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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A-110-Q
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1995August 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ---------- -----------___________
Commission file number 1-6675
THE ARLEN CORPORATION
-------------------------------------------------------------- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-2668657
------------------------------------------------------- ------------------------------
(StateState or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
505 Eighth Avenue, New York, New York 10018
------------------------------- ------------------------------
(Address- --------------------------------------- ---------------
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 736-8100
Not Applicable
-------------------------------------------------------------- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1)(l) has filed all reports required
to be filed by Section 13l3 or 15(d)l5(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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $1 par value - 29,770,23430,770,307 shares outstanding as of January 4,October 10,
1996 (excluding shares owned by subsidiaries of the Registrant)
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THE ARLEN CORPORATION AND SUBSIDIARIES
INDEX
================================================================================
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheet -- August 31, 1996
(unaudited) 4
Consolidated balance sheet -- February 29, 1996
(unaudited) 5
Consolidated statements of operations -- Six and
three months ended August 31, 1996 and 1995 (unaudited) 6
Consolidated statements of cash flows -- Six
months ended August 31, 1996 and 1995 (unaudited) 7-8
Notes to consolidated financial statements 9-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-12
PART II. OTHER INFORMATION 13
SIGNATURES 14
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PART III - OTHERFINANCIAL INFORMATION
Note: Part IIItem 1
Financial Statements
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THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
August 31, 1996
($000s Omitted)
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 14
Note receivable - current portion,
net of unamortized discount of $75 960
---------
TOTAL CURRENT ASSETS 974
PROPERTY AND EQUIPMENT, net 61
OTHER ASSETS, including amounts due from
former subsidiaries (Note 3) 465
NOTE RECEIVABLE, less current portion, net of
unamortized discount of $5 244
---------
TOTAL ASSETS $1,744
=========
LIABILITIES AND CAPITAL DEFICIT
CURRENT LIABILITIES:
Notes payable $ 137
Accrued interest payable (including $3 due to
related parties) 194
Accrued expenses, fees and other (Note 4) 7,232
Current portion of long-term obligations
due to related parties 285
---------
TOTAL CURRENT LIABILITIES 7,848
LONG-TERM OBLIGATIONS DUE TO RELATED PARTIES 549
AMOUNTS DUE TO RELATED PARTIES 128,726
---------
TOTAL LIABILITIES 137,123
COMMITMENTS AND CONTINGENCIES (Note 4)
CAPITAL DEFICIT (135,379)
---------
TOTAL LIABILITIES AND CAPITAL DEFICIT $1,744
=========
See notes to consolidated financial statments.
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THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
February 29, 1996
($000s Omitted)
(UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10
Note receivable - current portion,
net of unamortized discount of $117 883
---------
TOTAL CURRENT ASSETS 893
PROPERTY AND EQUIPMENT, net 72
OTHER ASSETS, including amounts due from
former subsidiaries (Note 3) 469
NOTE RECEIVABLE, less current portion, net of
unamortized discount of $33 717
---------
TOTAL ASSETS $ 2,151
=========
LIABILITIES AND CAPITAL DEFICIT
CURRENT LIABILITIES:
Notes payable $ 137
Accrued interest payable (including $4 due to related parties) 179
Accrued expenses, fees and other (Note 4) 7,019
Current portion of long-term obligations
due to related parties 299
---------
TOTAL CURRENT LIABILITIES 7,634
LONG-TERM OBLIGATIONS DUE TO RELATED PARTIES 575
AMOUNTS DUE TO RELATED PARTIES 124,389
---------
TOTAL LIABILITIES 132,598
COMMITMENTS AND CONTINGENCIES (Note 4)
CAPITAL DEFICIT (130,447)
---------
TOTAL LIABILITIES AND CAPITAL DEFICIT $2,151
=========
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THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($000s Omitted)
(UNAUDITED)
- --------------------------------------------------------------------------------
Six months ended Three months ended
August 31, August 31,
1996 1995 1996 1995
---- ---- ---- ----
GENERAL & ADMINISTRATIVE
EXPENSES $ (581) $ (539) $ (301) $ (279)
OTHER (EXPENSES) INCOME:
Interest expense, net (including amounts
due to related parties of $4,272 and $1,799 in
1996 and $4,898 and $2,450 in 1995) (4,495) (5,101) (1,909) (2,551)
Other income, net 144 - - -
-------- -------- -------- ---------
Loss from continuing operations
before discontinued operations (4,932) (5,640) (2,210) (2,830)
DISCONTINUED OPERATIONS:
