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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 27, 1997
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OROAMERICA, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-21862 94-238534
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
443 North Varney Street
Burbank, California 91502
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 848-5555
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ITEM 5. OTHER EVENTS.
On February 27, 1997, OroAmerica, Inc. (the "Company") issued
the press release filed herewith as Exhibit 99.1, which announces the Company's
entry into the premium cigar business. The press release contains
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The Company cautions investors that there are certain important
factors that could cause future events and results to differ materially from
those anticipated by management in the forward-looking statements included in
the press release, as well as risks and uncertanties generally applicable to the
premium cigar business, including the factors, risks and uncertainties
summarized in the penultimate paragraph of the press release. A more detailed
discussion of the factors, risks and uncertainties summarized in the press
release is set forth below.
New Business Segment
The Company historically has operated as a manufacturer and distributor
of karat gold jewelry and has not engaged in the manufacture or distribution of
cigars or other tobacco products. The Company's premium cigar business will be
subject to many of the risks associated with a new business enterprise and the
introduction of a new product line, including risk of lack of market acceptance
for the Company's premium cigars and risks associated with the manufacture and
distribution of a product line unrelated to the Company's existing business. The
Company also may experience delays in opening its manufacturing facilities and
retail cigar shop, including delays resulting from factors that are beyond the
Company's control, and any such delays could have a material adverse effect on
the Company and its premium cigar business. There can be no assurance that the
Company will be able to successfully introduce its premium cigar line,
successfully open and operate any retail cigar shops or otherwise successfully
compete in the premium cigar market.
Constraints on Ability to Manufacture Cigars
The Company's ability to produce premium cigars will be dependent upon
its ability to attract, hire and retain master cigar-makers and other skilled
craftsmen and laborers. The market for such personnel is highly competitive, and
the Company will compete with other cigar companies in seeking to hire and
retain such employees. No assurances can be given regarding the ability of the
Company to hire and retain any such personnel.
The Company's ability to manufacture premium cigars also will be
effected by the availability of properly aged and blended tobacco ready for
manufacturing. The price and availability of such tobacco are subject to
numerous factors not within the Company's control, including weather conditions,
foreign government policies, potential trade restrictions and the
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overall demand for tobacco. In addition, existing competitors, with
well-established relationships with suppliers, may be in a better position than
the Company to obtain premium tobacco during periods when supplies are limited.
It is the Company's understanding that, in recent periods, certain major premium
cigar manufacturers have experienced increases in back orders and delays in
product shipments as a result of a shortage of properly aged and blended
tobacco. No assurances can be given that the Company will be able to obtain, on
an ongoing basis, sufficient supplies of properly aged and blended tobacco for
its proposed operations. In addition, if the rate of escalation in consumption
of cigars continues, but the supply of tobacco remains constant or increases at
a lower rate than demand, the Company's ability to manufacture cigars could be
adversely affected.
Declining Market for Cigars Through 1993
According to industry sources, the cigar industry experienced declining
unit sales between 1964 and 1993. While the cigar industry has experienced
significantly better trends in unit sales since 1993, there can be no assurance
that the recent positive trends will continue. The Company believes that a
considerable percentage of the recent increase in unit sales of cigars,
especially with respect to premium cigars, is attributable to new cigar smokers
attracted by the improving image of cigar smoking. There can be no assurance
that recent increases in cigar unit sales are indicative of long-term trends or
that these new customers will continue to smoke cigars in the future. In
addition, during the past decades, the tobacco industry has been the subject of
advertising and public service campaigns against smoking. While these campaigns
principally have been directed against cigarette smoking, the recent increase in
the sale of cigars and the publicity such increase has received may result in
advertising and public service campaigns directed against cigar smoking. Any
such campaigns could reverse the recent upward trend in the unit sales of
cigars.
Extensive and Increasing Regulation of Tobacco Products
Cigar manufacturers, like other producers of tobacco products, are
subject to regulation at the federal, state and local levels. Federal law
recently has required states, in order to receive full funding for federal
substance abuse block grants, to establish a minimum age of 18 years for the
purchase of tobacco products, together with an appropriate enforcement program.
