<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 29, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
----------------- ---------------
Commission File No.: 1-6675
THE ARLEN CORPORATION
(Exact name of Registrant as specified in its charter)
NEW YORK 13-2668657
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
505 EIGHTH AVENUE, NEW YORK, NEW YORK 10018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 736-8100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
4% Preferred Stock, par value $10 per share (Convertible into Common Stock on or
Prior to December 31, 1974)
Common Stock, par value $1 per share
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X .No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of June 17, 1996, non-affiliates of the Registrant held shares of Common
Stock, par value $1 per share (the only class of voting stock of the Registrant
held by non-affiliates of the Registrant), having an aggregate market value
estimated to be between $258,253 and $2,582,530.
There were 30,770,241 shares of Common Stock, par value $1 per share,
outstanding at June 17, 1996.
<PAGE> 2
PART I
ITEM 1. BUSINESS.
GENERAL
Prior to February 6, 1996, The Arlen Corporation (the
"Registrant") had been engaged, through subsidiaries, in the installation of
drywall partitions and acoustical ceilings, the manufacture and distribution of
steering wheels, physical security devices, interior accessories and molded
composite plastic, acrylic, fiberglass and polyurethane components and styling
accessories for the automotive aftermarket and for automotive and marine
original equipment manufacturers and the manufacture and distribution of metal
trim and accessories (including grille guards, light bars, tubular bumpers and
side bars) for the light truck and sport utility market. The outstanding shares
of capital stock of all of the Registrant's operating subsidiaries were owned by
the Registrant's direct, wholly-owned subsidiary, Rucon Services Corp.
("Rucon"), which, prior to November 30, 1995, was known as "Arlen Holdings
Corp." and, prior to April 26, 1995, as "Arlen Automotive, Inc." The Registrant
and its subsidiaries, as engaged in business prior to February 6, 1996, are
herein sometimes collectively referred to as "the Company".
On February 6, 1996, as described below in this Item 1 under
"Recent Developments: UCC Sale of Rucon Shares; Benefits from Forbearance
Agreement", an involuntary public foreclosure sale of the outstanding shares of
Rucon took place, as a result of which the Registrant ceased to have any
interest in the five operating companies which prior thereto had been
wholly-owned subsidiaries of Rucon: Curtis Partition Corporation ("Curtis"),
Grant Products, Inc. ("Grant"), Grizzly Products, Inc. ("Grizzly"), G.T.
Styling, Inc. ("GTS") and A & A Specialties Corp. ("A&A"); the businesses of
these companies (including the businesses of Grizzly and A & A, which had been
acquired by the Company during the fiscal year ended February 29, 1996) had
constituted the Registrant's only business activities.
RECENT DEVELOPMENTS: DEFAULT UNDER ARLEN NOTES; NOTICE OF FORECLOSURE SALE OF
RUCON SHARES; FORBEARANCE AGREEMENT
On February 6, 1996, an involuntary public foreclosure sale (the
"UCC Sale") of the outstanding shares of Rucon (the "Rucon Shares") was held
pursuant to the provisions of the New York Uniform Commercial Code. As
previously reported in the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended November 30, 1995 (as such report was amended on Form
10-Q/A-1, the "November 10-Q"), the UCC Sale followed an event of default (the
"Event of Default") under the Registrant's 5-1/4% Subordinated Notes (the "Arlen
Notes") issued to Arthur G. Cohen ("Mr. Cohen"), the Registrant's Chairman of
the Board, and to members, trusts and entities of the family of Arthur N.
Levien, a deceased former director and officer of the Registrant (the "Levien
Group"). As described in Item 1 of the Registrant's Annual Report on Form 10-K
for the fiscal year ended February 28, 1995 (the "1995 10-K"), the Rucon Shares
had been pledged by the Registrant as part of the collateral for the Arlen
Notes, under which the outstanding indebtedness was approximately $125 million
as of November 30, 1995. The Arlen Notes issued to Mr. Cohen (representing an
outstanding indebtedness of approximately $83 million as of November 30, 1995),
together with the collateral for such Arlen Notes, had been pledged by Mr. Cohen
to Bank Leumi Trust Company of New York ("BL") as security for certain
indebtedness of Mr. Cohen to BL.
2
<PAGE> 3
Following the Event of Default, the Registrant and Rucon
received from Mr. Cohen, as the agent (the "Agent") for the holders of the Arlen
Notes (the "Holders"), a notice accelerating all principal and interest due
under the Arlen Notes and advising of the intention to hold the UCC Sale. The
Registrant was aware that the UCC Sale would not only result in the loss by the
Registrant of all its operating subsidiaries, but would also, according to the
security documents relating to the Arlen Notes, produce for the Registrant only
(a) a reduction in the outstanding indebtedness under the Arlen Notes equal to
154% of the net purchase price received by the Holders for the Rucon Shares at
the public sale and (b) proceeds for the residual interest of the Registrant in
the Rucon Shares equal in amount to 25% of such net purchase price.
The Registrant then discussed with the Agent and with Mataponi,
L.L.C. ("Mataponi"), which expected to bid for the Rucon Shares at the UCC
Sale, certain forbearances, opportunities and other benefits, beyond those to
which the Registrant would otherwise be entitled, which Mataponi (a limited
liability company owned by a trust for the benefit of Mr. Cohen's wife, who is
a principal shareholder of the Registrant) would offer to the Registrant if
Mataponi were to be the successful bidder at the UCC Sale. These discussions
led to an agreement (the "Forbearance Agreement") among the Registrant, the
Agent and Mataponi, providing for these forbearances, opportunities and
benefits if Mataponi were the successful bidder for the Rucon Shares at the UCC
Sale.
RECENT DEVELOPMENTS: PRE-UCC SALE TRANSACTIONS UNDER FORBEARANCE AGREEMENT;
DISCHARGE OF MORGAN OBLIGATIONS
As previously reported in the November 10-Q, prior to but in
contemplation of the UCC Sale of the Rucon Shares and in order to enable
Mataponi to be able to provide the Registrant with the forbearances, benefits
and opportunities contemplated by the Forbearance Agreement, the Registrant
facilitated the assignment to Mataponi, on January 16, 1996, of Mr. Cohen's
indebtedness to BL (which indebtedness was secured by Mr. Cohen's Arlen Notes
and the collateral securing such Arlen Notes). As a result of the acquisition of
this indebtedness by Mataponi (at a cost to Mataponi of $5,500,000), Mataponi
acquired control of Mr. Cohen's Arlen Notes (and the collateral for such Arlen
Notes) and the Registrant was able, pursuant to the Forbearance Agreement, to
obtain the release of the stock of its then subsidiary, Grant, from Mataponi.
This asset was then available to the Registrant to be used as part of the
required collateral for a $3 million loan from Sumitomo Bank of California, the
proceeds of which were utilized on that same date to (a) satisfy the
previously-unsatisfied judgment obtained against the Registrant by Morgan
Guaranty Trust Company of New York ("Morgan"), (b) have discontinued (with
prejudice) the pending lawsuits initiated by Morgan against the Registrant and
Rucon and (c) have discharged and cancelled, at a discount which produced a
$226,000 gain for the Registrant, the two past due promissory notes held by
Morgan which the Registrant had issued to Mr. Cohen and which Mr. Cohen had
assigned to Morgan (all of the foregoing obligations to Morgan being
collectively referred to as the "Morgan Obligations"). As indicated in Item 1
of the 1995 10-K, the existence of the now-discharged Morgan Obligations had
caused the Registrant's independent auditors, in their opinions on the
Registrant's consolidated financial statements for the fiscal years ended
February 28, 1995, February 28, 1994 and February 28, 1993, to express
substantial doubt about the Registrant's ability to continue as a going
concern.
As part of the inducement to Mataponi to consent to the release
of the Grant stock described in the preceding paragraph, Rucon (which at the
time was still a subsidiary of the Registrant) pledged to BL, pursuant to a
Restructuring Agreement between BL and Mr. Cohen, as collateral for certain
3
<PAGE> 4
continuing indebtedness of Mr. Cohen to BL in the principal amount of
$2,722,513.33, 55% of the outstanding shares of capital stock of Rucon's then
wholly-owned subsidiary, Curtis Holding Corporation ("Curtis Holding"), which
was the direct parent company of Curtis, and Curtis Holding pledged to BL, as
additional collateral therefor, 55% of the outstanding shares of capital stock
of Curtis.
RECENT DEVELOPMENTS: UCC SALE OF RUCON SHARES; BENEFITS FROM FORBEARANCE
AGREEMENT
At the UCC Sale of the Rucon Shares held on February 6, 1996, as
previously reported in the Registrant's Current Report on Form 8-K for February
6, 1996 (the "First Feb 8-K"), Mataponi was the successful bidder for the Rucon
Shares with a bid of $3,000,000 (see the following paragraph for the
forbearances, benefits and opportunities realized by the Registrant from such
bid). Mataponi assigned its right to acquire the Rucon Shares to Automotive
Accessories Holdings, L.L.C. ("Automotive LLC"), which acquired the Rucon
Shares at a closing held on the same date. Automotive LLC was at the time owned
by the Levien Group and the same trust which owns Mataponi.
