terms of the Amended Settlement Agreement, borrowings due the bank under the
loan agreements of Lori and its operating subsidiaries and Fill-Mor
(approximately $25,000,000 as of December 23, 1994), plus amounts due the bank
for accrued interest and fees were reduced to $10,500,000 (of which $7,855,000
pertained to Lori's obligation to the bank and $2,645,000 pertained to
Fill-Mor's obligation to the bank). Upon the satisfaction of certain conditions
of the Amended Settlement Agreement in 1995, as discussed below, the balance of
this indebtedness was discharged.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
In conjunction with the Amended Settlement Agreement, ARTRA entered into a
$1,850,000 short-term loan agreement with a non-affiliated corporation, the
proceeds of which were used to fund amounts due the bank as discussed below. The
loan, due June 30, 1995, with interest payable monthly at 10%, is collateralized
by 100,000 shares of Lori common stock. These 100,000 Lori common shares,
originally issued to the bank under terms of the August 18, 1994 Settlement
Agreement, are carried in the Company's condensed consolidated balance sheet as
restricted common stock. Upon payment of the loan, these shares will revert to
treasury stock.
In exchange for the reduction of amounts due the bank, and as additional
consideration for the $1,850,000 short-term loan agreement from the
non-affiliated corporation, Lori and Lori's operating subsidiaries, ARTRA and
Fill-Mor agreed to pay the following consideration:
A) A cash payment to the bank of $1,900,000, which was made in
December, 1994.
B) 400,000 shares of ARTRA common stock. These 400,000 ARTRA
common shares were originally issued to the bank under terms
of the August 18, 1994 Settlement Agreement. The bank retained
100,000 shares and the non-affiliated corporation received
300,000 shares as additional consideration for its short-term
loan.
C) Assignment to the bank of all of the assets of Lori's New
Dimensions subsidiary.
D) A $750,000 note payable to the bank due March 31, 1995.
The Settlement Agreement required ARTRA to advance $400,000 to Lori which, along
with $150,000 of the ARTRA $1,850,000 short-term loan agreement noted above, was
deposited in trust at December, 1994. This deposit was used to fund the
installment payment due December 31, 1994 for unsecured claims arising from the
May 3, 1993 reorganization of New Dimensions. The installment payment was made
in January, 1995.
The August 18, 1994 settlement agreement required ARTRA to contribute cash of
$1,500,000 to Lori for working capital. ARTRA's cash contribution was funded by
private placements of ARTRA common stock. An officer/director of Lori
participated in the private placement of ARTRA common stock purchasing $150,000
of ARTRA common stock (37,500 shares), subject to the same terms and conditions
as the other outside investors.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Lori recognized an extraordinary gain of $8,965,000 ($2.81 per share) in
December 1994 as a result of the reduction of amounts due the bank under the
loan agreements of Lori and its operating subsidiaries and Fill-Mor to
$10,500,000 (of which $7,855,000 pertained to Lori's obligation to the bank and
$2,645,000 pertained to Fill-Mor's obligation to the bank) as of December 23,
1994 calculated (in thousands) as follows:
Amounts due the bank under loan agreements
of Lori and its operating subsidiaries ......... $ 22,749
Less amounts due the bank at December 29, 1994 .... (7,855)
-------
Bank debt discharged .............................. 14,894
Accrued interest and fees discharged .............. 3,635
Other liabilities discharged ...................... 1,985
Less consideration to the bank per terms of the
amended settlement agreement
Cash ..................................... (1,900)
ARTRA common stock ....................... (2,500)
New Dimensions assets assigned to the bank (7,149)
-------
Net extraordinary gain ................... $ 8,965
=======
Lori also recorded a charge against operations in December 1994 to write-off New
Dimensions' goodwill, which had a book value of $10,800,000.
On March 31, 1995 the $750,000 note due the bank was paid and the remaining
indebtedness of Lori and Fill-Mor was discharged, resulting in an additional
extraordinary gain to Lori of $6,657,000 ($1.79 per share) in the first quarter
of 1995. The $750,000 note payment was funded with the proceeds of a $850,000
short-term loan from a director of Lori. The loan provides for interest at the
prime rate plus 1%. As consideration for assisting in the debt restructuring,
the director received 150,000 Lori common shares valued at $337,500 ($2.25 per
share) based upon Lori's closing market value on March 30, 1995. The first
quarter 1995 extraordinary gain was calculated (in thousands) as follows:
Amounts due the bank under loan agreements
of Lori and its operating subsidiaries ............ $ 7,855
Less amounts due the bank applicable to Lori ....... (561)
------
Bank debt discharged ................................. 7,294
Less fair market value of Lori common stock
issued as consideration for the debt restructuring (337)
Other fees and expenses .............................. (300)
------
Net extraordinary gain ...................... $ 6,657
======
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
3. INVENTORIES
Inventories at March 31, 1995 (in thousands) consist of:
Raw materials and supplies ...... $ 95
Work in process ................. 26
Finished goods .................. 1,814
------
$1,935
======
4. NOTES PAYABLE AND LONG-TERM OBLIGATION
As discussed in Note 2, effective August 18, 1994, as amended effective December
23, 1994, ARTRA, Fill-Mor, Lori and Lori's operating subsidiaries entered into
an agreement with Lori's bank lender to settle obligations due the bank under
terms of the bank loan agreements of Lori and its operating subsidiaries and
Fill-Mor. Per terms of the Amended Settlement Agreement, borrowings due the bank
under the loan agreements of Lori and its operating subsidiaries and Lori's
parent, Fill-Mor, plus amounts due the bank for accrued interest and fees were
reduced to $10,500,000 as of December 23, 1994 (of which $7,855,000 pertained to
Lori's obligation to the bank and $2,645,000 pertained to Fill-Mor's obligation
to the bank). As partial consideration for the Amended Settlement Agreement the
bank received a $750,000 Lori note payable due March 31, 1995.
On March 31, 1995 the $750,000 note due the bank was paid and the remaining
indebtedness of Lori and Fill-Mor was discharged, resulting in an additional
extraordinary gain to Lori of $6,657,000 in 1995 (See Note 2). The $750,000 note
payment was funded with the proceeds of a $850,000 short-term loan from a
director of Lori. The loan provides for interest at the prime rate plus 1%. As
consideration for assisting with the debt restructuring, the director received
150,000 Lori common shares valued at $337,500 ($2.25 per share) based upon
Lori's closing market value on March 30, 1995.
At March 31, 1995 other noncurrent liabilities of $1,002,000 consisted of
amounts due December 31, 1996 and 1997 representing unsecured claims arising
from the May 3, 1993 reorganization of New Dimensions.
5. PREFERRED STOCK
The Series C cumulative preferred stock, owned in its entirety by ARTRA, accrues
dividends at the rate of 13% per annum on its liquidation value. Accumulated
dividends were $7,011,000 at March 31, 1995 and December 31, 1994. Due to the
limited ability of the Company to receive funds from its operating subsidiaries
in recent years under terms of their former bank loan agreements, effective July
1, 1989, ARTRA placed a moratorium on the accrual of interest and the
declaration and accrual of dividends on its Lori preferred stock. The moratorium
has been extended indefinitely.
The Series C preferred stock is redeemable at Lori's option at prices based upon
the principal amount paid plus accumulated dividends and a redemption premium
that increased each year until 1995.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
6. EARNINGS PER SHARE
Earnings (loss) per share is computed by dividing net earnings (loss) by the
weighted average number of shares of common stock and common stock equivalents
(stock options and warrants), unless anti-dilutive, outstanding during each
period. Fully diluted earnings per share are not presented since the result is
equivalent to primary earnings per share.
7. INCOME TAXES
The 1995 extraordinary credit represents a net gain from discharge of bank
indebtedness. No income tax expense is reflected in the Company's financial
statements resulting from the extraordinary credit due to the utilization of tax
loss carryforwards. No income tax benefit was recognized in connection with the
Company's 1994 pre-tax loss due to the Company's tax loss carryforwards.
8. LITIGATION
Lori has been notified by the Federal Environmental Protection Agency that it is
a potentially responsible party for the disposal of hazardous substances by its
predecessor company at a site on Ninth Avenue in Gary, Indiana. Lori has no
records indicating that it deposited hazardous substances at this site and
intends to vigorously defend itself in this matter.