The recent trend is toward increasing regulation of the tobacco industry, and
the recent increase in the popularity of cigars could lead to increased
regulation of cigars. A variety of bills relating to tobacco issues have been
introduced in the U.S. Congress, including bills that would have (i) prohibited
the advertising and promotion of all tobacco products or restricted or
eliminated the deductibility of such advertising expenses, (ii) increased
labeling requirements on tobacco products to include, among other things,
addiction warnings and lists of additives and toxins, (iii) shifted regulatory
control of tobacco products and advertisements from the FTC to the FDA, (iv)
increased tobacco excise taxes, and (v) required tobacco companies to pay for
health care costs incurred by the federal government in connection with tobacco
related diseases. Hearings have
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been held on certain of these proposals; however, to date, none of these
proposals has been passed by Congress. Future enactment of such proposals or
similar bills could have a material adverse effect on the Company and its
premium cigar business.
In August 1996, the FDA published a final rule on tobacco in the
Federal Register. Specifically, the rule prohibits a variety of activities
relating to the sale of cigarettes and smokeless tobacco. These regulations
currently are not applicable to cigars; however, there can be no assurance that
these or similar regulations will not be extended to include cigars in the
future.
The majority of states restrict or prohibit smoking in certain public
places and restrict the sale of tobacco products to minors. Local legislative
and regulatory bodies also increasingly have moved to curtail smoking by
prohibiting smoking in certain buildings or areas or by requiring designated
"smoking" areas. Further restrictions of a similar nature could have a material
adverse effect on the premium cigar business. Numerous proposals also have been
considered at the state and local level restricting smoking in certain public
areas, regulating point of sale placement and promotions and requiring warning
labels.
California requires "clear and reasonable" warnings to consumers who
are exposed to chemicals determined by the state to cause cancer or reproductive
toxicity, including tobacco smoke and several of its constituent chemicals. In
addition, legislation recently introduced in Massachusetts would, if enacted,
require warning labels on cigar boxes. Although similar legislation has been
introduced in other states, no action has been taken. Although federal law has
required health warnings on cigarettes since 1965 and on smokeless tobacco since
1986, there is no federal law requiring that cigars carry such warnings. There
can be no assurance that such legislation introduced in other states will not be
passed in the future or that other states will not enact similar legislation.
Consideration at both the federal and state level also has been given
to the consequences of tobacco smoke on non-smokers (so called "second-hand"
smoke). The U.S. Environmental Protection Agency published a report in January
1993 with respect to the respiratory health effects of second-hand smoke, which
concluded that widespread exposure to environmental tobacco smoke presents a
serious and substantial public health concern. There can be no assurance that
regulations relating to second-hand smoke will not be adopted or that such
regulations or related litigation would not have a material adverse effect on
the Company and its premium cigar business. Also, a study recently published in
the journal Science reported that a chemical found in cigarette smoke has been
found to cause genetic damage in lung cells that is identical to damage observed
in many malignant tumors of the lung and, thereby, directly links lung cancer to
smoking. The National Cancer Institute also has announced that it will issue a
report in 1997 describing research into cigars and health. The study and these
reports could affect pending and future tobacco regulation and litigation and
the public's consumption of cigars.
Increased cigar consumption and the publicity such increase has
received may increase the risk of additional regulation and the extension of
current regulations applicable to other tobacco products to cigars. There can be
no assurance as to the ultimate content, timing or effect
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of any additional regulation of tobacco products by any federal, state, local or
regulatory body, and there can be no assurance that any such legislation or
regulation would not have a material adverse effect on the Company and its
premium cigar business.
Tobacco Industry Litigation
The tobacco industry has experienced significant health-related
litigation involving tobacco and health issues. Plaintiffs in such litigation
have sought and are seeking compensatory and, in some cases, punitive damages,
for various injuries claimed to result from the use of tobacco products or
exposure to tobacco smoke. Although the Company has not yet engaged in the sale
of any cigars or other tobacco products and it will have commenced its premium
cigar business after both the risks of smoking and the addictive nature of
nicotine generally are known, no assurances can be given that the Company will
not be made a party to, or otherwise materially adversely affected by, tobacco
industry litigation. The costs to the Company of defending prolonged litigation
and any settlement or successful prosecution of any health-related litigation
could have a material adverse effect on the Company's results of operations and
financial condition. The recent increase in the sales of cigars and the
publicity such increase has received may have the effect of increasing the
probability of legal claims against cigar manufacturers. The Company carries
general liability insurance but has no health hazard policy, which, to the best
of the Company's knowledge, is consistent with industry practice. As a result,
the Company may not have insurance coverage if it becomes subject to any
health-related litigation in the future.