As a result of the UCC Sale, the outstanding indebtedness under
the Arlen Notes was reduced by $3,465,000 and the Registrant received $750,000
in cash (which, pursuant to the Forbearance Agreement, was used to satisfy, at a
discount of $72,000 to the Registrant, certain secured obligations representing
then outstanding indebtedness aggregating approximately $822,000 owed by the
Registrant to entities which may be deemed to be affiliates of Mr. Cohen). The
other forbearances, benefits and opportunities which the Registrant became
entitled to under, or was able to realize by virtue of, the Forbearance
Agreement as a consequence of Mataponi's successful bid for the Rucon Shares, in
addition to the discharge of the Morgan Obligations, included: (a) a $2 million
promissory note (the "$2 Million Note") issued by Automotive LLC (which note is
payable in quarterly installments over a two-year period and is expected to
provide the Registrant with the cash needed to meet its short-term operating
expenses), (b) the withdrawal of the previous acceleration of the Arlen Notes,
(c) the extension of the maturity date of the Arlen Notes from the
pre-acceleration maturity date of July 31, 1997 to December 28, 2033 (during
which time interest will accrue at the rate of 8% per annum), (d) the
elimination of all required payments of principal or interest prior to the new
maturity date except for quarterly payments in an amount equal to 50% of the
Registrant's Net Income (as defined in the Forbearance Agreement), (e) the
elimination from the Arlen Notes of all default provisions other than for
non-payment of principal or interest when due or certain bankruptcy-related
events and (f) the release of the Registrant from any further obligations under
a settlement agreement entered into with Mr. Cohen in 1993. As provided in the
Forbearance Agreement, the Registrant, at the request of the holders of the
Arlen Notes, may be required to collateralize the Arlen Notes (which are
currently unsecured) by a pledge to such holders of any or all notes or bonds
which the Registrant may acquire prior to July 5, 1997; such notes or bonds may
include the $2 Million Note.
RECENT DEVELOPMENTS: ACQUISITION OF MORTGAGE NOTES
On February 12, 1996, the Registrant acquired certain
non-negotiable promissory notes (the "Mortgage Notes") having a face amount of
$125 million and an outstanding indebtedness as of December 28, 1995 of
approximately $144 million. The Mortgage Notes are secured by a parcel of land
on White Plains Road, Bronx, New York. Approximately $124 million of the
currently-outstanding indebtedness under the Mortgage Notes (plus interest
accruing at the rate of 6.19% per annum) has been personally assumed by Mr.
Cohen (as to 72% of such indebtedness) and by the Levien Group (as to 28% of
such indebtedness). Although the Mortgage Notes will accrue interest, no
payments of either principal or interest are required under the Mortgage Notes
until their maturity date, which is December 28, 2034;
4
<PAGE> 5
accordingly, the interest on the Mortgage Notes is not expected to produce cash
flow to help the Registrant meet its future operating expenses.
RECENT DEVELOPMENTS: FURTHER INFORMATION
Reference is made to Item 13 of this Report, the November 10-Q,
the First Feb 8-K, the Registrant's Current Report on Form 8-K for February 12,
1996 and the Forbearance Agreement incorporated by reference as Exhibit 4.3.2
to this Report for further information regarding the transactions described
above in Item 1 of this Report.
RECENT DEVELOPMENTS: DELISTING OF COMMON STOCK BY PHILADELPHIA STOCK EXCHANGE
As anticipated in Item 1 of the 1995 10-K, the shares of Common
Stock of the Registrant ceased to be listed on the Philadelphia Stock Exchange
(the "Exchange") as of April 3, 1996. Such delisting followed the filing by the
Exchange of a Delisting Certificate with the Securities and Exchange Commission
requesting that the Registrant's Common Stock be removed from listing and
registration on the Exchange. The delisting action was based upon the inability
of the Registrant to meet certain minimum per share trading price and net
tangible asset requirements adopted by the Exchange in 1994 as part of new
criteria which must be met in order for a company to maintain the listing of its
securities on the Exchange.
CURRENT FINANCIAL CONDITION
Prior to the recent events described above in this Item 1, the
ability of the Registrant to continue as a going concern was threatened by the
liquidity crises facing the Registrant from the unsatisfied Morgan Obligations
and the rapidly-approaching July 31, 1997 maturity date of the Arlen Notes.
These near-term threats to the Registrant's continued existence have been
virtually eliminated as a result of the forbearances, opportunities and benefits
provided to the Registrant pursuant to the Forbearance Agreement, which included
the discharge of the Morgan Obligations and the extension of the maturity date
of the Arlen Notes to December 28, 2033. Moreover, the cash flow which the
Registrant expects to receive from the $2 Million Note should enable the
Registrant to meet its anticipated cash requirements through the current fiscal
year and into fiscal 1998. During this time, the Registrant
intends to seek new business opportunities through the utilization of its net
operating loss carryforwards (which approximated $117 million at February 29,
1996), though there can be no assurance that the Registrant will be successful
in achieving this objective.
While the UCC Sale has deprived the Registrant of its operating
subsidiaries, it has also relieved the Registrant from responsibility for the
indebtedness and other liabilities and obligations associated with such
subsidiaries, including the indebtedness of approximately $900,000 owed by one
such subsidiary to BL and the indebtedness owned by certain other such
subsidiaries to Sumitomo Bank of California under an $8.5 million revolving
credit line and $3 million term loan.
Although the Registrant's balance sheet as at February 29, 1996
continues to include the Arlen
5
<PAGE> 6
Notes as substantial liabilities (accounting for $124,389,000 of the
Registrant's total liabilities of $132,598,000) and although the Arlen Notes
will continue to accrue substantial interest expense which, in the absence of
significant income from new operations, will produce continuing net losses and
an increasing shareholders' deficit annually (such deficit at February 29, 1996
being $130,447,000), the extension to December 28, 2033 in the maturity date
of the Arlen Notes and the virtual elimination of the default provisions
relating thereto create the practical reality that the Arlen Notes should not
pose a threat to the continued existence of the Registrant for many years.
Assuming that the Registrant is able to satisfy or settle the
judgment held by Remington Investments, Inc. described below in Item 3(a) of
this Report and settle or otherwise resolve the claim asserted by the United
States Internal Revenue Service described below in Item 3(c) of this Report,
management believes that the most serious threat to the Registrant's continued
existence would be its inability to acquire new business operations or to
otherwise generate cash flow from its net operating loss carryforwards prior to
its receipt of the final payments due under the $2 Million Note. In this regard,
it should be noted that the Registrant's independent auditors, in their opinion
on the Registrant's consolidated financial statements for the fiscal year ended
February 29, 1996 which are included as part of Item 8 of this Report, have
expressed substantial doubt about the Registrant's ability to continue as a
going concern.
DESCRIPTION OF BUSINESS
Prior to the UCC Sale of the Rucon Shares and the resulting loss
of the Registrant's operating subsidiaries on February 6, 1996, the Company's
business activities were conducted through Rucon's wholly-owned subsidiaries,
Curtis, Grant, Grizzly, GTS and A&A. The respective businesses of Curtis, Grant,
Grizzly, GTS and A&A are described below:
CURTIS: Curtis, located in Kearny, New Jersey, engages in the
fabrication and installation of dry wall partitions, doors, door frames and
acoustical ceiling tiles for commercial buildings. Most of its work is performed
as a subcontractor in the New York City metropolitan area.
GRANT: Grant, located in Glendale, California, manufactures and
distributes steering wheels, windshield wipers, physical security products and
automotive accessories for the automotive aftermarket and marine original
equipment manufacturers.
GRIZZLY: Grizzly, located in Duarte, California, manufactures
and distributes metal grille guards, light bars, tubular bumpers and side bars
(steps) to the light truck and sport utility market and performs contract
metal-bending work for long-term customers in its job shop.
GTS: GTS, located in Irvine, California, manufactures and
distributes composite plastic and acrylic molded styling accessories for the
automotive aftermarket and original equipment manufacturers.
A&A: A&A, located in Placentia, California, manufactures and
sells molded polyurethane, plastic and fiberglass components for the automotive
specialties and other markets.
EMPLOYEES
As a result of the UCC Sale of the Rucon Shares and the loss of
the Registrant's operating subsidiaries on February 6, 1996, the number of
persons employed by the Registrant has been reduced from approximately 435 to
five. None of the Registrant's remaining employees are represented by labor
unions having collective bargaining agreements with the Registrant.
6
<PAGE> 7
ITEM 2. PROPERTIES.
The Registrant's offices are located in 2,800 square feet of
leased premises at 505 Eighth Avenue, New York, New York. The lease of such
premises expires on February 28, 1998 and requires rent payments of $34,000
annually. The building in which such premises are located is owned by a limited
partnership in which an entity affiliated with Mr. Cohen is the general partner.
Notwithstanding Mr. Cohen's interest in the building, the Registrant believes
that the rent for its premises is at least as favorable to the Registrant as the
rent which the Registrant would be required to pay if it were to lease
comparable space at a fair market rent from an unaffiliated third party.
The Registrant has no liability or obligation with respect to
the lease of any of the premises occupied by its former subsidiaries which were
disposed of in connection with the UCC Sale of the Rucon Shares on February 6,
1996.
ITEM 3. LEGAL PROCEEDINGS.
(a) In October 1994, Remington Investments, Inc., as the
assignee of Federal Deposit Insurance Corporation ("FDIC"), commenced an
execution proceeding against the Registrant in the Supreme Court of the State of
New York, New York County, seeking to execute against property of the Registrant
to satisfy a judgment obtained by FDIC against the Registrant in 1988. The
amount sought is $171,588.70 plus interest from 1988. Such execution proceeding
remains pending.
(b) In October 1994, Holly Hill Realty and its general partners
commenced an action against the Registrant in the General Court of Justice of
the State of North Carolina, Superior Court Division, Alamance County, seeking
to recover $50,000 (plus interest, costs and attorney's fees) allegedly due and
payable under an unsecured promissory note (debenture) issued by the Registrant
in 1974. The Registrant has agreed to contribute $22,500 to a $75,000 payment
agreed to be made to the plaintiffs by the Registrant's former subsidiary, The
Broadstone Group, Inc. (formerly Arlen Realty, Inc.), which was joined as a
third party defendant in this action. The plaintiffs have agreed to accept such
payment in full settlement of their claim.
(c) In July 1995, the Registrant received from the District
Director of the United States Internal Revenue Service (the "IRS") an
examination report with respect to the Registrant's defined benefit pension plan
(the "Plan"). In such report, the IRS asserted that a payment by the Registrant
of $6,726,613 is required in order to cure the Plan's accumulated funding
deficiency for prior years and pay excise taxes and penalties arising therefrom.