Lori and its subsidiaries are parties in various other business related
litigation which, in the opinion of management, will not have a material adverse
effect on the Company's financial position and results of operations.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
The Lori Corporation
We have audited the consolidated financial statements and the financial
statement schedules of The Lori Corporation and Subsidiaries as listed in the
index on page F-1 of this Form S-1. These financial statements and financial
statement schedules are the responsibility of The Lori Corporation's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Lori Corporation and Subsidiaries as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations, has a deficiency of working capital and does not have financing
facilities in place for the coming year. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's'
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
April 12, 1995
<PAGE>
THE LORI CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1994 1993
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents ...................................................................... $ 783 $ 540
Restricted cash and equivalents ........................................................... 550
Receivables, less allowance for doubtful accounts
and markdowns of $1,338 in 1994 and $2,931 in 1993 ..................................... 814 4,097
Inventories ............................................................................... 2,105 5,938
Other ..................................................................................... 260 461
------- -------
4,512 11,036
------- -------
Property, plant and equipment:
Land ...................................................................................... 350
Buildings and improvements ................................................................ 187 3,365
Machinery and equipment ................................................................... 1,376 4,754
------- -------
1,563 8,469
Less accumulated depreciation and amortization ............................................... 1,119 5,077
------- -------
444 3,392
------- -------
Other assets:
Excess of cost over net assets acquired, net of
accumulated amortization of $3,415 in 1994 and $17,790 in 1993 ......................... 13,140 24,957
Other ..................................................................................... 608 789
------- -------
13,748 25,746
------- -------
$18,704 $40,174
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
THE LORI CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1994 1993
------- -------
<S> <C> <C>
LIABILITIES
Current liabilities:
Current maturities of long-term debt ........................................................ $ 750 $ 2,833
Long-term debt reclassified as current ...................................................... 19,119
Notes payable ............................................................................... 138
Accounts payable ............................................................................ 3,414 3,334
Accrued expenses ............................................................................ 905 3,337
Due to ARTRA ................................................................................ 289
------- -------
5,358 28,761
------- -------
Debt subsequently discharged ................................................................... 7,105
-------
Other noncurrent liabilities ................................................................... 963 2,853
------- -------
Commitments and contingencies
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 value; authorized 1,000 shares, all series; Series C,
issued 10 shares in 1994 and 7 shares in 1993,
including accrued dividends ................................................................. 19,515 17,273
Common stock, $.01 par value; authorzed 10,000 shares;
issued 3,265 shares in 1994 and 3,163 shares in 1993 ........................................ 32 31
Less restricted common stock (100 shares), at cost ............................................. (700)
Additional paid-in capital ..................................................................... 65,392 60,680
Accumulated deficit ............................................................................ (78,961) (69,424)
------- -------
5,278 8,560
------- -------
$18,704 $40,174
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
THE LORI CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1994, 1993 and 1992
(In thousands, except per share data)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Net sales .................................................................... $ 34,431 $ 46,054 $ 75,484
Costs and expenses:
Cost of goods sold, exclusive of depreciation and amortization ............ 21,087 24,795 54,334
Selling, general and administrative ....................................... 17,281 18,811 38,051
Depreciation and amortization ............................................. 1,456 1,521 2,102
Impairment of goodwill ................................................... 10,800 8,664
Restructuring costs ....................................................... 1,575
-------- -------- --------
50,624 45,127 104,726
-------- -------- --------
Operating earnings (loss) .................................................... (16,193) 927 (29,242)
-------- -------- --------
Other income (expense):
Interest expense .......................................................... (2,302) (1,936) (4,590)
Other income, net ......................................................... 3 137 (101)
Reorganization and debt renegotiation costs ............................... (767) (700)
-------- -------- --------
(2,299) (2,566) (5,391)
-------- -------- --------
Loss before income taxes and extraordinary credits ........................... (18,492) (1,639) (34,633)
(Provision) credit for income taxes .......................................... (10) (33) 14
-------- -------- --------
Loss before extraordinary credits ............................................ (18,502) (1,672) (34,619)
Extraordinary credits, net discharge of indebtedness ......................... 8,965 22,057
-------- -------- --------
Net earnings (loss) .......................................................... $ (9,537) $ 20,385 $ (34,619)
======== ======== ========
Earnings (loss) per share:
Loss before extraordinary credits ......................................... $ (5.80) $ (.45) $ (10.99)
Extraordinary credits ..................................................... 2.81 6.03
----- ----- -----
Net earnings (loss) ........................................... $ (2.99) $ 5.58 $ (10.99)
===== ===== =====
Weighted average number of shares of common stock and
common stock equivalents outstanding ...................................... 3,195 3,656 3,149
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
THE LORI CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) for
the years ended December 31, 1994, 1993 and 1992
(In thousands of dollars, except share data)
<TABLE>
<CAPTION>
Total
Restricted Additional Shareholders'
Preferred Stock Common Stock Common Stock Paid-in Accumulated Equity
Shares Dollars Shares Dollars Shares Dollars Capital (Deficit) (Deficit)
-------- ------- --------- ------- ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991 . 7,459 $ 17,273 3,148,632 $ 31 $ 44,630 ($55,190) $ 6,744
Net loss .................... (34,619) (34,619)
Fractional shares purchased . (106) (4) (4)
------- ------- -------- ------- ------- ------- -------
Balance at December 31, 1992 . 7,459 17,273 3,148,526 31 44,626 (89,809) (27,879)
Net earnings ................. 20,385 20,385
Transfer of notes payable
to ARTRA to Lori's
capital account ........... 15,990 15,990
Exercise of stock
options and warrants ...... 9,250 38 38
to pay liabilities ......... 5,532 32 32
Fractional shares purchased . (536) (6) (6)
----- -------- --------- ----- ------- ----- -------- -------- -------
Balance at December 31, 1993 . 7,459 17,273 3 ,162,772 31 60,680 (69,424) 8,560
Net loss .................... (9,537) (9,537)
ARTRA capital contributions . 4,000 4,000
Lori preferred stock issued in
exchange for ARTRA
notes and advances ........ 2,242 2,242 2,242
Common stock issued
under terms of
debt settlement agreement . 100,000 1 699 700
Restricted common stock ..... 100,000 ($700) (700)
Exercise of stock
options and warrants ..... 2,500 13 13
Fractional shares purchased . (253)
----- -------- --------- ----- ------- ----- -------- -------- -------
Balance at December 31, 1994 . 9,701 $ 19,515 3,265,019 $ 32 100,000 ($700) $ 65,392 ($78,961) $ 5,278
===== ======== ========= ===== ======= ===== ======== ======== =======
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
THE LORI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1994, 1993 and 1992
(In thousands)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ................................................................ $ (9,537) $ 20,385 $(34,619)
Adjustments to reconcile net earnings (loss)
to cash flows from operating activities:
Extraordinary gain from net discharge of indebtedness ........................ (8,965) (22,057)
Depreciation of property, plant and equipment ................................ 438 503 972
Amortization of excess of cost over net assets acquired ...................... 1,018 1,018 1,130
Impairment of goodwill ....................................................... 10,800 8,664
Amortization of other assets ................................................. 648 217 881
Loss on sale of property, plant and equipment ................................ 365
Inventory valuation reserve .................................................. 4,900
Changes in assets and liabilities:
(Increase) decrease in receivables ............................................ 2,117 (1,503) 4,644
Decrease in inventories ....................................................... 1,098 1,453 2,052
Decrease in other current and noncurrent assets ............................... 153 574 871
Increase (decrease) in payables and accrued expenses .......................... (513) (616) 2,071
Decrease in other current and noncurrent liabilities .......................... (468) (521) (38)
------ ------ -----
Net cash flows used by operating activities ........................................... (3,211) (547) (8,107)
------ ------ -----
Cash flows from investing activities:
Additions to property, plant and equipment ......................................... (32) (108) (619)
Retail fixtures .................................................................... (665) (951)
Restricted cash .................................................................... (550)
------ ------ -----
Net cash flows used by investing activities ........................................... (1,247) (1,059) (619)
------ ------ -----
Cash flows from financing activities:
Net increase (decrease) in short-term debt ......................................... (138) (12) 9,300
Proceeds from long-term borrowings ................................................. 1,241 4,863 1,318
Reduction of long-term debt ........................................................ (444) (3,587) (1,303)
ARTRA capital contribution ......................................................... 1,500
Notes and advances due to ARTRA .................................................... 2,531
Other .............................................................................. 11 49 (4)
------ ------ -----
Net cash flows from financing activities .............................................. 4,701 1,313 9,311
------ ------ -----
Increase (decrease) in cash and cash equivalents ...................................... 243 (293) 585
Cash and equivalents, beginning of year ............................................... 540 833 248
------ ------ -----
Cash and equivalents, end of year ..................................................... $ 783 $ 540 $ 833
====== ====== =====
Supplemental cash flow information: Cash paid during the year for:
Interest ....................................................................... $ 435 $ 1,421 $ 1,704
Income taxes paid, net ......................................................... 24 12 21
Supplemental schedule of noncash investing and financing activities:
ARTRA common stock issued to Lori's bank lender
under terms of the debt settlement agreement ................................... 2,500
Transfer New Dimensions assets, net of cash of $674,
to Lori's bank lender under terms of the debt settlement agreement ............. 6,475
Lori preferred stock issued in exchange for ARTRA notes and advances .............. 2,242
Notes payable to ARTRA transferred to Lori's capital account ...................... 15,990
Debt refinanced ................................................................... 6,105
Reclassification of liabilities subject to compromise ............................. 41,500
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
ARTRA GROUP Incorporated ("ARTRA"), a public company whose shares are traded on
the New York Stock Exchange, owns, through a wholly-owned subsidiary,
approximately 66.4% of The Lori Corporation's ("Lori" or the "Company")
outstanding common stock and all of Lori's outstanding preferred stock. At
December 31, 1994, ARTRA's interest in Lori common stock and Lori preferred
stock was pledged as collateral for a bank loan to a wholly-owned ARTRA
subsidiary that is the parent of Lori.
The accompanying consolidated financial statements are presented on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company incurred losses
from continuing operations of $18,502,000 in 1994, $1,672,000 in 1993 and
$34,619,000 in 1992, respectively. The Company has a deficiency of working
capital of $846,000 at December 31, 1994 and no financing in place for the
coming year. No assurances can be given that either the business and operations
of Lori or the market conditions in the fashion jewelry industry generally will
improve in the immediate future. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Lori anticipates that the successful completion of the restructuring of its debt
(see Note 4), plus additional working capital borrowings either from ARTRA or
external sources will permit it to fund its capital requirements in 1995. In
addition, the Company continues to restructure its operations and is attempting
to increase sales such that operating results will improve. If Lori is unable to
obtain working capital borrowings to fund its operations in 1995 and improve the
results of operations, it may be forced to liquidate its assets or file for
protection under the Bankruptcy Code.