Income from discontinued operations (Note 2) - 2,769 - 1,425
-------- -------- -------- --------
Net loss $(4,932) $(2,871) $(2,210) $(1,405)
======== ======== ======== ========
LOSS PER COMMON SHARE FROM
CONTINUED OPERATIONS $ (0.15) $ (0.18) $ (0.07) $ (0.09)
INCOME PER COMMON SHARE FROM
DISCONTINUED OPERATIONS (Note 2) - 0.09 - 0.05
-------- -------- -------- ---------
LOSS PER COMMON SHARE $ (0.15) $ (0.09) $ (0.07) $ (0.04)
======== ======== ======== =========
See notes to consolidated financial statements
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THE ARLEN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
($000s Omitted)
(UNAUDITED)
- --------------------------------------------------------------------------------
Six months ended
August 31,
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($4,932) ($2,871)
--------- ---------
Adjustments to reconcile net loss to cash
provided by operating activities:
Depreciation and amortization 11 288
Amortization on note discount (70) -
Provisions for losses on accounts
receivable - (457)
Increase in amounts due related parties
in exchange for interest 5,040 4,735
Changes in assets and liabilities
(Increase) decrease in assets:
Accounts receivable - (195)
Inventories - (758)
Other current assets - (348)
Other assets 4 (100)
Increase (decrease) in liabilities:
Accounts payable - 36
Accrued interest payable 15 150
Accrued state income taxes - 45
Accrued other liabilities 213 328
--------- ---------
Total adjustments 5,213 3,724
--------- ---------
Net cash provided by operating activities 281 853
--------- ---------
See notes to consolidated financial statements
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THE ARLEN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
($000s Omitted)
(UNAUDITED)
(Continued)
- --------------------------------------------------------------------------------
Six months ended
August 31,
1996 1995
---- ----
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in certificates of deposit - (6)
Investment in capital assets - (233)
Acquisition of new automotive aftermarket
business, net of cash acquired - (54)
-------- ---------
Net cash used in investing activities - (293)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on notes receivable 466 -
Payments on revolving credit line - (13,424)
Proceeds from revolving credit line - 13,882
Payment on amounts due to dated papers (703) -
Principal payments on short-term borrowings - (455)
Principal payments on long-term borrowings (40) (320)
-------- ---------
Net cash provided by financing activities (277) (317)
-------- ---------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 4 243
CASH AND CASH EQUIVALENTS, at
February 29, 1996 and 1995 10 1,192
LESS CASH INCLUDED IN CURRENT ASSETS
OF DISCONTINUED OPERATIONS - (1,422)
-------- ---------
CASH AND CASH EQUIVALENTS, at
August 31, 1996 and 1995 $ 14 $ 13
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the six months ended
August 31, 1996 and 1995 for interest $ 707 $ 262
======= =========
See notes to consolidated financial statements
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THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(August 31, 1996)
================================================================================
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of The
Arlen Corporation (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information in
accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, the financial statements do not include all of the Registrant's Quarterly Report on Form 10-Qinformation and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended August 31,
1996 are not necessarily indicative of the results that may be expected for the
fiscal quarter ended November 30, 1995year ending February 28, 1997. For further information, reference is
amendedmade to the Company's Consolidated Financial Statements and Notes to
Consolidated Financial Statements included in this Form 10-Q/A-1 to (1) add a
new Item 1 (Legal Proceedings) to read as follows and (2) amend Item 3
(Defaults Upon Senior Securities) to read in its entirety as follows.
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Item 1. Legal Proceedings.
In Item 3 of the Registrant'sCompany's Annual Report on
Form 10-K for the fiscal year ended February 28,29, 1996.
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.
The accompanying unaudited consolidated financial statements of the
Company 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 August 31,
1996, the Company had a working capital deficiency of $6,874,000 and a capital
deficit of $135,379,000. Currently, the Company has no operations (see Note 2)
but intends to seek new business opportunities, though there can be no
assurance that it will be successful in achieving this objective.
NOTE 2 - DISCONTINUED OPERATIONS
The operations of the Company's former operating subsidiaries, which
ceased to be owned by the Company on February 6, 1996, have been reclassified as
discontinued operations.