Based upon discussions with the IRS following receipt of the examination report,
the Registrant believes that it will be able to obtain a waiver of a substantial
portion of the taxes and penalties claimed to be due and to settle the remaining
deficiency, through installment payments over a number of years, on a basis not
substantially inconsistent with the $850,000 provision already reflected in the
balance sheet of the Registrant as at February 29, 1996 included as part of
Item 8 of this Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
7
<PAGE> 8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) As reported above in Item 1 of this Report under "Recent
Developments: Delisting of Common Stock by Philadelphia Stock Exchange", prior
to April 3, 1996 the Registrant's Common Stock was listed and traded on the
Philadelphia Stock Exchange (the "Exchange"). The last sale of the Registrant's
Common Stock on the Exchange prior to the delisting of such Common Stock by the
Exchange was at a price of $.093 per share. The table below shows the high and
the low sales prices for such stock as reported for each quarterly period during
the past two fiscal years:
<TABLE>
<CAPTION>
Fiscal Year 1996 High Low
- ---------------- ---- ---
<S> <C> <C>
First Quarter $.180 $.027
Second Quarter .090 .043
Third Quarter .242 .027
Fourth Quarter .609 .090
<CAPTION>
Fiscal Year 1995 High Low
- ---------------- ---- ---
<S> <C> <C>
First Quarter $.086 $.039
Second Quarter .055 .001
Third Quarter .039 .001
Fourth Quarter .039 .001
</TABLE>
(b) The number of holders of record of the Registrant's Common Stock
at June 17, 1996 was 9,593.
(c) The Registrant has not declared any dividends on its Common Stock
during the past two years.
8
<PAGE> 9
ITEM 6. SELECTED FINANCIAL DATA.
The following is a summary of selected financial data relating to the
Registrant for each of the Registrant's five fiscal years ended February 29,
1996 (restated for each year to reflect the restatement of discontinued
operations which occurred in February 1996):
Years Ended February 28 or 29,
-----------------------------
(000s omitted)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest expense ($ 10,166) ($ 9,447) ($ 8,739) ($8,084) ($7,587)
========= ======== ========= ======= ======
General and admini-
strative expenses ($ 1,234) ($ 1,229) ($ 1,152) ($1,389) ($1,304)
========= ======== ========= ======= ======
Other income $ 1,789 $ 1 $ 10 $ 2 $ 548
========= ======== ========= ======= ======
Loss from continuing
operations ($ 9,611) ($ 10,675) ($ 9,881) ($9,471) ($8,343)
======== ======== ========= ======= ======
Income from discontinued
operations $ 2,866 $ 5,279 $ 3,543 $2,109 $1,180
======== ======== ========= ======= ======
Loss on disposal of operating
subsidiaries ($ 2,509) -- -- -- --
======== ======== ========= ======= ======
Extraordinary item - gain
on extinguishment
of debt $ 298 -- -- -- --
======== ======== ========= ======= ======
Net loss ($ 8,956) ($ 5,396) ($ 6,338) ($7,362) ($7,163)
======== ======== ========== ======= ======
Loss per common share from
continuing operations ($ 0.30) ($ 0.34) ($ 0.31) ($ 0.29) ($ 0.26)
======== ========= ======== ======= ======
Income per common share
from discontinued operations $ 0.01 $ 0.17 $ 0.11 $ 0.06 $ 0.04
======== ======== ========= ======= ======
Income per common share
from extraordinary item $ 0.01 -- -- -- --
======== ======== ========= ======= ======
Net loss per
common share ($ 0.28) ($ 0.17) ($ 0.20) ($ 0.23) ($ 0.22)
======== ======== ========= ======= ======
</TABLE>
9
<PAGE> 10
As at February 28 or 29,
-----------------------
(000s omitted)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total assets $ 2,151 $ 20,184 $ 15,853 $ 12,932 $ 12,418
======== ======== ======== ======== ========
Long-term debt (including
current portion) $125,263 $120,349 $111,627 $104,052 $ 98,543
======== ======== ======== ======== ========
Shareholders'
deficit ($130,447) ($121,491) ($116,095) (109,757) ($102,385)
======== ======== ======== ======== ========
</TABLE>
10
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto included as part of Item 8 of
this Report:
LIQUIDITY AND CAPITAL RESOURCES
As discussed above in Item 1 of this Report under "Current Financial
Condition", prior to the UCC Sale of the Rucon Shares described above in such
Item 1 and the related forbearances, benefits and opportunities provided to the
Registrant pursuant to the Forbearance Agreement, the ability of the Registrant
to continue as a going concern was threatened by the liquidity crises facing the
Registrant from the unsatisfied Morgan Obligations and the rapidly-approaching
July 31, 1997 maturity date of the Arlen Notes. These near-term threats to the
Registrant's continued existence have now been virtually eliminated as a result
of the forbearances, opportunities and benefits provided to the Registrant
pursuant to the Forbearance Agreement, which included the discharge of the
Morgan Obligations and the extension of the maturity date of the Arlen Notes to
December 28, 2033. Reference is made to the discussion above in Item 1 of this
Report under "Current Financial Condition" for further information regarding the
Registrant's continuing liabilities and cash requirements, anticipated sources
of future cash flow and potential future threats to its continued existence.
RESULTS OF OPERATIONS
In view of both the disposal of the Registrant's operating
subsidiaries on February 6, 1996 and the reclassification of the accounts of
such subsidiaries, as reflected in the financial statements of the Registrant
for the fiscal year ended February 29, 1996 ("Fiscal 1996"), as discontinued
operations and restatement of prior years' financial statements on a basis
consistent therewith, the Registrant does not believe that it would be either
practical or relevant to attempt to compare the results of operations of such
operating subsidiaries for Fiscal 1996 with their results for prior fiscal
periods. However, reference is made to the "Management's Discussion and Analysis
of Financial Condition and Results of Operations" contained in Item 2 of Part I
of the November 10-Q for comparisons of the results of operations of such
operating subsidiaries for the three- and nine-month periods ended November 30,
1995 with their results of operations for the comparable periods of the
Registrant's prior fiscal year. Reference is also made to the Registrant's
Current Report on Form 8-K/A (Amendment No. 1) for February 6, 1996 (which
amended the First Feb 8-K) for certain unaudited pro forma financial information
reflecting the disposition of the Registrant's investments in its operating
subsidiaries.
The Registrant's net loss for Fiscal 1996, representing an increase
of 66% over the net loss for the prior fiscal year, reflects a 46% decline in
the income from discontinued operations and the $2,509,000 loss on disposal of
the operating subsidiaries. The Registrant's general and administrative
expenses relating to its continuing operations remained constant when compared
with such expenses for the prior fiscal year, while interest expense increased
due to the addition of the prior year's interest accrual to the principal amount
of the indebtedness owed to related parties.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and supplementary data of the
Registrant appear in this Report on pages F-1 through F-25, which follow page
24 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
11
<PAGE> 12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) IDENTIFICATION OF DIRECTORS:
<TABLE>
<CAPTION>
Date of
Name Election Age Positions and Offices with Registrant
-------- --- -------------------------------------
<S> <C> <C> <C>
Arthur G. Cohen 11/23/70 66 Chairman of the Board of Directors (Chief
Executive Officer), Director and Member of
the Executive Committee of the Board of
Directors
Thomas L. Kempner 2/2/77 68 Director and Member of the Audit and
Compensation Committees of the Board of
Directors
Emanuel Klimpl 2/26/71 81 Secretary, Director and Member of the
Executive Committee of the Board of Directors
Allan J. Marrus 4/14/82 52 President and Director
</TABLE>
The term of office of each director of the Registrant will expire
upon the election of his successor at the next annual meeting of shareholders of
the Registrant.
(b) IDENTIFICATION OF EXECUTIVE OFFICERS:
<TABLE>
<CAPTION>
Date of
Name Election Age Positions and Offices with Registrant
---- -------- --- -------------------------------------
<S> <C> <C> <C>
Arthur G. Cohen 11/23/70 66 Chairman of the Board of Directors (Chief
Executive Officer), Director and Member of the
Executive Committee of the Board of Directors
Allan J. Marrus 7/8/87 52 President and Director
David S. Chaiken 7/11/90 33 Treasurer
</TABLE>
According to the by-laws of the Registrant, the term of office of
each executive officer of the Registrant expires on the date of the
organizational meeting of the newly-elected Board of Directors of the Registrant
following the next annual meeting of shareholders.
(c) IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES:
Not Applicable.
12
<PAGE> 13
(d) FAMILY RELATIONSHIPS:
There are no family relationships among the executive officers.
(e) BUSINESS EXPERIENCE:
Mr. Cohen has served as Chairman of the Board of the Registrant for
more than the past five years; he is a director of Apparel America Inc. and
Jayark Corporation. Mr. Marrus, an attorney and certified public accountant, has
served as President of the Registrant for more than the past five years. Mr.
Chaiken, a certified public accountant, has served as Treasurer of the
Registrant for more than the past five years. Mr. Kempner has been Chairman and
Chief Executive Officer of Loeb Partners Corporation, investment bankers, and
its predecessor partnership for more than the last five years; he is a director
of Alcide Corp.; Energy Research Corporation, Inc.; Silent Radio Inc.; IGENE
Biotechnology, Inc.; Intermagnetics Gernal Corporation; and Starch Inra Hooper,
Inc. Mr. Klimpl has been Senior Counsel in the law firm of Parker Chapin Flattau
& Klimpl since September 1985, prior to which time he was senior partner of such
firm; he has also been Secretary of the Registrant for more than the past five
years.
(f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS:
None.
(g) REPORTS UNDER SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF
1934:
The Registrant believes that all such required reports have been
filed.