Competition
In the premium cigar market, the Company will compete with a number of
smaller domestic and foreign companies that specialize in premium cigars and
certain larger companies that maintain premium cigar lines, including
Consolidated Cigar Holdings, Inc., General Cigar Holdings, Inc. and Swisher
International Group, Inc. The recent increased demand for cigars and the
relatively low barriers to entry have lead to many new entrants in the premium
cigar manufacturing business.
The Company believes that smokers of premium cigars purchase cigars
based on the perceived quality of the cigar. The principal characteristics that
differentiate one premium cigar from another are the quality of the tobacco in
the cigar, the quality of the tobacco used as a cigar wrapper, the blend of
tobacco and the quality of the rolling. The Company historically has operated as
a manufacturer and distributor of karat gold jewelry and has not engaged in the
manufacture or sale of cigars or other tobacco products. There can be no
assurance that the Company will be able to successfully introduce its premium
cigar line, successfully open and operate any retail cigar shops or otherwise
successfully compete in the premium cigar business.
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Social, Political and Economic Risks Associated With Foreign Operations and
International Trade
It is anticipated that all of the Company's manufacturing operations
for its premium cigars will be located in countries outside of the U.S., with
initial operations expected to be located in some or all of the following
countries: the Dominican Republic, Indonesia and Nicaragua. In addition, the
Company anticipates that it will buy tobacco directly from suppliers located in
countries outside the U.S. The Company will be exposed to the risk of changes in
social, political and economic conditions inherent in foreign operations and
international trade, including changes in the laws and policies that govern
foreign investment and international trade in the countries where the Company
will operate and conduct international trade, as well as, to a lesser extent,
changes in U.S. laws and regulations relating to foreign investment and trade.
Any such social, political or economic changes could pose, among other things,
the risk of finished product and raw material supply interruption or significant
increases in finished product and raw material prices. In particular, political
or labor unrest in any of the countries where the Company may establish
manufacturing operations could result in interruptions in the production of the
Company's premium cigars. There can be no assurance that changes in social,
political or economic conditions in the countries where the Company will conduct
its premium cigar business will not have a material adverse effect on the
Company and its premium cigar business.
Effects of Increases in Excise Taxes
Cigars have long been subject to federal, state and local excise taxes,
and such taxes frequently have been increased or proposed to be increased, in
some cases significantly, to fund various legislative initiatives. In
particular, there have been proposals by the federal government in the past to
reform health care through a national program to be funded principally through
increases in federal excise taxes on tobacco products. It is likely that the
enactment of new or significant increases in existing federal, state or local
excise taxes would result in decreased unit sales of cigars, which could have a
material adverse effect on the Company and its premium cigar business.
Relations with Cuba
Cuba historically has had, and continues to have, the highest
reputation for premium cigars in the world. Pursuant to the Cuban embargo, the
sale in the U.S. of cigars of Cuban origin is prohibited. It is expected that,
if and when normalization of relations between the U.S. and Cuba occurs,
manufacturers of Cuban cigars, either alone or in combination with other
manufacturers or distributors of tobacco products, will attempt to enter the
U.S. market. The entry of Cuban premium cigars into the U.S. market would
increase competition in the premium cigar market and could have a material
adverse effect on the Company and its premium cigar business.
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ITEM 7. EXHIBITS.
99.1 Press release issued by the registrant on February 27,
1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Date: February 27, 1997
OROAMERICA, INC.
By: /s/ SHIU SHAO
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Shiu Shao, Vice President and
Chief Financial Officer
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EXHIBIT 99.1
NEWS RELEASE
FOR: OROAMERICA, INC.
CONTACT: Shiu Shao, Chief Financial Officer
Ph: (818) 848-5555 FOR IMMEDIATE RELEASE
OROAMERICA ANNOUNCES ENTRY INTO PREMIUM CIGAR BUSINESS
BURBANK, CA, February 27, 1997 -- OroAmerica, Inc. (NASDAQ NMS Symbol:
OROA) announced today that it is entering the premium cigar business. The
Company intends to manufacture a range of premium cigars for sale to wholesale
distributors, tobacconists and upscale retail stores and for sale at one or
more flagship stores to be operated by the Company. To date, the Company has
leased a manufacturing facility in the Dominican Republic, begun hiring
selected key employees and purchased an initial inventory of high quality
Indonesian wrapper tobacco sufficient to produce up to 12 million cigars. The
Company anticipates commencing commercial production of premium cigars at its
Dominican Republic facility in Fall 1997.