Lori's 1995 business plan is based on the continued dependence upon certain
major customers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. Intercompany accounts and
transactions are eliminated.
B. Cash Equivalents
Short-term investments with an initial maturity of less than ninety days are
considered cash equivalents.
As required under terms of it debt settlement agreement (see Note 4), at
December 31, 1994, Lori maintained a deposit in trust of $550,000 to fund the
installment payment due December 31, 1994 for unsecured claims arising from the
May 3, 1993 reorganization of New Dimensions. The installment payment was made
in January, 1995.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
C. Inventories
Inventories are stated at the lower of cost or market, with cost determined by
the first-in, first-out (FIFO) method.
D. Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for maintenance
and repairs are charged to operations as incurred and expenditures for major
renovations are capitalized. Depreciation is computed on the basis of estimated
useful lives principally by the straight line method for financial statement
purposes and principally by accelerated methods for tax purposes. Leasehold
improvements are amortized over the shorter of the estimated useful life of the
asset or the period covered by the lease.
The costs of property retired or otherwise disposed of are applied against the
related accumulated depreciation to the extent thereof, and any profit or loss
on the disposition is recognized in earnings.
E. Intangible Assets and Other Assets
The net assets of a purchased business are recorded at their fair value at the
date of acquisition. The excess of purchase price over the fair value of net
assets acquired (goodwill) is reflected as intangible assets and amortized on a
straight-line basis principally over a period of 40 years.
The Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance (for each operating company)
over its remaining life can be recovered through forecasted future operations.
The charge to operations of $10,800,000 represents the write-off of all of New
Dimensions' goodwill.
At December 31, 1992, the Company recognized an impairment of goodwill at the
New Dimensions subsidiary due to the significant operating loss incurred in 1992
which resulted in the Chapter 11 reorganization of New Dimensions as discussed
in Note 5. The Company adjusted the carrying value of New Dimensions' goodwill
to its estimated value based upon New Dimensions' expected level of future
operations and reduced the amortization period of the remaining New Dimensions
goodwill to a twenty year period beginning January 1, 1993.
Retail displays, classified in other assets, are amortized on a straight-line
basis over their estimated lives.
F. Revenue Recognition
Sales to customers are recorded at the time of shipment net of estimated
markdowns and merchandise credits.
G. Income Taxes
Income taxes are accounted for as prescribed in Statement of Financial
Accounting Standards No. 109 - Accounting for Income Taxes. Under the asset and
liability method of Statement No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities, and
their respective tax bases. Deferred tax assets and liabilities are measured
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
using enacted tax rates expected to apply to taxable income in the years those
temporary differences are expected to recovered or settled. Prior to January 1,
1991, the Company followed Statement of Financial Accounting Standards No. 96 -
Accounting for Income Taxes. The adoption of Statement No. 109 did not have a
material impact upon the Company's financial statements.
3. INVENTORIES
Inventories at December 31, (in thousands)consist of:
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Raw materials and supplies ....................... $ 115 $ 278
Work in process .................................. 19 16
Finished goods ................................... 1,971 5,644
------ ------
$2,105 $5,938
====== ======
</TABLE>
4. DEBT RESTRUCTURING
Effective August 18, 1994, Lori and Lori's operating subsidiaries (collectively,
the "Borrowers"), ARTRA and Fill-Mor (a wholly-owned subsidiary of ARTRA)
entered into an agreement with Lori's bank lender to settle obligations due the
bank under terms of the bank loan agreements of Lori and its operating
subsidiaries. On December 13, 1994, Lori and Lori's operating subsidiaries were
notified by the bank of certain defaults under the Settlement Agreement,
including but not limited to a $1,115,000 payment due the bank on December 8,
1994. Prior to receipt of the default notice and thereafter, ARTRA and Lori
entered into negotiations with the bank to amend or restructure the terms of the
August 18, 1994 Settlement Agreement.
Effective December 23, 1994, the Borrowers, ARTRA and Fill-Mor and the bank
entered into an amendment to the August 18, 1994 Settlement Agreement ("Amended
Settlement Agreement"). Per terms of the Amended Settlement Agreement,
borrowings due the bank under the loan agreements of the Borrowers and Fill-Mor
(approximately $25,000,000 as of December 23, 1994), plus amounts due the bank
for accrued interest and fees were reduced to $10,500,000 (of which $7,855,000
pertained to Lori's obligation to the bank and $2,645,000 pertained to
Fill-Mor's obligation to the bank). Upon the satisfaction of certain conditions
of the Amended Settlement Agreement in 1995, as discussed below, the bank lender
has agreed to discharge the balance of this indebtedness.
In conjunction with the Amended Settlement Agreement, ARTRA entered into a
$1,850,000 short-term loan agreement with a non-affiliated corporation, the
proceeds of which were used to fund amounts due the bank as discussed below. The
loan, due June 30, 1995, with interest payable monthly at 10%, is collateralized
by 100,000 shares of Lori common stock. These 100,000 Lori common shares,
originally issued to the bank under terms of the August 18, 1994 Settlement
Agreement, are carried in the Company's Consolidated Balance Sheet as restricted
common stock. Upon payment of the loan, these shares will revert to treasury
stock.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
In exchange for the reduction of amounts due the bank, and as additional
consideration for the $1,850,000 short-term loan agreement from the
non-affiliated corporation, the Borrowers, ARTRA and Fill-Mor agreed to pay the
following consideration, which supersedes the consideration agreed to under
terms of the August 18, 1994 Settlement Agreement:
A) A cash payment to the bank of $1,900,000, which was made
prior to consummation of the Amended Settlement Agreement.
B) 400,000 shares of ARTRA common stock. These 400,000 ARTRA
common shares were originally issued to the bank under terms
of the August 18, 1994 Settlement Agreement. The bank retained
100,000 shares and the non-affiliated corporation received
300,000 shares as additional consideration for its short-term
loan.
C) Assignment to the bank of all of the assets of Lori's New
Dimensions subsidiary.
D) A $750,000 note payable to the bank due March 31, 1995.
Among other things, ARTRA has agreed to register the ARTRA shares issued in
order to enable the ARTRA shares issued to be freely tradeable without
restriction on or before July 31, 1995. Additionally, ARTRA advanced $400,000 to
Lori to be used to fund the installment payment due December 31, 1994 for
unsecured claims arising from the May 3, 1993 reorganization of New Dimensions.
The August 18, 1994 settlement agreement required ARTRA to contribute cash of
$1,500,000 to Lori for working capital. ARTRA's cash contribution was funded by
private placements of ARTRA common stock. An officer/director of Lori
participated in the private placement of ARTRA common stock purchasing $150,000
of ARTRA common stock (37,500 shares), subject to the same terms and conditions
as the other outside investors.
Lori recognized an extraordinary gain of $8,965,000 ($2.81 per share) in
December 1994 as a result of the reduction of amounts due the bank under the
loan agreements of the Borrowers and Fill-Mor to $10,500,000 (of which
$7,855,000 pertained to Lori's obligation to the bank and $2,645,000 pertained
to Fill-Mor's obligation to the bank) as of December 23, 1994 calculated (in
thousands) as follows:
Amounts due the bank under loan agreements
of Lori and its operating subsidiaries $ 22,749
Less amounts due the bank (7,855)
------
Bank debt discharged 14,894
Accrued interest and fees discharged 3,635
Other liabilities discharged 1,985
Less consideration to the bank per terms of the
amended settlement agreement
Cash (1,900)
ARTRA common stock (2,500)
New Dimensions assets assigned to the bank (7,149)
------
Net extraordinary gain $ 8,965
======
Lori also recorded a charge against operations in December 1994 to write-off New
Dimensions' goodwill, which had a book value of $10,800,000.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
On March 31, 1995 the $750,000 note due the bank was paid and the remaining
indebtedness of Lori and Fill-Mor was discharged resulting in an additional
extraordinary gain to Lori of approximately $7,000,000 in 1995. Among other
things, ARTRA has agreed to register the ARTRA shares issued in order to enable
the ARTRA shares issued to be freely tradeable without restriction on or before
July 31, 1995. In the event the shares are not registered by July 31, 1995, the
bank has the right to put the 100,000 ARTRA shares back to ARTRA for an exercise
price of $500,000. The $750,000 note payment was funded with the proceeds of a
$850,000 short-term loan from a director of Lori. The loan provides for interest
at the prime rate plus 1%. As consideration for assisting in the debt
restructuring, the director received 150,000 Lori common shares valued at
$337,500 ($2.25 per share) based upon Lori's closing market value on March 30,
1995.
5. NEW DIMENSIONS 1993 RESTRUCTURING
On February 5, 1993, New Dimensions filed a petition for reorganization under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Southern District of New York (Case No. 93 B 40653). On April 9, 1993, New
Dimensions' reorganization plan was confirmed by an order of the Bankruptcy
Court and on May 3, 1993, the consummation date, New Dimensions emerged from
Chapter 11 bankruptcy court protection, New Dimensions' bank lender provided
long-term working capital financing and Lori guaranteed and assumed certain New
Dimensions' debt obligations.
Lori's ownership of 100% of the common stock of New Dimensions was not affected
by the reorganization of New Dimensions. Accordingly, the principles of fresh
start reporting in accordance with the American Institute of Certified Public
Accountants Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code", were not applicable to the New
Dimensions reorganization and no adjustments were made to the carrying value of
New Dimensions assets and liabilities, except to reflect terms of the plan of
reorganization.