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THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(August 31, 1996)
================================================================================
NOTE 3 - OTHER ASSETS
Other assets include amounts due from former subsidiaries (see Note 2)
and certain non-negotiable promissory notes (the "Mortgage Notes") assumed by
related parties. Due to the uncertainty of the timing of the collection of
interest on the Mortgage Notes, for financial statement purposes the Company
will record interest income from the Mortgage Notes when received.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Company 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 Registrant reported that its
subsidiary, Grant Products, Inc. ("Grant"), hadCompany received a general noticefrom the District Director of
liability from the
United States Environmental Protection AgencyInternal Revenue Service (the "EPA""IRS"),
indicating that Grant may be a potentially responsible party, with numerous
other such parties, an examination report with
respect to the San Fernando Valley Area 2 Superfund
Site, Glendale North Operable Unit (the "Site"),Plan. In such report, the IRS asserted that a payment of
$6,726,613 is required in Los Angeles County,
California. In October 1995,order to cure the Registrant receivedPlan'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 special notice letter
fromwaiver of a substantial
portion of the EPA stating that the EPA considers Granttaxes and penalties claimed to be potentially
responsible, with numerous other such parties,due and to settle the remaining
deficiency, through installment payments over a number of years, for an
aggregate amount approximating the costs incurred$850,000 provision already reflected in connection with contaminationthe
Company's balance sheet (included in accrued expenses, fees and other).
Accordingly, management believes that it has adequately provided for this
liability.
NOTE 5 - 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 share equivalents outstanding during each period.
Convertible securities that are deemed to be common share equivalents are
assumed to have been converted at the Site.beginning of each period. The EPA is seeking an agreement from
the potentially responsible parties to conduct remedial actionCompany's
common share equivalents and to pay the
EPA's oversight costs for overseeing the workconvertible issues were anti-dilutive at August 31,
1996 and past1995 and, future response
costs in connection with the Site, and has demanded payment of $21,743,970
(plus recoverable interest) in costs incurred in connection with conditions at
the Site and at other Superfund sites and operable units within the San
Fernando Valley. Reference is made to Item 3 of the 1995 10-K for further
information regarding this environmental proceeding.
Item 3. Defaults Upon Senior Securities.
On November 30, 1995, Rucon Services Corp. (formerly Arlen
Holdings Corp.), a wholly-owned subsidiary of the Registrant ("Rucon"), failed
to make a $175,000 installment payment to Arthur G. Cohen ("Mr. Cohen"), the
Registrant's Chairman of the Board, pursuant to the Current Obligations
Agreement dated March 29, 1993 between Rucon and Mr. Cohen. In December 1995,
the Registrant and Rucon received a notice of such default (the "Current
Obligations Default") from Mr. Cohen. The Current Obligations Default is an
event which, after notice and time to cure, becomes an Event of Default under
the Registrant's 5-1/4% Subordinated Notes, having an outstanding balance of
approximately $125,000,000, issued to Mr. Cohen (the "Cohen Notes") and to
members or entities of the family of Arthur N. Levien, a deceased former
director/officer of the Registrant (the "Levien Notes" and, collectively with
the Cohen Notes, the "Notes"). The Cohen Notes, which had an outstanding
balance of approximately $84,000,000 at November 30, 1995, have been pledged
since 1993 to Bank Leumi Trust Company of New York ("Bank Leumi") as security
for certain obligations of Mr. Cohen to Bank Leumi. In 1993, the Registrant
collateralized the Notes with, among other things, a pledge of the outstanding
shares of capital stock of Rucon (the "Rucon Shares"), which indirectly owns
the outstanding capital stock of all the Registrant's operating subsidiaries.
Shortly after January 1, 1996, the Registrant and Rucon
received from Mr. Cohen, as the agent (the "Agent") for the holders of the Notes
(the "Holders"), a notice accelerating all principal and interest due under the
Notes andtherefore, were advised by the Agent that, in his capacity as the Agent, he
expected to ultimately foreclose on the Rucon Shares and to conduct a public
sale of the Rucon Shares in accordance with the New York Uniform Commercial
Code. Such a sale (the "UCC Sale"), if consummated, will resultnot included in the loss per share
computations for these periods. The weighted average number of shares used to
compute per share amounts was 32,690,000 for the six and three-month periods
ended August 31, 1996 and 31,690,000 for the six and three-month periods
ended August 31, 1995, inclusive of Class B shares.