13
<PAGE> 14
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth certain summary information concerning
the compensation paid or accrued for each of the Registrant's last three
completed fiscal years to the Company's three executive officers whose total
annual salary and bonus for the fiscal year ended February 29, 1996 exceeded
$100,000:
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------
Annual Compensation Awards Payouts
------------------------------------------- ------------------- -------
Restricted
Other Annual Stock LTIP All Other
Name and Fiscal Compensation Awards Options Payouts Compensation
Principal Position Year Salary ($) Bonus ($) ($) ($) (#) ($) ($)
- --------------------------- ----- ---------- ---------- ------------- --------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arthur G. Cohen, Chairman 1996 $289,406 -- -- -- -- -- --
of the Board (Chief 1995 $275,625 $ 75,000 -- -- -- -- --
Executive Officer) 1994 $262,500 -- -- -- -- -- --
Allan J. Marrus, President 1996 $289,406 -- $ 180,000(1) -- -- -- --
1995 $133,875 $ 75,000 $ 252,000(1) -- -- -- --
1994 $200,000 $ 240,000(1) -- -- -- --
David S. Chaiken, Treasurer 1996 $ 75,385(2) -- $ 27,500(3) -- -- -- --
1995 $ 62,000 -- $ 48,000(3) -- -- -- --
1994 -- -- -- -- -- -- --
</TABLE>
- -----------
(1) Consists of consulting fees paid to Mr. Marrus or accrued for his account
pursuant to his consulting arrangements or consulting agreements (described
below in this Report) with certain of the Registrant's former subsidiaries.
(2) Consists of salary paid to Mr. Chaiken by a former subsidiary of the
Registrant prior to February 6, 1996, when such subsidiary ceased to be
owned by the Registrant.
(3) Consists of consulting fees paid to Mr. Chaiken or accrued for his account
by certain of the Registrant's subsidiaries. For the 1996 fiscal year, such
fees are those paid prior to February 6, 1996, when such subsidiaries
ceased to be owned by the Registrant.
14
<PAGE> 15
STOCK OPTIONS
The Registrant currently has in effect one stock option plan (the
"1985 Plan"), approved by the Registrant's shareholders in 1985. Although the
1985 Plan provides for the granting of non-qualified stock options, incentive
stock options (within the meaning of Section 422A(b) of the Internal Revenue
Code of 1986, as amended (the "Code")) and stock appreciation rights to key
employees of the Registrant and its subsidiaries, incentive stock options may no
longer be granted under the 1985 Plan.
During the fiscal year ended February 29, 1996, no stock options were
granted to, or exercised by, any of the executive officers named above in the
Summary Compensation Table. At the end of such fiscal year, the only such
executive officer holding unexercised options to purchase shares of the
Registrant's Common Stock was Allan J. Marrus, who holds currently exercisable
options to purchase 500,000 shares of the Registrant's Common Stock at $.02 per
share; such options were granted to Mr. Marrus during the fiscal year ended
February 29, 1992 in exchange for the cancellation of the same number of
exercisable options, having a weighted average exercise price of $.35 per share,
then held by Mr. Marrus. Under the 1985 Plan, such options may be exercised for
shares of the Registrant's Common Stock or, with the consent of the Stock Option
Committee administering the 1985 Plan, may be exercised as stock appreciation
rights entitling Mr. Marrus to exchange his options for cash in an amount equal
to the difference between the fair market value (at the time of exercise) of the
underlying shares of Common Stock and the exercise price of the options. Based
on the fair market value ($.094 per share) of the Registrant's Common Stock at
the end of the fiscal year ended February 29, 1996, the options held by Mr.
Marrus had a value of $37,000 at such time. Mr. Marrus' outstanding options are
also set forth in the following table:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR ("FY")-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Value of Un-
Number of exercised In-the-
Unexercised Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares Acquired Value Realized Exercisable/ (Exercisable/
Name on Exercise (#) ($) Unexercisable) Unexercisable)
---- ---------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
Arthur G. Cohen -- -- -/- -/-
Allan J. Marrus -- -- 500,000/- $37,000/-
David S.Chaiken -- -- -/- -/-
EXECUTIVE AGREEMENTS
</TABLE>
EXECUTIVE AGREEMENTS
In February 1992, the Registrant entered into an employment agreement
with Mr. Cohen, providing for his continued employment as Chairman of the Board
and Chief Executive Officer of the Registrant through at least February 28, 1997
and for lifetime consulting services to the Company
15
<PAGE> 16
thereafter, subject, however, to Mr. Cohen's right to terminate such agreement
by accelerating the end of the consulting term. The employment term is
automatically extended each February for an additional year (currently until
February 28, 2001) unless either party gives notice to the other party at least
six months prior thereto that he or it does not wish to so extend. Under his
employment agreement, Mr. Cohen is entitled to receive a current annual base
salary of $303,877, which increases cumulatively by 5% on each March 1 after the
date hereof during the employment term; the agreement provides for Mr. Cohen to
receive consulting fees equal to 50% of his last salary as an employee during
the first five years of the consulting term and 25% of such salary thereafter.
In February 1992, the Registrant also entered into an employment
agreement with Allan J. Marrus, providing for his continued employment as
President and Chief Operating Officer of the Registrant through at least
February 28, 1997 and for consulting services to the Registrant for five years
thereafter, subject, however, to Mr. Marrus' right to terminate such agreement
by accelerating the end of the consulting term. The employment term is
automatically extended each February for an additional year (currently until
February 28, 2001) unless either party gives notice to the other party at least
six months prior thereto that he or it does not wish to so extend. As a result
of the approval in April 1995 by the Registrant's Board of Directors of an
increase in Mr. Marrus' base salary to the same annual base salary payable to
Mr. Cohen, the annual base salary currently payable to Mr. Marrus is $303,877,
which increases cumulatively by 5% on each March 1 after the date hereof during
the employment term. The employment agreement also provides for Mr. Marrus to
receive consulting fees equal to 50% of his last salary as an employee during
the consulting term.
The employment agreements between the Registrant and each of Messrs.
Cohen and Marrus provide that, in the event of a change in control (as defined)
of the Registrant followed by a change in such person's duties, powers or
conditions of employment, such person may, within two years thereafter,
terminate his employment and receive a lump-sum payment equal to 2.99 times his
"base amount" (as defined in Section 280G(b)(3) of the Code). Such agreements
also provide for the escrow of funds to secure such lump-sum payments in case of
a change in control or threat of a change in control of the Registrant. Pursuant
to these employment agreements, all indemnification rights existing in favor of
Messrs. Cohen and Marrus under the Registrant's certificate of incorporation and
by-laws and the New York Business Corporation Law are to continue for at least
ten years after the termination of their employment.
From March 1, 1993 into the fiscal year which ended February 29,
1996, two of the Registrant's former operating subsidiaries had consulting
arrangements with Mr. Marrus, providing for him to render certain consulting
services through at least February 29, 2000. Pursuant to these consulting
arrangements, Mr. Marrus received an aggregate of $180,000 in consulting fees
during the fiscal year ended February 29, 1996. Such arrangements terminated
prior to February 29, 1996 without any further obligations thereafter on the
part of any party thereto.
DIRECTOR COMPENSATION
Each director who is not an employee of the Company is entitled to
receive an annual fee of $10,000, an additional annual fee of $2,500 for each
committee on which he serves and a fee of $500 for each Board or committee
meeting attended. All of these fees payable for at least the last three years
remain unpaid except for fees in the aggregate amount of $12,500 which were paid
to Thomas L. Kempner during the fiscal year ended February 28, 1995.
16
<PAGE> 17
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Since the beginning of the fiscal year which ended February 29, 1996,
the Compensation Committee of the Board of Directors of the Registrant has
consisted solely of one director, Thomas L. Kempner, who has never been either
an officer or an employee of the Registrant but who has or has had an interest
in entities to which the Registrant is indebted (as described below in Item 13
of this Report).
In its current form, the Compensation Committee reviews changes in
executive compensation proposed by management and submits its recommendation to
the Board of Directors for action by the full Board, which includes among its
four members Mr. Cohen, the Chairman of the Board and chief executive officer of
the Registrant, and Mr. Marrus, the President of the Registrant. Decisions with
respect to stock option and stock appreciation right grants are made by the
Stock Option Committee administering the 1985 Plan, which Committee consists of
Mr. Cohen and Mr. Kempner. Mr. Cohen has not been a participant under the 1985
Plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) At June 17, 1996, the following persons, to the knowledge of the
Registrant, beneficially owned more than 5% of any class of voting securities of
the Registrant:
<TABLE>
<CAPTION>
Title Name and Address Amount and Nature of Percent
of Class of Beneficial Owner Beneficial Ownership of Class
-------- ------------------- -------------------- --------
<S> <C> <C>
Common Stock, Karen B. Cohen 4,944,935 shares 16.1%
par value $1 645 Fifth Avenue
per share New York, NY 10022
Common Stock, Mark W. McLaughlin 4,739,485 shares (1) 15.4%
par value $1 13750 U.S. 281 North
per share Suite 660
San Antonio, TX 78232
Class B Stock, Arthur G. Cohen 2,000,000 shares (2) 100.0%
par value $.50 505 Eighth Avenue
per share New York, NY 10018
Class B Stock, Estate of Arthur N. 2,000,000 shares (2) 100.0%
par value $.50 Levien
per share 505 Eighth Avenue
New York, NY 10018
</TABLE>
- ---------
(1) This information was obtained from a Statement of Changes in Beneficial
Ownership of Securities on Form 4, dated March 6, 1996, a copy of which was
furnished to the Registrant by the shareholder.
(2) Such shares are owned of record by a liquidated partnership in which Mr.
Cohen had a two-thirds interest and Mr. Levien (deceased) had a one-third
interest.
17
<PAGE> 18
(b) At June 17, 1996, each director of the Registrant and all
directors and officers of the Registrant as a group beneficially owned
outstanding equity securities of the Registrant as set forth below. Except as
otherwise indicated in notes (1) and (5), each of the persons noted has both
sole voting power and sole investment power with respect to the shares set
opposite his name.
<TABLE>
<CAPTION>
Title Name of Amount and Nature of Percent
of Class Beneficial Owner Beneficial Ownership of Class
-------- ---------------- -------------------- ---------
<S> <C> <C> <C>
Common Stock, Thomas L. Kempner 169,033 shares (1) (6)
par value $1
per share Emanuel Klimpl 318,500 shares (2) 1.0%
Allan J. Marrus 500,000 shares (3) 1.6%
David S. Chaiken 10,000 shares (4) (6)
All directors and officers 997,533 shares 3.2%
as a group (5 persons)
Class B Stock, Arthur G. Cohen (5) 2,000,000 shares (5) 100.0%
par value $.50
per share All directors and officers 2,000,000 shares 100.0%
as a group (5 persons)
</TABLE>
- -----------------------
(1) Includes 25,500 shares of Common Stock held by a trust of which Mr. Kempner
is the trustee and one of the beneficiaries. In addition, Mr. Kempner
holds, as trustee for his children, 2,000 shares of Common Stock. The
264,000 shares of Common Stock issuable to Loeb Partners Corporation, of
which Mr. Kempner is Chairman and Chief Executive Officer, upon exercise of
its warrant described below in Item 13 of this Report, are not included in
this table.