The reorganization of New Dimensions resulted in an extraordinary gain of
$22,057,000 ($6.03 per share) from a net discharge of indebtedness calculated
(in thousands) as follows:
Amount due on New Dimensions' 12.75% Senior Notes,
including accrued interest $ 22,822
Trade liabilities and accrued expenses 3,231
------
Total unsecured claims 26,053
Less present value of payments due to unsecured creditors (2,725)
Less present value of bank restructuring loan fee (1,271)
------
Net extraordinary gain $ 22,057
======
Additionally, during 1993 New Dimensions incurred reorganization expenses of
$767,000 related to the bankruptcy process, which are classified as
non-operating expenses.
Due to the reduction of sales volume and resulting operating losses incurred in
1992 that culminated in the February, 1993 Chapter 11 filing, at December 31,
1992 New Dimensions recorded a charge to operations of $8,664,000 ($2.75 per
share) representing the excess of net book value of New Dimensions goodwill over
its estimated recoverable value. Effective January 1, 1993, New Dimensions began
amortizing the remaining goodwill over twenty years.
At December 31, 1992, due to the reduction in sales volume and resulting
operating losses incurred in 1992 that culminated in the February, 1993 Chapter
11 filing, New Dimensions discontinued several lines of fashion costume jewelry
and recorded a charge to operations of $4,900,000 ($1.34 per share) to
write-down the remaining inventory to estimated net realizable value.
<PAGE>
THE LORI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
6. LONG-TERM DEBT
Long-term debt (in thousands) consists of:
<TABLE>
<CAPTION>
December 31, December 31,
1994 1993
-------- --------
<S> <C> <C>
Amounts due Lori's bank lender
under terms of a debt settlement agreement ............................... $ 7,855
New Dimensions bank term loan,
interest at the prime rate plus 1% ....................................... $ 2,500
New Dimensions bank line of credit,
interest at the prime rate plus 1% ....................................... 350
Lori bank term loan,
interest at the prime rate plus 1% ....................................... 11,899
Lawrence bank line of credit,
interest at the prime rate plus 1.75% .................................... 2,099
Rosecraft bank credit agreement,
interest at the prime rate plus 2% ....................................... 5,104
-------- --------
7,855 21,952
Current maturities ........................................................... (750) (2,833)
Debt subsequently discharged ................................................. (7,105) --
Long-term debt reclassified as current ....................................... -- (19,119)
-------- --------
$ - $ -
======== ========
</TABLE>
As discussed in Note 5, on February 5, 1993, New Dimensions filed a petition for
reorganization under Chapter 11 of the Bankruptcy Code. On April 9, 1993, New
Dimensions' reorganization plan was confirmed by an order of the Bankruptcy
Court and on May 3, 1993, the consummation date of the reorganization, New
Dimensions emerged from Chapter 11 bankruptcy court protection. The plan, among
other things, provided for New Dimensions' bank lender to have the right to
receive all of the issued and outstanding shares or assets of New Dimensions
immediately prior to the consummation date. The bank then assigned its rights to
receive the New Dimensions stock to a newly formed Lori subsidiary, which was
then merged into New Dimensions, for consideration of $2,500,000, evidenced by
New Dimensions' term loan note originally scheduled to be payable in varying
quarterly installments, commencing March 31, 1994 through December 31, 1996.
Interest on the term note was at the prime rate plus 1%. Lori assumed and
guaranteed the balance of New Dimensions' pre-bankruptcy loans payable to the
bank, amounting to $12,036,000, including accrued interest, which included the
New Dimensions former line of credit discussed and the New Dimensions former
term loan, net of New Dimensions' direct obligation payable to the bank of
$2,500,000 as noted above. The bank also provided New Dimensions with a
revolving line of credit, including a letter of credit facility. Borrowings,
limited to the lesser of $1,600,000 or a calculated borrowing base. The credit
agreement was scheduled to mature on April 30, 1996.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
On February 5, 1993, Lawrence entered into a credit agreement with Lori's bank
that provided for a revolving line of credit, which included a letter of credit
facility. Borrowings were limited to the lesser of $2,100,000 or a calculated
borrowing base, less outstanding letters of credit. The loan provided for
interest at the prime rate plus 1.75%.
Effective March 31, 1993 Rosecraft entered into agreements with a bank that
provided for a term loan of $2,977,000 and a revolving line of credit, both with
interest at the prime rate plus 2%. The term loan was payable in varying monthly
installments commencing January 31, 1994, with the final monthly installment
originally scheduled to be payable November 30, 1997. The revolving line of
credit provided for borrowings, including a letter of credit facility.
Borrowings were limited to the lesser of $1,000,000 or a calculated borrowing
base, less outstanding letters of credit. In addition to the revolving line of
credit, the bank has provided an overadvance credit commitment of $1,200,000.
The revolving line of credit was scheduled to mature December 31, 1997.
Since December 31, 1993 and during 1994, Lori and its operating subsidiaries
were not in compliance with certain provisions of their respective bank loan
agreements. At December 31, 1993, borrowings under the bank loan agreements of
Lori and its operating subsidiaries totaled $21,952,000. In addition to
scheduled maturitities of $2,833,000 under the bank loan agreements of Lori and
its operating subsidiaries, the remaining borrowings of $19,119,000 under the
bank loan agreements of Lori and its operating subsidiaries were reclassified as
currently payable at December 31, 1993.
As discussed in Note 4, effective August 18, 1994, as amended effective December
23, 1994, ARTRA, Fill-Mor, Lori and Lori's operating subsidiaries entered into
an agreement with Lori's bank lender to settle obligations due the bank under
terms of the bank loan agreements of Lori and its operating subsidiaries and
Fill-Mor. Per terms of the Amended Settlement Agreement, borrowings due the bank
under the loan agreements of Lori and its operating subsidiaries and Lori's
parent, Fill-Mor, plus amounts due the bank for accrued interest and fees were
reduced to $10,500,000 (of which $7,855,000 pertained to Lori's obligation to
the bank and $2,645,000 pertained to Fill-Mor's obligation to the bank).
On March 31, 1995 the $750,000 note due the bank was paid and the remaining
indebtedness of Lori and Fill-Mor was discharged, resulting in an additional
extraordinary gain to Lori of approximately $7,000,000 in 1995 (See Note 4).
At December 31, 1994, the common stock and virtually all the assets of Lori's
subsidiaries were pledged as collateral for Lori's and its subsidiaries'
borrowings. Under its debt agreements the Company is limited in the amounts it
can withdraw from its operating subsidiaries. At December 31, 1994 and 1993
substantially all cash and equivalents on the Company's consolidated balance
sheet are restricted to use by and for the Company's operating subsidiaries.
7. PREFERRED STOCK
The Series C cumulative preferred stock, owned in its entirety by ARTRA, accrues
dividends at the rate of 13% per annum on its liquidation value. Accumulated
dividends were $7,011,000 at December 31, 1993 and 1992. Due to restrictions on
the ability of the Company to receive funds from its operating subsidiaries (see
Note 6), effective July 1, 1989 ARTRA placed a moratorium on the declaration and
accrual of dividends on its Lori preferred stock. The moratorium has been
extended indefinitely.
The Series C preferred stock is redeemable at Lori's option at prices based upon
the principal amount paid plus accumulated dividends and a redemption premium
that increases each year until 1995.
Effective December 29, 1994 ARTRA exchanged $2,242,000 of its notes and advances
for additional Lori Series C preferred stock.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. STOCK OPTIONS AND WARRANTS
Long-Term Stock Investment Plan
On December 16, 1993 Lori's stockholders approved the Long-Term Stock Investment
Plan (the "1993 Plan"), effective January 1, 1993, which authorizes the grant of
options to purchase the Company's common stock to executives, key employees and
non-employee consultants and agents of the Company and its subsidiaries. The
1993 Plan authorizes the awarding of Stock Options, Incentive Stock Options and
Alternative Appreciation Rights. The 1993 Plan reserved 1,500,000 shares of the
Company's common stock for grant on or before December 31, 2002.
As of March 16, 1993, the Company's Board of Directors approved the issuance of
non-qualified options to purchase an aggregate of 555,628 shares of Lori common
stock at an exercise price of $1.125 per share (the closing price of Lori common
stock on March 15, 1993) to a corporation controlled by Austin Iodice, the Vice
Chairman , President and director of the Company and to an agent of the Company.
The options were granted in connection with management agreements entered into
with them pursuant to which they agreed to provide managerial and supervisory
services to the Company and its subsidiaries. Additionally, as of March 16,
1993, the Company's Board of Directors approved the issuance of options to
purchase an aggregate of 368,500 shares of Lori common stock at an exercise
price of $1.125 per share (the closing price of Lori common stock on March 15,
1993) to certain executives, key employees, agents and a director of the
Company. The options were granted under the Company's 1982 Stock Option Plan
(the "1982 Plan"), subject to stockholder approval of the amendment of the 1982
Plan. Subsequent thereto, counsel to the Company advised the Board that the 1982
Plan, which had expired, could not be amended and extended.
Accordingly, on October 12, 1993, the Board of Directors of Lori approved a
proposed Long-Term Stock Investment Plan of the Company (the "Plan" or the
"Option Plan") which authorizes the grant of options to purchase the Company's
common stock to executives, key employees and agents of the Company and its
subsidiaries. In connection with this approval, the Board approved the issuance
under the Plan (subject to the approval and adoption of the Plan by the
stockholders) of options on the same terms as the original March 16, 1993
options which it had previously authorized under the 1982 Plan. The Plan was
approved by the stockholders at the December 16, 1993 annual meeting, effective
as of January 1, 1993.