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Item 2
Management's Discussion and Analysis of Financial Condition and Results
of Operations
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THE ARLEN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL POSITION AND RESULTS OF OPERATIONS
(August 31, 1996)
================================================================================
The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and Notes to Consolidated
Financial Statements included in Item 1 of Part I of this Report:
LIQUIDITY AND CAPITAL RESOURCES
Prior to the disposition of the Company's former subsidiaries on
February 6, 1996, the ability of the Company to continue as a going concern was
threatened by the Registrantliquidity crises facing the Company from an unsatisfied
judgment, additional pending litigation and the rapidly-approaching July 31,
1997 maturity date of allthe amounts due to related parties (the "Arlen Notes").
These near-term threats to the Company's continued existence have been virtually
eliminated through the discharge of the unsatisfied judgment, the termination of
the pending litigation and the extension of the maturity date of the Arlen Notes
to December 28, 2033. Moreover, the cash flow which the Company expects to
receive from the note receivable (the "Note Receivable") reflected on the
Company's balance sheet at August 31, 1996 included in Item 1 of Part I of this
Report should enable the Company to meet its operating subsidiariesanticipated cash requirements
through the current fiscal year and produceinto fiscal 1998.
Although the Company's balance sheet at August 31, 1996 continues to
include the Arlen Notes as substantial liabilities (accounting for
$128,726,000 of the Registrant
only (a) a reductionCompany's total liabilities of $137,123,000) and although
the Arlen Notes will continue to accrue substantial interest expense which, in
the outstanding indebtedness under the Notes equal to
75%absence of thesignificant income from new operations, will produce continuing
net purchase price paid for the Rucon Shares by the successful bidder
at the public salelosses and (b) proceeds for the residual interest of the Registrant
in the Rucon Shares equal in amount to 25% of such net purchase price.
Inasmuch as neither the Registrant nor Rucon is currently
financially able to cure the Current Obligations Default, to pay the principal
and accrued interest asserted by the Agent to be due under the Notes or to
challenge the UCC Sale in the courts, the Registrant and Rucon have, since the
Current Obligations Default, been discussing certain opportunities which the
Agent and Mataponi, L.L.C. ("Mataponi"), a limited liability company controlled
by Mr. Cohen's wife (who is a principal shareholder of the Registrant), have
offeredadd to the Registrant and Rucon if Mataponi isincreasing shareholders' deficit (such deficit at
August 31, 1996 being $135,379,000), the successful bidder at the
UCC Sale. These opportunities include the opportunity to:
(1) facilitate the assignment of the indebtedness of Mr. Cohen
secured by the Notes (and the collateral securing the Notes) from Bank
Leumiextension to Mataponi, following which Mataponi and the Agent will
consent to an extensionDecember 28, 2033 in the
maturity date of the Arlen Notes from July
31, 1997 to December 28, 2033 and the releasevirtual elimination of the pledged shares
of Common Stockdefault
provisions relating thereto create the practical reality that the Arlen Notes
should not pose a threat to the continued existence of the Registrant's and Rucon's subsidiary, Grant
Products, Inc. ("Grant"), from the collateral securing the Notes;
(2) satisfy the currently-unsatisfied judgment obtained against
the Registrant by Morgan Guaranty Trust Company of New York ("Morgan"),
have discontinued (with prejudice) the pending lawsuits initiated by
Morgan against the Registrant and Rucon and have discharged and
cancelled 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" and being described in the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1995), all of which could not be accomplished without (i)
the availability of the shares of Common Stock of Grant (the
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"Grant Stock") for their pledge to Grant's lender, Sumitomo Bank of
California ("Sumitomo"), as security for a $3,000,000 term loan which
would be upstreamed to Arlen to discharge and satisfy the Morgan
obligations and (ii) the consent of the Agent to such term loan and the
use of the proceeds thereof for such purpose;
(3) satisfy, with the 25% of the net proceeds of the UCC Salemany
years.
Assuming that the Registrant will retainCompany is able to (a) satisfy or settle an
outstanding judgment for its residual$172,000 (plus interest if Mataponifrom 1988) which is the successful bidder forsubject
of pending execution proceedings and (b) settle or otherwise resolve the Rucon Shares, certain secured
obligations (the "Secured Obligations") to third parties who may be
deemed to be affiliates of Mr. Cohen; and
(4) attempt to acquire on favorable terms, withclaim
asserted by the assistance
of Mataponi if Mataponi is the successful bidder for the Rucon Shares,
two mortgage notes (the "Mortgage Notes"), secured by certain
property on White Plains Road, Bronx, New York.