(2) Includes the 250,000 shares of Common Stock issuable upon exercise of the
warrant issued to Mr. Klimpl as described below in Item 13 of this Report.
In addition, Mr. Klimpl's wife owns 3,700 shares of Common Stock.
(3) Consists of shares of Common Stock which Mr. Marrus has the right to
acquire upon exercise of options granted to him under the 1985 Stock Option
Plan of the Registrant which are currently exercisable.
(4) Such shares of Common Stock are issuable to Mr. Chaiken in payment of a
bonus granted to Mr. Chaiken in August 1991, but have not yet been issued.
(5) Such shares are owned of record by a liquidated partnership in which
Mr. Cohen had a two-thirds interest and Arthur N. Levien (deceased) had a
one-third interest. The 4,944,935 shares of Common Stock beneficially owned
by Karen B. Cohen, the wife of Mr. Cohen, are not included in this table.
(6) Represents less than 1% of the outstanding shares of Common Stock.
18
<PAGE> 19
(c) The Registrant is unaware of any arrangements which may at a
subsequent date result in a change in control of the Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Reference is made to Item 1 of this Report for information concerning
certain transactions between the Company, on the one hand, and Mr. Cohen or
entities affiliated with Mr. Cohen or controlled by a trust for his wife's
benefit or the Levien Group, on the other hand. Other transactions between the
Company, on the one hand, and members of management or the Registrant's Board of
Directors, on the other hand, are described below in this Item 13.
In 1978 and 1979, Loeb Rhoades, Hornblower & Co. ("LRH") performed
financial services for the Registrant in connection with an analysis of the
Registrant's subsidiary, Korvettes, Inc., and its subsequent sale. The
Registrant agreed to pay LRH a fee of $102,000 for such analysis and $162,000 on
account of the sale of Korvettes, Inc. In August 1987, the Registrant issued to
Loeb Partners Corporation ("LPC"), assignee of the rights of LRH to such fees, a
promissory note in the principal amount of $264,000, without interest, maturing
on July 31, 1997 and a warrant entitling it to purchase 264,000 shares of Common
Stock of the Registrant at $1.00 per share, commencing August 2, 1989. The note
and the warrant were issued to LPC in satisfaction of the aforesaid obligations.
Thomas L. Kempner, a director of the Registrant, was Chairman and Chief
Executive Officer of LRH and is Chairman and Chief Executive Officer of LPC.
In connection with certain transactions in 1975 and 1978 involving
Lezam Anstalt ("Lezam"), an entity then controlled by Robert N. Rose (the
brother of Marshall Rose, at the time President and a director of the
Registrant), and its 49% owned subsidiary, Atlantic Management S.A. ("AMSA"),
the Registrant received and holds (a) a $4,000,000 note from Lezam, originally
payable in 1983 with interest at 2% above prime, which is secured by, and as to
which the Registrant's sole recourse is to, $5,500,000 of the Registrant's
5-1/4% Subordinated Notes (which are discussed above in Item 1 of this Report),
and (b) an approximately $1,746,000 promissory note from ATC Company, originally
payable in 1983 with interest at 2-1/2% in excess of the Citibank Alternate Base
Rate, which is secured by, and as to which the Registrant's sole recourse is to,
$2,093,000 of 5-1/4% Notes. The Company is to apply interest on the pledged
5-1/4% Notes against the respective obligations which they collateralize. In May
1981, ATC Company acquired all the stock of Lezam. Pursuant to the Forbearance
Agreement, the respective maturity dates of the 5-1/4% Notes, the note from
Lezam and the note from ATC Company were extended to December 28, 2033.
During the fiscal year ended February 29, 1996, Mr. Marrus and Mr.
Cohen, directly or indirectly, received consulting fees of approximately
$477,000 from two operating subsidiaries of the Registrant. Such subsidiaries
ceased to be owned by the Registrant as of February 6, 1996.
On or about February 6, 1996, the Registrant applied the proceeds of
the initial quarterly installment of $250,000 due under the $2 Million Note to
reimburse certain related parties for advances made by them with respect to
expenses of the Registrant.
19
<PAGE> 20
Pursuant to loans entered into in 1982 and 1983, the Registrant is
indebted to The Coler Foundation for approximately $66,000 (including accrued
interest). Mr. Cohen is the trustee of The Coler Foundation; neither he
nor any members of his family have any beneficial interest in The Coler
Foundation.
In July 1985, the Registrant issued to Emanuel Klimpl, a director and
officer of the Registrant, a promissory note in the principal amount of
$250,000, without interest, maturing on June 30, 1995 and a warrant entitling
him to purchase 250,000 shares of Common Stock of the Registrant at $1.00 per
share, commencing July 2, 1988. The note and the warrant were issued to Mr.
Klimpl in satisfaction of accrued and unpaid director's and consulting fees
aggregating $250,000.
As a result of modifications of the warrants described above in this
Item 13, the dates upon which such warrants would first become exercisable have
been extended from time to time, with all such warrants having first become
exercisable between July and August of 1993. All of such warrants expire ten
years after the date on which they first become exercisable.
20
<PAGE> 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) FINANCIAL STATEMENTS:
See Index to Financial Statements annexed hereto, which appears on
page F-2 following page 24 of this Report.
(b) EXHIBITS:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
3.1 Certificate of Incorporation of the Registrant as
amended through July 31, 1981. (1)
3.1.1 Certificate of Change, as filed with the Department
of State of the State of New York on February 8,
1984. (2)
3.1.2 Certificate of Amendment of the Certificate of
Incorporation of the Registrant, as filed with the
Department of State of the State of New York on
October 17, 1985. (2)
3.2 By-Laws of the Registrant. (4)
4.1 Indenture dated as of January 1, 1966 pursuant to
which the Registrant's 5% Convertible Subordinated
Debentures due June 1, 1986 were issued. (7)
4.2 Indenture dated as of April 23, 1982 pursuant to
which the Registrant's Zero Coupon Convertible
Subordinated Debentures due June 1, 1989 were
issued. (3)
4.3 Form of the Registrant's 5-1/4% Subordinated Notes.
(1)
4.3.1 Extension Agreement dated March 29, 1993 among
the Registrant, Arlen Automotive, Inc. and Arthur G.
Cohen and the other holders of the Registrant's 5-
1/4% Subordinated Notes. (9)
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
4.3.2 Forbearance Agreement dated as of January 5, 1996
among the Registrant, Rucon Services Corp., Mataponi,
L.L.C. and the holders of the Registrant's 5-1/4%
Subordinated Notes by their agent, Arthur G. Cohen,
or their substitute agent, Mataponi, L.L.C. (10)
4.4 Warrant issued by the Registrant to Emanuel Klimpl.
(3)
4.5 Warrant issued by the Registrant to Thomas W.
McMahon, Jr. (deceased). (5)
4.6 Warrant issued by the Registrant to Arthur G. Cohen.
(5)
4.7 Warrant issued by the Registrant to Arthur N. Levien
(deceased). (5)
4.8 Warrant issued by the Registrant to Loeb Partners
Corporation. (5)
10.1 1985 Stock Option Plan of the Registrant. (6)
10.2 Employment Agreement dated February 14, 1992 between
the Registrant and Arthur G. Cohen (8).
10.3 Employment Agreement dated February 14, 1992 between
the Registrant and Allan J. Marrus. (8)
21.1 List of Significant Subsidiaries.
27.1 Financial Data Schedule.
</TABLE>
22
<PAGE> 23
- --------------------
(1) Incorporated by reference to the Exhibits to the Registrant's Annual Report
on Form 10-K for the fiscal year ended February 28, 1981 (File No. 1-6675).
(2) Incorporated by reference to the Exhibits to the Registrant's Annual Report
on Form 10-K for the fiscal year ended February 28, 1986 (File No. 1-6675).
(3) Incorporated by reference to the Exhibits to the Registrant's Annual Report
on Form 10-K for the fiscal year ended February 28, 1985 (File No. 1-6675).
(4) Incorporated by reference to Exhibit 4.01 to the Registrant's Quarterly
Report on Form 10-Q for the fiscal year ended August 31, 1986 (File No.
1-6675).
(5) Incorporated by reference to the Exhibits to the Registrant's Annual Report
on Form 10-K for the fiscal year ended February 29, 1988 (File No. 1-6675).
(6) Incorporated by reference to Exhibit A to the Registrant's Proxy Statement
dated August 16, 1985 (File No. 1-6675).
(7) Incorporated by reference to Exhibit 4(b) to the Registration Statement on
Form S-1 (File No. 2-24242) of the Registrant's predecessor, Spartans
Industries, Inc., filed pursuant to the Securities Act of 1933, as amended.
(8) Incorporated by reference to the Exhibits to the Registrant's Annual Report
on Form 10-K for the fiscal year ended February 29, 1992 (File No. 1-6675).
(9) Incorporated by reference to the Exhibits to the Registrant's Current Report
on Form 8-K dated May 20, 1993 (File No. 1-6675).
(10)Incorporated by reference to the Exhibits to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended November 30, 1995 (File No.
1-6675).
(c) REPORTS ON FORM 8-K:
During the Registrant's fiscal quarter ended February 29, 1996, the
Registrant filed Current Reports on Form 8-K for February 6, 1996 (Items 2 and
7) and February 12, 1996 (Items 2 and 7); Amendment No. 1 to the Current Report
on Form 8-K for February 6, 1996, including pro forma financial information, was
filed on Form 8-K/A on June 21, 1996.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized.