Guy Benhamou, Chairman and Chief Executive Officer of the Company,
stated "The Company is seeking to capitalize on the recent growth of the
premium cigar market and the Company's many years of experience in
manufacturing and supervising the manufacture of karat gold jewelry in
developing countries." The Company currently owns and operates (or owns an
equity interest in) jewelry manufacturing facilities located in, among other
countries, the Dominican Republic and Indonesia.
The Company's strategies for capitalizing on these opportunities
include the following:
Quality Product Lines. The Company intends to introduce at least two
product lines of premium cigars, including a line of super-premium cigars that
are expected to sell at retail prices of $10.00 and up per cigar and a line of
premium cigars expected to retail at a price range from $3.00 to $10.00 per
cigar. The Company intends to manufacture its cigars by hand using long-filler
and all natural tobacco leaf wrappers and binders of the best grades.
Establish Manufacturing Facilities. The Company has leased an
approximately 9,600 sq. ft. manufacturing facility in the Dominican Republic
which is expected to commence production by August 1997. The Company
anticipates leasing an approximately 26,000 sq. ft. manufacturing facility in
Indonesia and is exploring establishing a manufacturing facility in Nicaragua.
These proposed facilities will allow the Company to take advantage of existing
tobacco supplies in those countries and, in the case of the proposed facilities
in the Dominican Republic and Indonesia, the Company's experience in operating
jewelry manufacturing facilities in those countries.
Beverly Hills Retail Store. In order to promote the Company's line of
super-premium cigars, the Company intends to operate a flagship cigar store in
Beverly Hills, California. The store will offer both the Company's super-
premium cigars and premium cigars manufactured by other
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companies. The Company currently is in lease negotiations for a store location
and expects to open the shop during the second half of fiscal year 1998 (ending
January 30, 1998).
The Company currently estimates that its working capital and capital
expenditure requirements for fiscal 1998 for the proposed cigar operations will
be approximately $3.4 million, including amounts required for initial tobacco
purchases. Funding is expected to be provided by cash flow from the Company's
jewelry operations. The Company is unable to estimate the amount of any funding
requirements that may be required for the cigar operations beyond the current
fiscal year.
The Company historically has operated as a manufacturer and distributor
of karat gold jewelry and has not engaged in the manufacture or distribution of
cigars or other tobacco products. There can be no assurance that the Company
will be able to successfully introduce its premium cigar line, successfully
open and operate any retail cigar shops or otherwise successfully compete in
the premium cigar market.
The foregoing discussion contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The Company
cautions investors that there are certain important factors that could cause
future events and results to differ materially from those anticipated by
management in the forward-looking statements included in this press release, as
well as risks and uncertainties generally applicable to the cigar business.
Among these important factors, risks and uncertainties are (a) risks associated
with the commencement of a new business operation and the introduction of a new
product line, including risk of lack of market acceptance for the Company's
premium cigars and risks associated with the manufacture and distribution of a
product line unrelated to the Company's existing business, (b) delays that may
be encountered in opening the Company's manufacturing facilities and retail
store, (c) the Company's ability to attract, hire and retain master-cigar
makers and other skilled craftsmen and laborers, (d) the Company's ability to
obtain, on an ongoing basis, sufficient supplies of properly aged tobacco for
its proposed operations, (e) whether the recent upward trend in unit sales of
premium cigars will continue, (f) extensive and increasing federal, state and
local regulation of tobacco products, (g) tobacco industry litigation, (h) the
competitive environment in the premium cigar market, (i) effects of any
increases in excise taxes that may occur in the future, and (j) social,
political and economic risks associated with foreign operations and
international trade. For further information regarding these and other factors,
risks and uncertainties affecting the Company's entry into the premium cigar
business, reference is made to the Company's Current Report on Form 8-K dated
February 27, 1997.
OroAmerica is the nation's largest manufacturer and distributor of
karat gold jewelry. OroAmerica's jewelry product line include more than 1,800
styles of gold chains, earrings, bracelets, rings and charms. The Company also
markets a line of silver jewelry products. Founded in 1977, OroAmerica sells
products to more than 900 customers through its retail and wholesale divisions
and operates manufacturing and office facilities with over 67,000 square feet
in Burbank, California. OroAmerica's management, in addition to overseeing the
introduction of the company premium cigar business, will continue to focus on
improving the profitability of the company core jewelry business.
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