After considering the opportunities (including the 38-year
extension in the maturity date of the Notes) offered by Mataponi and the
holdersIRS (see Note 4 of the Notes to mitigateConsolidated Financial
Statements included in Item 1 of Part I of this Report), management believes
that the anticipated loss of the Registrant's
operating companies which will occur upon the involuntary UCC Sale of the Rucon
Shares, the Registrant and Rucon entered into a Forbearance Agreement (the
"Forbearance Agreement") with Mataponi and Mr. Cohen, dated as of January 5,
1996, which provides (assuming that Mataponi is the successful bidder for the
Rucon Shares at the UCC Sale), among other things, that:
(a) in consideration for the forbearances, extensions,
opportunities and other benefits providedmost serious threat to the Registrant and Rucon
under the Forbearance Agreement, they will not litigateCompany's continued existence would be its
inability to acquire new business operations or to otherwise contest the acceleration of the Notes or the foreclosure and public
sale of the Rucon Shares;
(b) Rucon, as an accommodationgenerate cash flow
prior to Mataponi, will acquire from
Bank Leumi, pursuant to an Assignment and Assumption Agreement between
Bank Leumi and Rucon (the "Assignment Agreement"), for $5,500,000 to be
provided by Mataponi, and then assign to Mataponi, certain indebtedness
(the "Leumi Debt") of Mr. Cohen to Bank Leumi, having a principal
balance of approximately $12,000,000, which is secured by the Cohen
Notes (which in turn are secured by, inter alia, the Rucon Shares and
the Grant Stock);
(c) in order to induce Mataponi and the Agent to consent to the
release of the Grant Stock from the collateral for the Notes, Rucon
will pledge to Bank Leumi, pursuant to a Restructuring Agreement
between Bank Leumi and Mr. Cohen (the "Restructuring Agreement"), as
collateral for indebtedness of Mr. Cohen to Bank Leumi in the
principal amount of $2,722,513.33, 55% of the outstanding shares of
capital stock of Rucon's wholly-owned subsidiary, Curtis Holding
Corporation ("Curtis Holding"), and will cause Curtis Holding to
pledge to Bank Leumi, as additional collateral therefor, 55% of the
outstanding shares of capital stock of Curtis Partition Corporation
("Curtis Partition");
(d) upon the assignment to Mataponi of the Leumi Debt and the
collateral therefor and the pledge of 55% of the capital stock of
Curtis Holding and Curtis Partition to Bank Leumi, the Holders,
Mataponi and the Agent will cause the Grant Stock to be released;
(e) upon the release of the Grant Stock from the collateral for
the Notes, it will be pledged to Sumitomo to induce Sumitomo to loan to
Grant and a sister company, on a term loan basis, $3,000,000 (the
"Sumitomo Advance"), which Sumitomo, Mataponi and the Agent would
permit to be dividended through to Rucon, which would
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pay these funds to the Registrant to obtain a release of certain
obligations that had been assumed by Rucon from the Registrant in 1993;
(f) upon theits receipt of the aforesaid $3,000,000 payment from
Rucon,final payments due under the Registrant will use these funds to obtain from MorganNote Receivable.
RESULTS OF OPERATIONS
The Company's net losses for the satisfaction, dischargesix and cancellationthree-month periods ended
August 31, 1996, representing increases of 71% and 57%, respectively, over the
net losses for the comparable periods of the Morgan Obligations;
(g)prior fiscal year, reflect
primarily the Registrant may attempt to acquireabsence in the Mortgage Notes,
which will mature on December 28, 2034, on favorable terms, with the
assistancecurrent fiscal year of Mataponi if Mataponi is the successful bidder for the
Rucon Shares;
(h) in addition to receiving 25% of the net proceedsany income from the
UCC Sale of the Rucon Shares for the Registrant's residual interest
therein (which the Registrant will apply to the satisfaction of the
Secured Obligations), the Registrant will receive, if Mataponi is the
successful bidder for the Rucon Shares, a $2,000,000 promissory note
(the "$2,000,000 Note") payable in quarterly installments over a two
year period, to be issued by Automotive Accessories Holdings, L.L.C.,
which will be the parent of the companies owning the assets of the
Registrant's current automotive accessory subsidiaries; and
(i) the Registrant, on the one hand, and Rucon and its
subsidiaries, on the other hand, will exchange mutual releases, the
Registrant will deliver a general release to Mataponi and the
Registrant will be released from any further obligations under the 1993
Current Obligations Agreement between Rucon and Mr. Cohen.