THE ARLEN CORPORATION
By: /s/ Arthur G. Cohen
---------------------------------------
Chairman of the Board
Dated: July 12, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Arthur G. Cohen Chairman of the Board and July 12, 1996
- -------------------------- Director (Principal Executive
Arthur G. Cohen Officer)
/s/ David S. Chaiken Treasurer (Principal Financial July 12, 1996
- -------------------------- and Accounting Officer)
David S. Chaiken
/s/ Thomas L. Kempner Director July 12, 1996
- --------------------------
Thomas L. Kempner
- -------------------------- Director
Emanuel Klimpl
/s/ Allan J. Marrus Director July 12, 1996
- --------------------------
Allan J. Marrus
</TABLE>
24
<PAGE> 25
THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-K - ITEM 8
YEARS ENDED FEBRUARY 29, 1996,
FEBRUARY 28, 1995 AND 1994
F-1
<PAGE> 26
THE ARLEN CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Report of Independent Certified Public Accountants F-3 - F-4
Consolidated balance sheets - February 29, 1996
and February 28, 1995 F-5 - F-6
Consolidated financial statements for the
years ended February 29, 1996,
February 28, 1995 and 1994:
Statements of operations F-7
Statements of capital deficit F-8
Statements of cash flows F-9 - F-10
Summary of accounting policies F-11 - F-13
Notes to consolidated financial statements F-14 - F-25
</TABLE>
F-2
<PAGE> 27
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
of The Arlen Corporation
New York, New York
We have audited the accompanying consolidated balance sheets of The Arlen
Corporation and subsidiaries (the "Company") as of February 29, 1996 and
February 28, 1995, and the related consolidated statements of operations,
capital deficit and cash flows for each of the three years in the period ended
February 29, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Arlen Corporation and subsidiaries at February 29, 1996 and February 28, 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended February 29, 1996 in conformity with generally
accepted accounting principles.
F-3
<PAGE> 28
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company
disposed of its operating subsidiaries in February 1996 and at February 29,
1996, had deficiencies in working capital and equity. 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 be necessary
from the outcome of this uncertainty.
BDO Seidman, LLP
New York, New York
June 12, 1996
F-4
<PAGE> 29
THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 29, February 28,
ASSETS 1996 1995
------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 10,000 $ 98,000
Note receivable - current portion,
net of unamortized discount of
$117,000 (Notes 1 and 5) 883,000 --
Current assets of discontinued
operations (Note 13) -- 18,480,000
----------- -----------
TOTAL CURRENT ASSETS 893,000 18,578,000
PROPERTY AND EQUIPMENT, net
(Note 2) 72,000 90,000
OTHER ASSETS, including amounts due
from former subsidiaries (Note 6) 469,000 --
NOTE RECEIVABLE - less current portion,
net of unamortized discount of $33,000
(Notes 1 and 5) 717,000 --
NONCURRENT ASSETS OF DISCONTINUED
OPERATIONS (Note 13) -- 1,516,000
----------- -----------
$ 2,151,000 $20,184,000
=========== ===========
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-5
<PAGE> 30
THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
LIABILITIES AND February 29, February 28,
CAPITAL DEFICIT 1996 1995
--------------- ------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable, including $2,742,000 due
to related parties in 1995 (Note 3) $ 137,000 $ 2,878,000
Accrued interest payable (including
$4,000 and $622,000 due to related
parties in 1996 and 1995, respectively)
(Notes 3 and 4) 179,000 766,000
Accruals:
State income taxes (Note 12) -- 946,000
Expenses, fees and other
(Notes 10, 11 and 12) 7,019,000 7,651,000
Current portion of long-term obligations
due to related parties (Note 4) 299,000 722,000
Due to former subsidiaries, net -- 795,000
Current liabilities of discontinued
operations (Note 13) -- 8,290,000
------------- -------------
TOTAL CURRENT LIABILITIES 7,634,000 22,048,000
LONG-TERM OBLIGATIONS DUE TO
RELATED PARTIES (Note 4) 575,000 1,246,000
AMOUNTS DUE TO RELATED PARTIES (Note 5) 124,389,000 118,381,000
------------- -------------
TOTAL LIABILITIES 132,598,000 141,675,000
COMMITMENTS AND CONTINGENCIES
(Notes 1, 5, 9 and 10)
CAPITAL DEFICIT (statement attached)
(Note 7) (130,447,000) (121,491,000)
------------- -------------
$ 2,151,000 $ 20,184,000
============= =============
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-6
<PAGE> 31
THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended
----------------------------------------------------
February 29, February 28, February 28,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
GENERAL AND ADMINISTRATIVE EXPENSES $ (1,234,000) $ (1,229,000) $ (1,152,000)
OTHER (EXPENSES) INCOME:
Interest expense (including amounts
to related parties of $9,761,000
in 1996, $9,071,000 in 1995
and $8,403,000 in 1994) (10,166,000) (9,447,000) (8,739,000)
Other income, net (Note 12) 1,789,000 1,000 10,000
------------ ------------ ------------
Loss from continuing
operations before
discontinued operations
and extraordinary item (9,611,000) (10,675,000) (9,881,000)
DISCONTINUED OPERATIONS:
Income from discontinued operations
(Note 12) 2,866,000 5,279,000 3,543,000
Loss on disposal of operating
subsidiaries (Notes 1 and 13) (2,509,000) -- --
------------ ------------ ------------
Net loss before
extraordinary item (9,254,000) (5,396,000) (6,338,000)
EXTRAORDINARY ITEM:
Gain on extinguishment of debt
(Notes 3(b) and 4(b)) 298,000 -- --
------------ ------------ ------------
Net loss $ (8,956,000) $ (5,396,000) $ (6,338,000)
============ ============ ============
LOSS PER COMMON SHARE FROM
CONTINUING OPERATIONS $ (0.30) $ (0.34) $ (0.31)
INCOME PER COMMON SHARE
FROM DISCONTINUED OPERATIONS 0.01 0.17 0.11
INCOME PER COMMON SHARE FROM
EXTRAORDINARY ITEM 0.01 -- --
------------ ------------ ------------
LOSS PER COMMON SHARE $ (0.28) $ (0.17) $ (0.20)
============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 31,690,000 31,690,000 31,690,000
============ ============ ============
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-7
<PAGE> 32
THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITAL DEFICIT
<TABLE>
<CAPTION>
Year ended
-------------------------------------------------------
February 29, February 28, February 28,
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
CAPITAL STOCK:
Senior preferred - $1 par value
(authorized 30,000,000 shares; none
issued) $ -- $ -- $ --
4% cumulative preferred - $10 par
value (authorized 201,468 shares;
issued 199,145 shares) 1,992,000 1,992,000 1,992,000
Common - $1 par value (authorized
33,000,000 shares; issued 30,770,223
in 1996, 1995 and 1994, including
shares in treasury and shares
subscribed) 29,804,000 29,804,000 29,804,000
Class B - $.50 par value (authorized
and issued 2,000,000 shares) 1,000,000 1,000,000 1,000,000
------------- ------------- -------------
Total capital stock 32,796,000 32,796,000 32,796,000
------------- ------------- -------------
ADDITIONAL PAID-IN CAPITAL 49,169,000 49,169,000 49,169,000
------------- ------------- -------------
DEFICIT:
Balance at beginning of year (203,050,000) (197,654,000) (191,316,000)
Net loss (8,956,000) (5,396,000) (6,338,000)
------------- ------------- -------------
Balance at end of year (212,006,000) (203,050,000) (197,654,000)
------------- ------------- -------------
(130,041,000) (121,085,000) (115,689,000)
Add: Cost of common stock held in
treasury (1,080,224 shares) (406,000) (406,000) (406,000)
------------- ------------- -------------
TOTAL CAPITAL DEFICIT $(130,447,000) $(121,491,000) $(116,095,000)
============= ============= =============
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-8
<PAGE> 33
THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended
----------------------------------------------------
February 29, February 28, February 28,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (8,956,000) $ (5,396,000) $ (6,338,000)
------------ ------------ ------------
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and amortization 21,000 546,000 649,000
Provision for losses on accounts
receivable -- 539,000 83,000
Reversal of prior years'
liabilities (1,787,000) -- --
Loss on disposal of operating
subsidiaries 2,509,000 -- --
Gain on extinguishment of debt (298,000) -- --
Increase in amounts due related
parties in exchange for interest 9,473,000 8,927,000 8,115,000
Other 1,221,000 -- --
Changes in assets and liabilities
net of disposition of subsidiaries
in 1996:
(Increase) decrease in assets:
Accounts receivable -- (2,436,000) (2,001,000)
Inventories -- (1,161,000) (1,039,000)
Other current -- (238,000) 23,000
Other assets -- -- --
Increase (decrease) in
liabilities:
Accounts payable -- (33,000) 915,000
Accrued interest (587,000) 61,000 333,000
Accrued taxes -- 127,000 52,000
Accrued expenses, fees
and other 209,000 707,000 849,000
------------ ------------ ------------
Total adjustments 10,761,000 7,039,000 7,979,000
------------ ------------ ------------
Net cash provided by
operating activities 1,805,000 1,643,000 1,641,000
------------ ------------ ------------
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-9
<PAGE> 34
THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
Year ended
----------------------------------------------------
February 29, February 28, February 28,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
(Investment in) redemption of
certificates of deposit, net $ -- $ (4,000) $ 143,000
Investment in capital assets (3,000) (267,000) (468,000)
Proceeds from disposal of
operating subsidiaries 750,000 -- --
Notes receivable 250,000 -- --
Due from former subsidiaries (447,000) -- --
Investment in other assets -- (41,000) (147,000)
------------ ------------ ------------
Net cash provided by (used in)
investing activities 550,000 (312,000) (472,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on revolving credit line -- (36,502,000) (30,569,000)
Proceeds from revolving credit line -- 36,146,000 29,934,000
Principal payments on short-term
borrowings (2,515,000) (426,000) (60,000)
Proceeds from short-term borrowings -- -- 250,000
Proceeds from long-term borrowings -- -- 27,000
Principal payments on long-term
borrowings (1,022,000) (18,000) (208,000)
Payments on debt to related parties -- (57,000) (379,000)
------------ ------------ ------------
Net cash used in
financing activities (3,537,000) (857,000) (1,005,000)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,182,000) 474,000 164,000
CASH AND CASH EQUIVALENTS,
beginning of year 1,192,000 718,000 554,000
------------ ------------ ------------
10,000 1,192,000 718,000
LESS CASH INCLUDED IN CURRENT ASSETS
OF DISCONTINUED OPERATIONS -- (1,094,000) (681,000)
------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
end of year $ 10,000 $ 98,000 $ 37,000
============ ============ ============
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-10
<PAGE> 35
THE ARLEN CORPORATION AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company ("Arlen") and its two inactive subsidiaries. During February 1996, Arlen
disposed of its wholly-owned subsidiary, Rucon Services Corp. (formerly known as
Arlen Holdings Corp. and, prior thereto, as Arlen Automotive, Inc.), which was
the holding company of the operating subsidiaries, Curtis Partition Corporation
("Curtis"), Grant Products, Inc. ("Grant"), G.T. Styling, Inc. ("GTS"), Grizzly
Products, Inc. ("Grizzly") and A&A Specialties Corp. ("A&A"). The accounts of
the subsidiaries disposed of in February 1996 are reflected in the consolidated
financial statements as discontinued operations. Material intercompany
investments, advances and transactions have been eliminated.
BUSINESS
As further discussed in Note 1, the Company's operating subsidiaries
were disposed of in February 1996. Currently, the Company has no operations but
intends to seek new business opportunities. Through February 1996, the Company
had operated in the following industries:
Fabrication and installation of drywall partitions, door and door
frames and acoustical ceilings for commercial buildings primarily in the New
York City metropolitan area.
Manufacturing and distribution of parts and accessories primarily for
the automotive aftermarket with independent sales representatives throughout the
United States.
BASIS OF FINANCIAL STATEMENT PRESENTATION
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
F-11
<PAGE> 36
THE ARLEN CORPORATION AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
(Continued)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed
on the straight-line basis over the estimated useful lives of the related
assets. Amortization of leasehold improvements is computed on the straight-line
basis over the lesser of the remaining life of the lease or the estimated useful
life of the improvement.
The estimated useful lives used in the computation of depreciation were
as follows:
Furniture and fixtures 3-7 years
Leasehold improvements Term of lease
LOSS PER COMMON SHARE
Loss per common share is computed by dividing the net loss, after
giving effect to dividends on preferred stock, by the weighted average number of
common shares and common stock equivalents outstanding during each year.
Convertible securities that are deemed to be common stock equivalents are
assumed to have been converted at the beginning of each year. The Company's
common stock equivalents and convertible issues were anti-dilutive in fiscal
years 1996, 1995 and 1994 and, therefore, were not included in the loss per
share computations for these periods.
CASH FLOWS
For purposes of the statements of cash flows, the Company considers
cash on deposit in banks and investments with original maturities of three
months or less to be cash equivalents.
F-12
<PAGE> 37
THE ARLEN CORPORATION AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
(Continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, notes receivable, due from former
subsidiaries, notes payable and accruals approximate fair value. It is not
practical to determine the fair value of amounts due to related parties, the
maturity dates of which have been extended to 2033 (Note 5).
F-13
<PAGE> 38
THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION AND SALE OF SUBSIDIARIES
The accompanying financial statements have been prepared on the basis
that the Company will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. At February 29, 1996, the Company had a deficit in working capital
approximating $6,700,000, a capital deficit of $130,400,000 and amounts due to
related parties (the "Notes" - see Note 5) of $124,389,000. Substantial interest
expense will continue to accrue on the Notes which, in the absence of
significant income from new operations, will produce continuing net losses and
an increase in shareholders' deficit annually. The Company intends to seek new
business opportunities although there can be no assurance that it will be
successful in achieving this objective.
On February 6, 1996, an involuntary UCC sale took place of the
outstanding stock of the Company's wholly-owned subsidiary, Rucon Services Corp.
("Rucon"). Prior to the sale, Rucon owned, directly or indirectly, the
outstanding stock of all of the Company's operating subsidiaries. The
involuntary sale resulted from a default by the Company under the Notes (see
Note 5). As a result of the sale, the outstanding indebtedness under the Notes
was reduced by $3,465,000 and the Company received $750,000, which was used to
satisfy certain secured corporate obligations to related parties.
In anticipation of the involuntary sale, the Company entered into an
agreement (the "Forbearance Agreement") which offered the Company forbearances,
benefits and opportunities as a condition of the sale (see Note 5). As a result
of the sale, the Forbearance Agreement, among other things, entitled the Company
to a 38-year extension in the maturity date of the Notes and a $2,000,000
noninterest-bearing note receivable over two years (which, after deduction of
unamortized discount based on an imputed interest rate of 9%, amounts to
$1,850,000) and excused the Company from certain obligations. The initial
installment of $250,000 on this note received on February 6, 1996 was used to
satisfy certain secured corporate obligations. The successful bidder at the sale
was an entity controlled by related parties. At February 6, 1996, the Company's
net investment in the operating subsidiaries was $8,574,000, resulting in a loss
on disposal of $2,509,000 (see Note 13).
F-14
<PAGE> 39
THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment are summarized by major classifications as
follows:
<TABLE>
<CAPTION>
February 29, February 28,
1996 1995
------------ ------------
<S> <C> <C>
Furniture and fixtures $ 31,000 $ 28,000
Leasehold improvements 125,000 125,000
-------- --------
156,000 153,000
Less: Accumulated
depreciation and
amortization 84,000 63,000
-------- --------
$ 72,000 $ 90,000
======== ========
</TABLE>
NOTE 3 - NOTES PAYABLE
Notes payable consisted of the following:
<TABLE>
<CAPTION>
February 29, February 28,
1996 1995
------------ ------------
<S> <C> <C>
Note payable (a) $ 137,000 $ 137,000
Notes payable - officer -
director (b) -- 1,039,000
Note payable - related
parties (b) -- 1,557,000
Notes payable - related
parties (b) -- 145,000
---------- ----------
$ 137,000 $2,878,000
========== ==========
</TABLE>
- ---------------
(a) This note was issued in partial settlement of a lawsuit. The debt is
now due and payable and the creditor has commenced an execution
proceeding against the Company to enforce its right for payment.
F-15
<PAGE> 40
THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
=============================================================
NOTE 3 - NOTES PAYABLE (continued)
- -------
(b) The notes to an officer and to related parties (including
accrued interest), originally due December 31, 1991, were
repaid in full during the year ended February 29, 1996
resulting in a gain on extinguishment of $226,000.
NOTE 4 - LONG-TERM OBLIGATIONS
The following is a summary of long-term obligations:
<TABLE>
<CAPTION>
February 29, February 28,
1996 1995
------------ ------------
<S> <C> <C>
Notes payable - noninterest-
bearing notes maturing in
1997 (a) $ 549,000 $ 1,049,000
Amount due - officer - director (b) - 423,000
Amount due officer - director 9,000 9,000
Note payable, including interest
at prime plus 1.75% (c) 66,000 120,000
Note payable - zero coupon note
maturing in 1995, interest
imputed at 14% 250,000 250,000
Note payable - 117,000
------------ ------------
874,000 1,968,000
Less: Current portion 299,000 722,000
------------ ------------
$ 575,000 $ 1,246,000
============ ============
</TABLE>
- ----------------
(a) These notes ($500,000 of which was paid from the sale of the
Company's subsidiaries in February 1996 - see Note 1) were
issued in exchange for current liabilities arising from
services rendered by related parties in prior years.
(b) Amounts due officer/director repaid in full during the year
ended February 29, 1996 resulting in a gain on extinguishment
of $72,000.
(c) The sole trustee of the creditor is an officer and director of
the Company. Interest is based on an institution's prime rate
which was 8.25% at February 28, 1996.
F-16
<PAGE> 41
THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
=============================================================
NOTE 4 - LONG-TERM OBLIGATIONS (continued)
The aggregate long-term obligations, maturing during each of
the years subsequent to February 29, 1996, are as follows: 1997 - $299,000 and
1998 - $575,000.
NOTE 5 - AMOUNTS DUE TO RELATED PARTIES
At February 29, 1996, the Company was indebted to a director
and entities controlled by a successor of a deceased director for notes in the
aggregate amount of $124,389,000, including accrued interest (this amount having
been reduced by $3,465,000 as part of the proceeds from the UCC sale of Arlen's
operating subsidiaries as discussed in Note 1). Pursuant to the Forbearance
Agreement (Note 1), the Company received $750,000, which was used to satisfy
certain secured corporate obligations to related parties and a $2,000,000
noninterest-bearing promissory note (the "$2 Million Note") (which note is
payable in quarterly installments over a two-year period commencing on February
6, 1996 which, after deduction of unamortized discount based on an imputed
interest rate of 9%, amounts to $1,850,000). The Company also became entitled to
certain other forbearances, benefits and opportunities under the Forbearance
Agreement. Thus, as provided in the Forbearance Agreement, (a) the acceleration
of the notes has been withdrawn and the maturity date of the notes has been
extended to December 28, 2033 (during which time interest will accrue at the
rate of 8% per annum), (b) no payments will be required under the notes except
quarterly in an amount equal to 50% of the Company's net income (as defined in
the Forbearance Agreement) and (c) the notes will hereafter be subject to
default only for nonpayment of principal or interest when due or certain
bankruptcy-related events. As provided in the Forbearance Agreement, the
Company, at the request of the holders of the notes, may be required to
collateralize the notes (which are currently unsecured) by a pledge to such
holders of any or all notes or bonds which the Company may acquire prior to July
5, 1997; such notes or bonds may include the $2 Million Note.
F-17
<PAGE> 42
THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
=============================================================
NOTE 6 - OTHER ASSETS
Other assets include amounts due from former subsidiaries
(disposed of in February 1996 - see Note 1) and the amount paid for the
acquisition on February 12, 1996 of certain nonnegotiable promissory notes (the
"Mortgage Notes") having a face amount of $125 million and an outstanding
indebtedness as of December 28, 1995 of approximately $144 million. The Mortgage
Notes are secured by a parcel of land on White Plains Road, Bronx, New York.