On August 25, 1993, the Board of Directors approved the grant to various key
employees of Lori and its subsidiaries of options to purchase 154,000 shares in
the aggregate of its common stock at an exercise price of $3.125 per share, the
market price of the stock at the original date of grant. One third of these
options are to vest on each of the first three anniversary dates of the date of
grant to each employee who has remained continuously employed by the Company (or
the subsidiary) through the anniversary date.
Incentive Stock Option Plan
Options to purchase common shares of the Company have been granted to certain
officers and key employees under the 1982 Incentive Stock Option Plan ("the
plan"), which initially reserved 250,000 shares of the Company's common stock.
On December 19, 1990, Lori's stockholders approved an increase in the number of
shares available for grant under the plan to 500,000. The plan expired in 1992.
On June 9, 1988, the Company granted options under the plan to various officers
and key employees of Rosecraft and Lawrence at the then fair market value ($5.00
per share). At December 31, 1993, options to purchase 8,250 shares of the
Company's common stock at $5.00 per share were outstanding. The options expire
June 9, 1998.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Summary of Options
A summary of stock option transactions for the years ended December 31
is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Outstanding at January 1:
Shares ................................................ 1,097,044 19,416 92,916
$ 1.125 $ 5.00 $ 5.00
Prices ................................................ to to to
$ 12.19 $ 12.19 $ 12.30
Options granted:
Shares ................................................ 1,078,128
$ 1.125
Prices ................................................ to
$ 3.125
Options exercised:
Shares ................................................ (2,500) (500)
Price ................................................. $ 5.00 $ 5.00
Options canceled:
Shares ................................................ (136,666) (73,500)
$ 3.125 $ 5.00
Prices ................................................ to to
$ 12.19 $ 12.30
Outstanding at December 31:
Shares ................................................ 957,878 1,097,044 19,416
======= ========= ======
$ 3.125 $ 1.125 $ 5.00
Prices ................................................ to to to
$ 5.00 $ 12.19 $ 12.19
Options exercisable at December 31 ........................ 939,210 18,916 19,416
======= ====== ======
Options available for future grant
at December 31 ........................................ 1,472,000 1,346,000 432,950
========= ========= =======
</TABLE>
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Warrants
On November 23, 1988, Lori issued warrants to purchase 25,000 of its common
shares, at $4.00 per share, to an investment banker as additional compensation
for certain financial and advisory services. During 1993, the warrant holder
exercised warrants to purchase 8,750 shares of Lori common stock. At December
31, 1994, warrants to purchase 16,250 shares of Lori's common stock at $4.00 per
share remained outstanding.
9. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries lease certain office and warehouse facilities
used to conduct its distribution operations. At December 31, 1994, future
minimum lease payments under operating leases that have an initial or remaining
noncancelable term of more than one year are $271,000 in 1995 and $98,000 in
1996.
Rental expense of continuing operations was $927,000, $1,008,000 and $1,831,000
in 1994, 1993 and 1992,respectively, net of sublease income of $73,000 in 1992.
In 1993, the Company entered into management agreements, for a three year period
ending March 31, 1996, with a corporation controlled by Austin Iodice, the Vice
Chairman, President and director of the Company, and with an individual to
provide managerial and supervisory services to the Company and its subsidiaries.
The agreements provide for minimum salary levels, as well as for incentive
bonuses which are payable if certain management goals are attained.
Additionally, the agreements called for the issuance of non-qualified options to
purchase an aggregate of 555,628 shares of Lori common stock, pursuant to the
Company's Long-Term Stock Investment Plan, at a price of $1.125 per share as
discussed in Note 8. The aggregate commitment for future salaries at December
31, 1994, excluding bonuses, during the remaining term of all management and
employment agreements is approximately $600,000.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10. INCOME TAXES
A summary of the provision (credit) for income taxes relating to operations is
as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Continuing operations:
State ............................ $ 10 $ 33 $(14)
==== ==== ====
</TABLE>
The 1994 extraordinary credit represents a net gain from discharge of bank
indebtedness under the loan agreements of Lori and its operating subsidiaries.
The 1993 extraordinary credit represents a gain from a net discharge of
indebtedness at the Company's New Dimensions subsidiary. No income tax expense
is reflected in the Company's financial statements resulting from the
extraordinary credits due to the utilization of tax loss carryforwards.
No income tax benefit was recognized in connection with the Company's 1992
pre-tax loss due to the Company's tax loss carryforwards.
The difference between the statutory Federal income tax rate and the effective
income tax rate is reconciled as follows:
<TABLE>
<CAPTION>
% of Earnings (Loss) Before Income Taxes
----------------------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Statutory Federal tax rate Provision (Benefit) ................................. (34.0)% 35.0 % (34.0) %
State and local taxes,
net of Federal benefit ...................................................... .1 .2 (.1)
Current year tax loss not utilized ............................................. 24.4
Amortization of goodwill ....................................................... 3.6 .8 1.1
Impairment of goodwill ......................................................... 38.6 8.5
Previously unrecognized benefit from
utilizing tax loss carryforwards ............................................. (8.2) (35.8)
---- ---- ----
.1 % .2 % (.1) %
==== ==== ====
</TABLE>
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10. INCOME TAXES, Continued
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to the deferred
tax liabilities and deferred tax assets at December 31, 1994 and 1993 and their
approximate tax effects (in thousands) are as follows:
<TABLE>
<CAPTION>
1994 1993
------------------------ ------------------------
Temporary Tax Temporary Tax
Difference Difference Difference Difference
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Trade accounts receivable ................................ $ 1,300 $ 500 $ 3,100 $ 1,200
Inventories .............................................. 300 100 5,600 2,200
Accrued other ............................................ 400 200 1,300 500
Net operating loss ....................................... 54,000 21,100 48,000 18,700
------ ------
Total deferred tax asset ....................... 21,900 22,600
------ ------
Machinery and equipment ..................................
(400) (200) (800) (300)
Total deferred tax liability ................... ------ ------
(200) (300)
------ ------
Valuation allowance ............................ (21,700) (22,300)
------ ------
Net deferred tax asset ......................... $ - $ -
====== ======
</TABLE>
The Company has recorded a valuation allowance with respect to future tax
benefits and the net operating loss reflected in the deferred tax assets as a
result of the uncertainty of their ultimate realization.
As of December 31, 1994, the Company has Federal income tax operating loss
carryforwards of approximately $54,000,000, expiring as follows (in thousands):
<TABLE>
<CAPTION>
Year
----
<S> <C>
1995 ............................................ $13,000
1996 ............................................ 1,000
1997 ............................................ --
1998 ............................................ 3,000
1999 ............................................ 1,000
After 1999 ...................................... 36,000
------
$54,000
======
</TABLE>
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. EMPLOYEE BENEFIT PLANS
The Company's operating subsidiaries have defined contribution benefit plans
covering eligible employees. Both employee and employer contributions are
generally determined as a percentage of the covered employee's annual
compensation. The total expense relating to continuing operations from all plans
amounted to $8,000, $27,000 and $121,000 in 1994, 1993 and 1992, respectively.
The Company typically does not offer the types of benefit programs that fall
under the guidelines of Statement of Financial Accounting Standards No. 106 -
Employers Accounting for Post Retirement Benefits Other Than Pensions and
Statement of Financial Accounting Standards No. 112 - Employers Accounting for
Post Employment Benefits.
12. RESTRUCTURING COSTS
In the fourth quarter of 1992, the Company's New Dimensions subsidiary closed
certain of its "Whims" retail outlet stores and made the decision to close
additional "Whims" retail outlet stores and its New York City sales and
executive office in 1993. The closing of the "Whims" retail outlet stores and
the New York City sales and executive office resulted in a charge to operations
in the fourth quarter of 1992 of $675,000. The restructuring charge includes
inventory liquidation costs, lease termination costs and employee severance
costs which were expended principally in the first quarter of 1993.
In June, 1992, the Company's Rosecraft subsidiary closed its Ladies line of
fashion costume jewelry in order to concentrate on its higher margin Children's
line of fashion costume jewelry and accessories. The closing of Rosecraft's
Ladies line resulted in a charge to operations of $900,000. The restructuring
charge includes inventory liquidation costs, lease termination costs and
employee severance costs.
13. EARNINGS PER SHARE
Earnings (loss) per share is computed by dividing net earnings (loss), after
deduction for the annual preferred dividend requirement, if applicable, by the
weighted average number of shares of common stock and common stock equivalents
(options and warrants), unless anti-dilutive, outstanding during the year. Fully
diluted earnings per share is not presented since the result is equivalent to
primary earnings per share.
14. RELATED PARTY TRANSACTIONS
During 1994, ARTRA made net advances to Lori of $2,531,000. The advances
consisted of a $1,850,000 short-term note with interest at 10%, the proceeds of
which were used to fund the $1,900,000 cash payment to the bank in conjunction
with the Amended Settlement Agreement with Lori's bank lender, and certain
non-interest bearing advances used to fund Lori working capital requirements.
Effective December 29, 1994 ARTRA exchanged $2,242,000 of its notes and advances
for additional Lori Series C preferred stock. Additionally, the August 18, 1994
Settlement Agreement required ARTRA to contribute cash of $1,500,000 and ARTRA
common stock with a fair market value of $2,500,000 to Lori's capital account.
In February, 1993, ARTRA transferred all of its notes (with a principal value of
$15,990,000) to Lori's capital account.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
ARTRA provides certain financial, accounting and administrative services for the
Company's corporate entity. Additionally, the Company's corporate entity leases
its administrative office space from ARTRA. During 1994, 1993 and 1992 fees for
these services amounted to $151,000, $115,000 and $307,000, respectively. Prior
to February, 1993, these fees were added to the Company's note to ARTRA. During
1993 and 1992 the Company made net payments (borrowings) on the ARTRA note of
$35,000 and $(44,000), respectively. In February, 1993, ARTRA contributed its
notes to Lori's capital. Subsequent to February, 1993, the Company made net
payments to ARTRA of $139,000 and $115,000 in 1994 and 1993, respectively, for
administrative services.
In January, 1993, the Company's New Dimensions subsidiary made payments totaling
$155,000 to a corporation controlled by Austin Iodice, the Vice Chairman,
President and director of the Company for managerial and supervisory services
performed in 1992.
15. INDUSTRY SEGMENT INFORMATION
The Company operates within the U.S. in one industry segment in which it designs
and distributes popular-priced fashion costume jewelry. The Company's customers
are primarily mass merchandisers and others engaged in the retail industry.
Two major customers, Target Stores and Wal-Mart, accounted for sales of
approximately $12,700,000 and $11,300,000, respectively, in 1994. During the
fourth quarter of 1994, New Dimensions lost its account with Wal-Mart, which
accounted for the principal portion of the Company's sales to Wal-Mart (although
Wal-Mart remains a Rosecraft customer). Two major customers, Wal-Mart and Target
Stores, accounted for sales of approximately $15,500,000 and $14,800,000 in
1993, respectively. In 1992 three major customers, Wal-Mart, Target Stores and
Kmart, accounted for sales of approximately $21,600,000, $11,600,000 and
$9,200,000, respectively.
16. LITIGATION
On February 5, 1993, New Dimensions filed a petition for reorganization under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Southern District of New York (Case No. 93 B 40653). On April 9, 1993, New
Dimensions' reorganization plan was confirmed by an order of the Bankruptcy
Court and on May 3, 1993, the consummation date, New Dimensions emerged from
Chapter 11 bankruptcy court protection, New Dimensions' bank lender provided
long-term working capital financing and Lori guaranteed and assumed certain New
Dimensions debt obligations. See Note 5 for a discussion of the terms of New
Dimensions' plan of reorganization.
As a result of the time required to complete the restructuring of New Dimensions
and the financial significance to Lori of the restructuring, Lori did not timely
file Form 10-K for the year ended December 31, 1992 and its Form 10-Q for the
quarter ended March 31, 1993 and has also been late in previous annual and
quarterly filings with the Securities and Exchange Commission ("SEC"). As a
result of discussions with the SEC, in June, 1993, Lori readily consented to a
Final Judgment of Permanent Injunction to file with the SEC Form 10-K for the
year ended December 31, 1992 and Form 10-Q for the quarter ended March 31, 1993
by late July and to meet future filing requirement deadlines.
Lori has been notified by the Federal Environmental Protection Agency that it is
a potentially responsible party for the disposal of hazardous substances by its
predecessor company at a site on Ninth Avenue in Gary, Indiana. Lori has no
records indicating that it deposited hazardous substances at this site and
intends to vigorously defend itself in this matter.
Lori and its subsidiaries are parties in various other business related
litigation which, in the opinion of management, will not have a material adverse
effect on the Company's financial position and results of operations.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
SCHEDULE I. CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE LORI CORPORATION
BALANCE SHEETS
December 31, 1994 and 1993
(Registrant Only In Thousands)
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
ASSETS
Current assets:
Cash .......................................................................... $ 15
Restricted cash ............................................................... 550
Other current assets .......................................................... 1 $ 26
------ ------
566 26
------ ------
Other assets:
Investments in and advances to affiliates ..................................... 15,156 24,447
------ ------
15,156 24,447
------ ------
$ 15,722 $ 24,473
====== ======
LIABILITIES
Current liabilities:
Notes payable and current maturities of long-term debt ........................ $ 7,855 $ 1,400
Long-term debt reclassified as current ........................................ 10,499
Accounts payable .............................................................. 1,156 631
Accrued expenses .............................................................. 216 774
Due to ARTRA .................................................................. 289
------ ------
9,516 13,304
------ ------
Other noncurrent liabilities ..................................................... 928 2,609
------ ------
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, Series C ........................................................ 19,515 17,273
Common stock ..................................................................... 32 31
Less restricted common stock ..................................................... (700)
------ ------
Additional paid-in capital ....................................................... 65,392 60,680
Accumulated deficit .............................................................. (78,961) (69,424)
------ ------
5,278 8,560
------ ------
$ 15,722 $ 24,473
====== ======
</TABLE>
The accompanying notes are an integral part of the condensed financial
information.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
SCHEDULE I. CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE LORI CORPORATION
STATEMENTS OF OPERATIONS
for the years ended December 31, 1994, 1993 and 1992
(Registrant Only In Thousands)
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Selling, general and administrative expenses ........................... $ 967 $ 701 $ 441
Interest expense ....................................................... 1,315 754
Equity in loss of affiliates ........................................... 17,061 1,595 30,814
Allocated corporate overhead ........................................... (1,040) (1,310)
Other expense (income), net ............................................ 7 8 (13)
------ ------ ------
Loss before income taxes and extraordinary credit ...................... (18,310) (1,748) (31,242)
Benefit (charge) equivalent to income taxes ........................... (192) 76 (3,377)
------ ------ ------
Loss before extraordinary credit ....................................... (18,502) (1,672) (34,619)
Extraordinary credit, net discharge of indebtedness .................... 8,965 22,057
------ ------ ------
Net earnings (loss) .................................................... $ (9,537) $ 20,385 $(34,619)
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the condensed financial
information.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
SCHEDULE I. CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE LORI CORPORATION
STATEMENTS OF CASHFLOWS
for the years ended December 31, 1994, 1993 and 1992
(Registrant Only In Thousands)
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ............................................................ $ (9,537) $ 20,385 $(34,619)
Adjustments to reconcile net loss
to cash flows from operating activities:
Extraordinary gain from net discharge of indebtedness ..................... (8,965) (22,057)
Equity in (earnings) loss of affiliates ................................... 17,061 1,595 30,814
Amortization of excess of cost over net assets acquired ................... 7 7 7
Benefit (charge) equivalent to income taxes .............................. 192 (76) 3,377
Changes in assets and liabilities:
Increase (decrease) in other current and noncurrent assets ............ 25 (18) (8)
Increase (decrease) in other current and noncurrent liabilities ....... (2,030) (1,008) 62
------ ------ ------
Net cash flows used by operating activities ....................................... (3,247) (1,172) (367)
------ ------ ------
Cash flows from investing activities:
Restricted cash ................................................................ (550)
Net dividends from (advances) to subsidiaries .................................. (176) 1,279 327
------ ------ ------
Net cash flows from (used by) investing activities ................................ (726) 1,279 327
------ ------ ------
Cash flows from financing activities:
Proceeds from long-term borrowings ............................................. 519
Reduction of long-term borrowings .............................................. (43) (172) (475)
ARTRA capital contribution ..................................................... 1,500
Notes and advances due to ARTRA ................................................ 2,531
Other, net ..................................................................... 64 (4)
------ ------ ------
Net cash flows from (used by) financing activities ................................ 3,988 (108) 40
------ ------ ------
Net increase (decrease) in cash ................................................... 15 (1)
Cash balance beginning of year .................................................... 1 1
------ ------ ------
Cash balance end of year .......................................................... $ 15 $ - $ 1
====== ====== ======
Supplemental schedule of noncash investing and financing activities:
ARTRA common stock issued to Lori's bank lender
under terms of the debt settlement agreement ............................... $ 2,500
Notes and advances payable to ARTRA
transferred to Lori's capital account ...................................... $ 15,990
Lori preferred stock issued in exchange for ARTRA notes and advances ........... 2,242
Transfer New Dimensions assets, net of cash,
to Lori's bank lender under terms of the debt settlement agreement ......... 6,475
The accompanying notes are an integral part of the condensed financial
information.
</TABLE>
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
SCHEDULE I. CONDENSED FINANCIAL INFORMATION OF REGISTRANT- (Cont.)
LORI CORPORATION
NOTES TO FINANCIAL INFORMATION
(Registrant Only)
1. Presentation
The condensed financial information of the Registrant has been prepared in
accordance with the instructions for Schedule I to Form 10-K. The Registrant's
investments in subsidiaries and affiliates are presented on the equity method.
2. Commitments and Contingencies
See Note 9 of the consolidated financial statements.
3. Restricted Assets
The terms of several debt agreements place certain restrictions on the net
assets of certain operating subsidiaries. See Note 6 of the consolidated
financial statements for additional information.
4. Long-Term Debt
See Note 6 of the consolidated financial statements.
