Velvet on Wax.
After recording their third album for Verve/MGM they returned to the studio to begin work on a follow-up. The third album, or the self-titled album, was influenced by a number of heady things. The album itself is a much more quiet exploration of rock music than the all-out battle that White Light/White Heat was, and it would be a mistake to label the softness of the album to the departure of John Cale. For one, the distortion and feedback was gone as a result of the band having had their equipment stolen; and the content was greatly affected by Lou Reed's emotional state. Not only was his drug use beginning to affect his writing, but his college girlfriend, Shelley, had recently gotten married -- an act that stabbed the sexually ambiguous Reed in the heart.
And Shelley would turn up again, in "I Can't Stand It", one of the songs that was lost, in the line: "If Shelley would just come back, it would be alright." In Lou's post-Velvets career, he would resurrect many of the songs recorded for the "Lost" album on his debut record, subsequently changing Shelley for Candy. Candy would thus refer to Candy Darling, a deceased drag queen who was a friend of Lou's and also the subject of "Candy Says" the introductory song on the third album, and the first of Lou's song-cycle of "says" songs, which include "Stephanie Says" and "Lisa Says".
But anyway, what led to the album being deemed lost is that the VU had grown increasingly dissatisfied with their treatment by their label. Their albums were critical successes and they packed venues across the country; however they received no radio play and little to no sponsorship (i.e. press) from the label. So they jumped ship and signed a deal with Atlantic. As much of the material would be re-crafted throughout Lou's solo career, it's also possible that he wanted to revise the exposure of his feelings throughout the third album. While Lou certainly did go on to expose his demons and eccentricities throughout the seventies, he never again matched the earnesty of his work with The Velvet Underground.
The new material for Loaded was recorded while fulfilling a summer long engagement at Max's Kansas City in New York, and beyond a new version of "Rock and Roll", which was originally recorded for "The Lost Album", all of the material was brand new. With his voice breaking from spending his days in the recording studio and his nights at Max's, Lou Reed relinquished much of the vocal duties on Loaded to Doug Yule. Finally, unable to deal with the pressures of keeping the band afloat while struggling to make ends meet and then battling against the VU's new manager Steve Sesnick's machinations to place Doug Yule at the forefront of the VU -- Lou Reed unceremoniously quit before Loaded could be sequenced or mixed and the record deal could be fulfilled. The songs on Loaded were intended to be hits, every one of them, just to prove that the Velvet Underground had it in them. They wanted to prove their commercial viability while still retaining their artistic credibility. To that end, Loaded was a success and produced such lasting songs as "Sweet Jane" and "Rock and Roll", but the album was far from a success.