Approximately $124 million of the currently outstanding indebtedness under the
Mortgage Notes (plus interest accruing at the rate of 6.19% per annum) has been
personally assumed by the related parties referred to in Note 5. No payments
of either principal or interest are required under the Mortgage Notes until
their maturity date, which is December 28, 2034.
NOTE 7 - CAPITAL STOCK AND OPTIONS
(a) The Company may call the 4% cumulative preferred stock at
$10.50 per share plus dividends in arrears. Cumulative dividends in arrears at
February 29, 1996 aggregate approximately $1,398,000 ($7.02 per share).
(b) The Class B shares are voting shares and are callable at
par, provided the subordinated notes are not in default. Class B shareholders
have similar rights to cash dividends as common shareholders, except that the
amount of cash dividends per share that may be paid on the Class B shares
cannot, in the aggregate, exceed $.0021875 multiplied by the number of months
from March 1, 1971 to the end of the month preceding the dividend record date.
As of February 29, 1996, no dividends have been declared on the common stock.
F-18
<PAGE> 43
THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
=============================================================
NOTE 7 - CAPITAL STOCK AND OPTIONS (continued)
(c) The following comprises the number of shares that have
been reserved for issuance at February 29, 1996:
<TABLE>
<CAPTION>
Security description Shares reserved
-------------------- ---------------
<S> <C>
Stock option plans (i) 500,000
Performance bonus plan (ii) 100,000
Stock warrants issued to officer -
directors (iii) 1,299,000
Convertible debentures (iv) 10,793
Retirement plan (v) 300,000
Other (vi) 58,646
---------
2,268,439
=========
</TABLE>
(i) Stock options to purchase common stock. These options are
currently exercisable at $0.02 per share.
(ii) Common stock available for performance bonus plan. No
outstanding grants.
(iii) Stock warrants to purchase common stock. These warrants
are all exercisable at an exercise price of one dollar
per share.
(iv) Zero coupon debentures which are convertible into common
stock. These debentures are currently exercisable at
$1.125 per share.
(v) Common stock reserved for issuance to the retirement
trust in lieu of cash contributions.
(vi) Common stock reserved for exchange of the stock of other
entities acquired by the Company.
No stock options or warrants were exercised, cancelled or
issued during the three years ended February 29, 1996.
F-19
<PAGE> 44
THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
=======================================================
NOTE 8 - INCOME TAXES
The Company files a consolidated Federal tax return with its
subsidiaries.
In addition, the Company has consolidated Federal net
operating loss carryforwards (NOLs) of approximately $117,600,000 available at
February 29, 1996. The tax NOL carryforwards expire as follows:
<TABLE>
<CAPTION>
Year ended
February 28 or 29, Amount
------------------ --------------
<S> <C>
1997 $ 7,700,000
2001 8,500,000
2002 7,000,000
2003 7,400,000
2004 16,300,000
2005 13,500,000
2006 13,400,000
2007 12,600,000
2008 9,000,000
2009 7,000,000
2010 6,200,000
2011 9,000,000
--------------
$ 117,600,000
==============
</TABLE>
The tax benefits of these NOLs and temporary differences (not
material) have been offset by a valuation allowance of an equal amount due to
the uncertainty of their realization.
F-20
<PAGE> 45
THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
=============================================================
NOTE 9 - COMMITMENTS AND CONTINGENCIES
(a) Employment and Consulting Agreements
The Company has employment and consulting agreements with two
officers through February 2001 which provide for minimum aggregate annual
payments of approximately $600,000. The employment agreements provide that, in
the event of a change in control (as defined) of the Company, the employee may
terminate his employment and receive a lump-sum payment equal to 2.99 times his
"base amount" as defined.
(b) Rental Facilities
The Company's executive office space is leased from a related
party for an approximate annual rental of $34,000 through February 1998.
NOTE 10 - PENSION PLAN
Arlen is the sponsor of a defined benefit pension plan (the
"Plan") which was frozen in 1981. The actuarial valuation of the Plan as of
March 1, 1991 (the latest Plan valuation) indicates the unfunded actuarial
accrued liability was approximately $850,000.
In July 1995, the Company received from the District Director
of the United States Internal Revenue Service (the "IRS") an examination report
with respect to the defined benefit pension plan (the "Plan"). In such report,
the IRS asserted that a payment of $6,726,613 is required in order to cure the
Plan's accumulated funding deficiency for prior years and pay excise taxes and
penalties arising therefrom. Based upon discussions with the IRS following
receipt of the examination report, the Company believes that it will be able to
obtain a waiver of a substantial portion of the taxes and penalties claimed to
be due and to settle the remaining deficiency, through installment payments over
a number of years, for an aggregate amount approximating the $850,000 provision
already reflected in the Company's balance sheet (included in accruals -
expenses, fees and other). Accordingly, management believes that it has
adequately provided for this liability.
F-21
<PAGE> 46
THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
=============================================================
NOTE 11 - ACCRUALS - EXPENSES, FEES AND OTHER
Included in accruals is indebtedness which may be owed to a
third party (inclusive of interest) for approximately $4,335,000 and $3,960,000
at February 29, 1996 and February 28, 1995, respectively. This outstanding
balance bears interest at 10% per annum. Interest charged on the outstanding
balance for the years ended February 29, 1996, February 28, 1995 and 1994
amounted to approximately $375,000, $340,000 and $310,000, respectively.
NOTE 12 - OTHER INCOME
Included in other income for the year ended February 29, 1996
are reversals of various provisions aggregating $1,787,000 that management
believes will not be payable and therefore are no longer required to be
reserved. Such amounts relate to accruals for state income taxes and other
matters that had been provided for in previous years.
NOTE 13 - DISCONTINUED OPERATIONS
Income from discontinued operations for Rucon and subsidiaries
is presented below. Rucon's subsidiaries operated in two industry segments:
interior construction and automotive parts and accessories.
These businesses have been presented as discontinued
operations and the Arlen balance sheet at February 28, 1995 and statements of
operations through date of disposition have been restated to conform with this
presentation. At February 6, 1996 the operating subsidiaries were sold for
$6,065,000 (see Note 1) and the net assets of the operating subsidiaries
approximated $8,574,000 (reduced from the February 28, 1995 amount of
$11,706,000 primarily due to dividends received by the Company in January 1996
of $3,000,000). This resulted in a loss on disposal of the operating
subsidiaries of $2,509,000. Financial results of the businesses included as
discontinued operations are as follows:
F-22
<PAGE> 47
THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
=============================================================
NOTE 13 - DISCONTINUED OPERATIONS (continued)
Operating Data:
<TABLE>
<CAPTION>
For the For the year ended
period ended February 28,
February 6, -----------------------------------
1996 1995 1994
------------- --------------- ---------------
<S> <C> <C> <C>
Sales $ 51,087,000 $ 50,099,000 $ 40,840,000
Cost of sales 33,654,000 30,141,000 25,410,000
------------- --------------- ---------------
Gross profit 17,433,000 19,958,000 15,430,000
Selling, general and
administrative
expenses (14,117,000) (14,371,000) (11,532,000)
Interest expense (486,000) (325,000) (355,000)
Other income, net 36,000 17,000 -
------------- --------------- ---------------
Net income $ 2,866,000 $ 5,279,000 $ 3,543,000
============= =============== ===============
</TABLE>
F-23
<PAGE> 48
THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
==========================================================
NOTE 13 - DISCONTINUED OPERATIONS (continued)
Balance Sheet Data:
<TABLE>
<CAPTION>
ASSETS February 28,
------ 1995
-------------
<S> <C>
Cash $ 1,094,000
Certificates of deposit 222,000
Accounts receivable, net 11,109,000
Inventories 4,731,000
Due from parent 795,000
Other current assets 529,000
-------------
Current assets 18,480,000
Property and equipment, net 813,000
Other assets 703,000
-------------
Total assets 19,996,000
-------------
LIABILITIES
-----------
Notes payable to related parties 3,403,000
Accrued interest payable 10,000
Accounts payable 2,344,000
Accruals:
State income taxes 191,000
Expenses, fees and other 2,342,000
-------------
Total liabilities 8,290,000
-------------
Net assets $ 11,706,000
=============
</TABLE>
F-24
<PAGE> 49
THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Concluded)
==================================================
NOTE 14 - STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
Year ended
----------------------------------------------
February 29, February 28, February 28,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash paid for:
Interest $587,000 $349,000 $342,000
============ ============ ============
</TABLE>
Supplemental disclosure of noncash financing activities:
Proceeds from the sale of the Company's operating subsidiaries
included receipt of a note receivable of $1,850,000 (face amount $2,000,000) and
a reduction in indebtedness to related parties of $3,465,000.
F-25
<PAGE> 50
EXHIBIT INDEX
Exhibit No. Description
21.1 List of Significant Subsidiaries of the
Arlen Corporation
27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT 21.1
SIGNIFICANT SUBSIDIARIES OF THE ARLEN CORPORATION
None.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE ARLEN CORPORATION AND SUBSIDIARIES FOR
THE YEAR ENDED FEBRUARY 29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000007346
<NAME> ARLEN CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> MAR-01-1995
<PERIOD-END> FEB-29-1996
<EXCHANGE-RATE> 10
<CASH> 10
<SECURITIES> 0
<RECEIVABLES> 883
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 893
<PP&E> 156
<DEPRECIATION> (84)
<TOTAL-ASSETS> 2151
<CURRENT-LIABILITIES> 7634
<BONDS> 124964
0
1992
<COMMON> 30804
<OTHER-SE> (163243)
<TOTAL-LIABILITY-AND-EQUITY> 2151
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1234
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10166
<INCOME-PRETAX> (9611)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9611)
<DISCONTINUED> 357
<EXTRAORDINARY> 298
<CHANGES> 0
<NET-INCOME> (8956)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
</TABLE>