5. Income Taxes
The Registrant files a consolidated income tax return with its subsidiaries. For
financial reporting purposes, the Registrant's charge or benefit equivalent to
income tax represents the difference between the aggregate of income taxes
computed on a separate return basis for each of the subsidiaries and the income
taxes computed on a consolidated basis.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 1994, 1993 and 1992
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- --------------------- ----------- ------------
(1) (2)
Balance at Charged to Charged Balance at
Beginning of Costs and to Other End of
Description Period Expenses Accounts Deductions Period
------------------------- ---------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
For the year ended December 31, 1994:
Deducted from assets to which they apply:
Allowance for inventory valuation ................ $ 4,150 $ 218 $ 4,161 (A) $ 207
======= ====== ====== ======
Allowance for markdowns .......................... $ 2,499 $ 4,799 $ 6,463 (B) $ 835
Allowance for doubtful accounts .................. 432 269 198 (C) 503
------- ------- ------ ------
$ 2,931 $ 5,068 $ 6,661 $ 1,338
======= ======= ====== ======
For the year ended December 31, 1993:
Deducted from assets to which they apply:
Allowance for inventory valuation ................ $ 4,900 $ 172 $ 922 (A) $ 4,150
======= ======= ====== ======
Allowance for markdowns .......................... $ 5,280 $ 5,722 $ 8,503 (B) $ 2,499
Allowance for doubtful accounts .................. 557 335 460 (C) 432
------- ------- ------- ------
$ 5,837 $ 6,057 $ 8,963 $ 2,931
======= ======= ======= =======
For the year ended December 31, 1992:
Deducted from assets to which they apply:
Allowance for inventory valuation ................ $ 4,900 $ 4,900
======
Allowance for markdowns .......................... $ 5,125 $21,051 $ 20,896 (B) $ 5,280
Allowance for doubtful accounts .................. 562 209 214 (C) 557
------- ------- ------- -------
$ 5,687 $21,260 $ 21,110 $ 5,837
======= ======= ======= =======
(A) Principally inventory written off, net of recoveries. (B) Principally
markdowns taken. (C) Principally uncollectible accounts written off, net
of recoveries.
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses estimated to be incurred (other than the fees of the
Commission which are actual) in connection with the offering, all of which are
payable by the Registrant, are as follows:
Description Amount
-------------------------------- --------
SEC Registration Fee $ 684
Printing Costs 10,000 *
Legal Fees 40,000 *
Accounting Fees 20,000 *
Blue Sky Fees and Expenses 5,000 *
Miscellaneous 14,316 *
-------
Total $ 90,000 *
========
-----------
* Estimate
Item 14. Indemnification of Directors and Officers.
Reference is made to the discussion in Part I of this Registration
Statement under "Indemnification of Officers and Directors," which discussion is
incorporated herein by reference.
Item 15. Recent Sales of Unregistered Securities.
Kwiatt, Silverman & Ruben, Ltd., Northfield, Illinois, has advised
Registrant as to the availability of the exemptions from registration under the
Securities Act of 1993 described in this Item 15. This firm has also advised
Registrant that Registrant's Long-Term Stock Investment Plan is a
noncontributory plan, and, accordingly, the options to purchase shares of
Registrant's Common Stock which were granted to employees and agents of the
Registrant thereunder are not considered, based upon interpretive releases and
no action letters of the Commission, to have been "sales" of securities
requiring registration under the Securities Act of 1933.
On December 28, 1993, 5,532 shares of the common stock of the
Registrant were issued to Ross Llewelyn, Inc. in consideration of its discharge
of $32,500 owed by the Registrant to it. This stock was issued in reliance on
the exemption under Section 4(2) of the Securities Act of 1933.
The Registrant has granted (i) to Nitsua, Ltd., a corporation
wholly-owned by Austin A. Iodice, Chairman, President and Chief Executive
Officer and a Director of the Registrant, an option to purchase 370,419 shares
of the Registrant's common stock, and (ii) to Anthony Giglio, a consultant to
the Registrant, an option to purchase 185,209 shares of the Registrant's common
stock, in each case at an exercise price of $1.125 per share, with such options
expiring March 15, 2003. These options were granted in consideration of the
agreements of Messrs. Iodice and Giglio to provide management services to the
Registrant and its subsidiaries. Although the Registrant entered into written
agreements with Messrs. Iodice and Giglio to grant these options to them in
March 1993, the granting of these options was subject to approval of the
Registrant's Long-Term Incentive Plan by the stockholders of the Registrant,
which approval was obtained in December 1993. Accordingly, following the
<PAGE>
approval of the Long-Term Incentive Plan by the stockholders, the options were
delivered in February 1994. These securities were issued in reliance on the
exemption under Section 4(2) of the Securities Act of 1933.
On March 31, 1995, the Registrant issued to Alexander Verde, a director
of the Registrant, 150,000 shares of the Registrant's common stock in
consideration of his purchase of a loan from the Registrant's bank lender and
subsequent reduction thereof (as described under paragraph 4 of "Transactions
with Management and Others"). This stock was issued in reliance on the exemption
under Section 4(2) of the Securities Act of 1933.
On June 7, 1995, the Registrant issued 11,765 shares of its common
stock to Manufacturers Indemnity and Insurance Co. of America and 5,882 shares
of its common stock to each of Boeckman Investments, Matthew A. Gohd and Dobbins
Partners, L.P., in each case as additional consideration for such persons
agreeing to extend short-term loans to the Registrant. This stock was issued in
reliance on the exemption under Section 4(2) of the Securities Act of 1933, as
amended.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
3.1 Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 4(a)(1) to the Registrant's Registration
Statement on Form S-2 (Registration No. 2-98628).
3.2 Certificate of Amendment of Certificate of Incorporation
of the Registrant filed with the Delaware Secretary of State February 12, 1991
(incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990).
3.3 Statement of Designation of the rights and preferences of
the Registrant's Series C Preferred Stock (incorporated by reference to Exhibit
3(iii) to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990).
3.4 Bylaws of the Registrant, as amended and restated
effective December 19, 1990 (incorporated by reference to Exhibit 3(ii) to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1990).
5.1* Opinion of Counsel.
10.1 Term Loan Agreement dated as of May 3, 1993 between New
Dimensions Accessories, Ltd. and IBJ Schroder Bank & Trust Registrant
(incorporated by reference to Exhibit 10.1 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992).
10.2 Credit Agreement dated as of May 3, 1993 between New
Dimensions Accessories, Ltd. and IBJ Schroder Bank & Trust Registrant
(incorporated by reference to Exhibit 10.2 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992).
10.3 Term Loan Agreement dated as of March 31, 1993 between
Rosecraft, Inc. and IBJ Schroder Bank & Trust Registrant (incorporated by
reference to Exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992).
10.4 Credit Agreement dated as of March 31, 1993 between
Rosecraft, Inc. and IBJ Schroder Bank & Trust Registrant (incorporated by
reference to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992).
10.5 Management Agreement dated as of April 9, 1993 between
the Registrant and Nitsua, Ltd. (incorporated by reference to Exhibit 10.5 to
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1992).
<PAGE>
10.6 Management Agreement dated as of April 9, 1993 between
the Registrant and Anthony J. Giglio (incorporated by reference to Exhibit 10.6
to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1992).
10.7 Amended and Restated Guarantee Agreement dated as of
March 31, 1993 by the Registrant in favor IBJ Schroder Bank & Trust Registrant
(incorporated by reference to Exhibit 10.7 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992).
10.8 Voluntary Petition of New Dimensions Accessories, Ltd.
for reorganization under Chapter 11 of the Bankruptcy Code filed February 5,
1993 in the United States Bankruptcy Court for the Southern District of New York
(incorporated by reference to Exhibit 28.1 to the Registrant's Current Report on
Form 8-K dated February 18, 1993).
10.9 Debtor's Amended Chapter 11 Plan of New Dimensions
Accessories, Ltd. filed on February 16, 1993 in the United States Bankruptcy
Court for the Southern District of New York (incorporated by reference to
Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated February 18,
1993).
10.10 Debtor's Amended Chapter 11 Plan, as modified, of New
Dimensions Accessories, Ltd. dated March 9, 1993 with Proposed Modifications
dated March 26, 1993, as filed in the United States Bankruptcy Court for the
Southern District of New York (incorporated by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K dated May 17, 1993).
10.11 Amended Disclosure Statement dated as February 16, 1993,
of New Dimensions Accessories, Ltd. pursuant to Section 1125 of the Bankruptcy
Code (incorporated by reference to Exhibit 28.2 to the Registrant's Current
Report on Form 8-K dated February 18, 1993).
10.12 Second Amended Disclosure Statement Pursuant to Section
1125 of the Bankruptcy Code of New Dimensions Accessories, Ltd. (incorporated by
reference to Exhibit 28.1 to the Registrant's Current Report on Form 8-K dated
May 17, 1993).
10.13 Notice of Entry of Order Confirming Second Amended Plan
of Reorganization as Modified dated April 9, 1993 (incorporated by reference to
Exhibit 28.2 to the Registrant's Current Report on Form 8-K dated May 17, 1993).
10.14 Credit Agreement dated as February 5, 1993 between
Lawrence Jewelry Co. and IBJ Schroder Bank & Trust Registrant (incorporated by
reference to Exhibit 28.3 to the Registrant's Current Report on Form 8-K dated
February 18, 1993).
10.15 Amended and Restated License Agreement Dated as of July
20, 1988 between Lifestyle Brands, Ltd. and New Dimensions Accessories, Ltd.
(incorporated by reference to Exhibit 10 to the Registrant's Current Report on
Form 8-K dated May 17, 1993).
10.16 The Registrant's Long-Term Stock Investment Plan
(incorporated by reference to Appendix A to the Registrant's Proxy Statement
dated November 2, 1993 (filed with the Commission on November 2, 1993)).
10.17 Assignment Agreement dated and effective March 31, 1995,
by and among IBJ Schroder Bank & Trust Registrant, The Lori Corporation,
Lawrence Jewelry Co., Lawrence Jewelry Corporation, New Dimensions Accessories
Ltd., Rosecraft, Inc., Fill-Mor Holding, Inc., ARTRA GROUP Incorporated and
Alexander Verde (incorporated by reference to Exhibit 10.1 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994).
10.18 Registration and Settlement Agreement dated as of March
31, 1995 by and between ARTRA GROUP Incorporated and IBJ Schroder Bank & Trust
Registrant (incorporated by reference to Exhibit 10.2 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994).
10.19 Amended Settlement Agreement by and among the
Registrant, Lawrence Jewelry Co., New Dimensions Accessories, Ltd., Fill-Mor
Holding, Inc., Rosecraft, Inc., ARTRA GROUP Incorporated and IBJ Schroder Bank &
Trust Co. dated as of December 23, 1994 (incorporated by reference to Exhibit
10.1 to Registrant's Form 8-K dated January 3, 1995).
<PAGE>
10.20 Loan Agreement, dated as of December 23, 1994, by and
among ARTRA GROUP Incorporated and McGoodwin James & Co. (incorporated by
reference to Exhibit 10.2 to ARTRA's Form 8-K dated January 3, 1995).
10.21 Settlement Agreement dated August 18, 1994 by among the
Registrant, Lawrence Jewelry Co., Lawrence Jewelry Corporation, New Dimensions
Accessories, Ltd., Rosecraft, Inc., Fill-Mor Holding, Inc., ARTRA GROUP
Incorporated and IBJ Schroder Bank & Trust Registrant, dated as of August
18,1994 (incorporated by reference to Exhibit 10.1 to Registrant's Form 10-Q for
the quarter ended June 30, 1994).
10.22 Pledge and Security Agreement between The Lori
Corporation and IBJ Schroder Bank & Trust Registrant dated as of August 18, 1994
(incorporated by reference to Exhibit 10.2 to Registrant's Form 10-Q for the
quarter ended June 30, 1994).
10.23 Pledge and Security Agreement between Lawrence Jewelry
Co. and IBJ Schroder Bank & Trust Registrant dated as of August 18, 1994
(incorporated by reference to Exhibit 10.3 to Registrant's Form 10-Q for the
quarter ended June 30, 1994).
10.24 Pledge and Security Agreement between Lawrence Jewelry
Corporation and IBJ Schroder Bank & Trust Registrant dated as of August 18, 1994
(incorporated by reference to Exhibit 10.4 to Registrant's Form 10-Q for the
quarter ended June 30, 1994).
10.25 Pledge and Security Agreement between New Dimensions
Accessories, Ltd and IBJ Schroder Bank & Trust Registrant dated as of August 18,
1994 (incorporated by reference to Exhibit 10.5 to Registrant's Form 10-Q for
the quarter ended June 30, 1994).
10.26 Pledge and Security Agreement between Rosecraft, Inc.
and IBJ Schroder Bank & Trust Registrant dated as of August 18, 1994
(incorporated by reference to Exhibit 10.6 to Registrant's Form 10-Q for the
quarter ended June 30, 1994).
10.27 Pledge and Security Agreement between Fill-Mor Holding,
Inc. and IBJ Schroder Bank & Trust Registrant dated as
of August 18, 1994 (incorporated by reference to Exhibit 10.7 to Registrant's
Form 10-Q for the quarter ended June 30, 1994).
11.1 Computation of earnings per share and equivalent share of
common stock for the three months ended March 31, 1994 and 1995.
11.2 Computation of earnings per share and equivalent share of
common stock the three years ended December 31, 1994.
22.1 List of Subsidiaries.
23.1* Consent of Counsel.
23.2 Consent of Coopers & Lybrand L.L.P.
24.1 Powers of Attorney (included on page II-6 of this
Registration Statement).
99.1 Consent of Kwiatt, Silverman & Ruben, Ltd.
----------------
* To be filed by amendment.
<PAGE>
(b) Financial Statement Schedules. Set forth below is a list
of the Financial Statement Schedules included as a part of the Registration
Statement. Schedules not listed have been omitted because they are not
applicable or the required information has been included in the financial
statements or notes thereto.
I. Condensed Financial Information of Registrant
II. Valuation and Qualifying Accounts
Item 17. Undertakings.
(a) The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this Registration
Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be filed on its behalf
by the undersigned, thereupon duly authorized, in the City of Northfield, State
of Illinois, on June 19, 1995.
The Lori Corporation
(Registrant)
By: AUSTIN A. IODICE
Austin A. Iodice,
President, Vice Chairman and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James D. Doering and Austin A. Iodice,
and each of them, with full power to act without the other, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities to sign any
or all amendments to this Registration Statement, including post-effective
amendments, and to file the same with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents of any of them, or any substitute or substitutes,
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Act, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
Name/Signature Title Date
- ------------------ ----------------------------------------- ------------
JOHN HARVEY Chairman and Director June 19, 1995
John Harvey
AUSTIN A. IODICE President, Vice Chairman, Chief Executive June 19, 1995
Austin A. Iodice Officer and Director
(Principal Executive Officer)
JAMES D. DOERING Vice President and Chief Financial Officer June 19, 1995
James D. Doering (Principal Financial Officer)
LAWRENCE D. LEVIN Controller June 19, 1995
Lawrence D. Levin (Principal Accounting Officer)
PETER R. HARVEY Director June 19, 1995
Peter R. Harvey
<PAGE>
Registration No. 33-
==============================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
EXHIBITS
Filed With
FORM S-1
REGISTRATION STATEMENT
Under The Securities Act of 1933
--------------------
THE LORI CORPORATION
(Exact name of registrant as specified in its charter)
===========================================
EHIBIT 11.1
THE LORI CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
AND EQUIVALENT SHARE OF COMMON STOCK
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
Line 1995 1994
---- ------ ------
<S> <C> <C>
AVERAGE SHARES OUTSTANDING
1 Weighted average number of shares of common stock
outstanding during the period ........................... 3,203 3,149
2 Net additional shares assuming stock options and warrants
exercised and proceeds used to purchase treasury shares .. 528 -
------ ------
3 Weighted average number of shares and equivalent shares
of common stock outstanding during the period ............ 3,731 3,149
====== ======
EARNINGS (LOSS)
4 Loss before extraordinary credit ........................... ($250) ($1,260)
------ ------
5 Amount for per share computation ........................... ($250) ($1,260)
====== ======
6 Net earnings (loss) ........................................ $6,407 ($1,260)
------ -------
7 Amount for per share computation ........................... $6,407 ($1,260)
====== =======
PER SHARE AMOUNTS
Loss before extraordinary credit
(line 5 / line 3) ....................................... ($0.07) ($0.40)
====== ======
Net loss
(line 7 / line 3) ........................................ $1.72 ($0.40)
====== ======
</TABLE>
Earnings (loss) per share is computed by dividing net earnings (loss),
less preferred stock dividends, by the weighted average number of shares
of common stock and common stock equivalents (stock options and
warrants), unless anti-dilutive, outstanding during the period. Fully
diluted earnings (loss) per share is not presented since the result is
equivalent to primary earnings (loss) per share.
EXHIBIT 11.2
THE LORI CORPORATION COMPUTATION OF EARNINGS (LOSS) PER SHARE AND
EQUIVALENT SHARE OF COMMON STOCK for the years ended December 31, 1994,
1993 and 1992 (In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
Line 1994 1993 1992
---- ------ ------ ------
AVERAGE SHARES OUTSTANDING
<S> <C> <C> <C>
1 Weighted average number of shares of common stock
outstanding during the period ................................ 3,195 3,149 3,149
2 Net additional shares assuming stock options and warrants
exercised and proceeds used to purchase treasury shares ...... 507
------ ------ ------
3 Weighted average number of shares and equivalent shares
of common stock outstanding during the period ................ 3,195 3,656 3,149
====== ====== ======
EARNINGS (LOSS)
4 Loss before extraordinary credit ................................. $(18,502) $ (1,672) $(34,619)
------ ------ ------
5 Amount for per share computation ................................. $(18,502) $ (1,672) $(34,619)
====== ====== ======
6 Net earnings (loss)............................................... $(18,502) $ (1,672) $(34,619)
------ ------ ------
7 Amount for per share computation ................................. $(18,502) $ (1,672) $(34,619)
====== ====== ======
PER SHARE AMOUNTS
Loss before extraordinary credit
(line 5 / line 3) ............................................ $ (5.80) $ (0.45) $ (10.99)
====== ====== ======
Net loss
(line 7 / line 3) ............................................ $ (2.99) $ 5.59 $ (10.99)
====== ====== ======
</TABLE>
Earnings (loss) per share is computed by dividing net earnings (loss),
less redeemable preferred stock dividends and redeemable common stock
accretion, by the weighted average number of shares of common stock and
common stock equivalents (redeemable common stock, stock options and
warrants), unless anti-dilutive, outstanding during the period. Fully
diluted earnings (loss) per share are not presented since the result is
equivalent to primary earnings (loss) per share.
EXHIBIT 22.1
SUBSIDIARIES
(As of June 19, 1995)
THE LORI CORPORATION (1)
New Dimensions * Rosecraft, Inc. (1) Lawrence Jewelry
Accessories, Ltd (2) 100 % Corporation (1)
100 % 100 %
(1) Delaware Corporation
(2) New York Corporation
* Effective December 27, 1994 New Dimensions terminated operations.
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File No.
33- ) of our report, which includes an explanatory paragraph indicating
substantial doubt about the Company's ability to continue as a going concern,
dated April 12, 1995 on our audits of the consolidated financial statements and
financial statement schedules of The Lori Corporation and Subsidiaries as of
December 31, 1994 and 1993, and for each of the three fiscal years in the period
ended December 31, 1994. We also consent to the reference to our firm under the
caption "Experts" and in caption 2 "History of Losses" in the Risk factors
section of this Form S-1.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
June 19, 1995
EXHIBIT 99.1
June 19, 1995
The Lori Corporation
500 Central Avenue
Northfield, IL 60093
Gentlemen:
We hereby consent to the references to our firm in Item 15 of Part II
of your Registration Statement on Form S-1.
Very truly yours,
Kwiatt, Silverman & Ruben, Ltd.