On January 16, 1996, the transactions described above in
clauses (b), (c), (d), (e) and (f) were consummated and, on January 17, 1996,
the Agent notified the Registrant and Rucon that the UCC Sale has been scheduled
for February 6, 1996.
If the UCC Sale takes place as contemplated (a situation which
is outside the control of the Registrant and in which the Registrant is not a
participant) and Mataponi is the successful bidder for the Rucon Shares, the
Forbearance Agreement requires that (1) the Agent remit 25% of the net proceeds
from the UCC Sale to the Registrant for its residual interest in the Rucon
Shares, (2) the Holders, Mataponi and the Agent withdraw the
previously-delivered acceleration notice and extend the maturity date of the
Notes to December 28, 2033, (3) Rucon deliver the $2,000,000 Note to the
Registrant and (4) Mataponi assist the Registrant in attempting to acquire the
Mortgage Notes on a favorable basis.
In the event that the UCC Sale occurs, the Registrant will
lose all of its operating companies and cease to have any source of income from
operations in the near term. However, the Registrant will receive 25% of the
net proceeds from the UCC Sale and, if Mataponi is the successful bidder for the
Rucon Shares, will have the installment payments from the $2,000,000 Note to
meet its short-term cash needs and the opportunity to acquire the Mortgage Notes
to add long-term asset value to its balance sheet. The Notes will have been
extended for 38 years (during which time interest will accrue at the current
rate of 8% per annum) and will no longer be subject to default other than for
non-payment of principal or interest or bankruptcy-related events. As
extended, the Notes will provide for the Holders to receive 50% of the
Registrant's Net Income (as defined in the Forbearance Agreement) quarterly on
account of the indebtedness under the Notes and will, at the request of the
Holders, be secured by certain assets which may be acquired by the Registrant
within the next 18 months.
In entering into the Forbearance Agreement, the Registrant
believed that if the benefits thereof are not available, the Registrant would be
unable to pay the accelerated Notes and would be compelled to liquidate, as a
result which the Registrant would cease to continue as a viable business
entity.
If the Forbearance Agreement is consummated, the Registrant
retains its substantial net operating loss carryforwards and, having
satisfied the Morgan Obligations and, with the cooperation of Mataponi, having
achieved the release of the Notes and the collateral therefor from the liens
thereon of Bank Leumi, expects to seek new business opportunities.
In the event that the UCC sale occurs but Mataponi is not the
successful bidder for the Rucon Shares, the Registrant will be entitled to
payment for its 25% residual interest therein. However, inasmuch as the
transactions contemplated by the Forbearance Agreement are intended to be
integrated parts of a single transaction which can be consummated only in its
entirety, the Registrant will not receive certain of the benefits provided for
in the Forbearance Agreement, including the extension in the maturity date of
the Notes (which will then remain immediately due and payable in full) and the
$2,000,000 Note which the Registrant considers necessary to meet its short-term
operating expenses. The Registrant will also have certain obligations to
Mataponi, including obligations to pay to the holders of the Notes an amount
equal to the Sumitomo Advance and to deliver the Grant Stock back to Mataponi.
However, the Registrant has been advised that, in order to enhance the value of
the Rucon Shares, the Agent and Mataponi have agreed, whether or not Mataponi is
the successful bidder for the Rucon Shares, to release their security interests
in the outstanding stock of Arlen Automotive, Inc. ("Automotive") at the closing
of the UCC Sale. Automotive is wholly-owned by Rucon and is the direct parent of
all of the Registrant's operating subsidiaries other than Curtis Partition.
The foregoing summary of the transactions described in the
Forbearance Agreement, the Assignment Agreement and the Restructuring Agreement
is qualified in its entirety by reference to such Agreements, copies of which
are filed as Exhibits 10.15, 10.16 and 10.17, respectively, to this Report.
5Company's discontinued operations.
12
613
PART II - OTHER INFORMATION
Not Applicable
13
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrantRegistrant has duly caused this reportReport to be signed on its behalf by the
undersigned thereunto duly authorized.
THE ARLEN CORPORATION
(Registrant)
By: /s/ Allan J. Marrus
------------------------------------
Date: February 5, 1996 By-------------------------------------
Allan J. Marrus, President
Date: October 11, 1996
By: /s/ David S. Chaiken
------------------------------------
Date: February 5, 1996 By-------------------------------------
David S. Chaiken, Treasurer
6Date: October 11, 1996
14
15
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule