UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-K
(Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 1999 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: 0-1460 ANDERSEN GROUP, INC. (Exact name of Registrant as
specified in its charter)
Delaware 06-0659863
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.
515 Madison Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
(212) 826-8942 Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Name of Each exchange Title of each class on which registered Common Stock,
$.01 par value The NASDAQ Stock Market 10 1/2% Convertible Subordinated
Debentures Due 2007
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, 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 the 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]
The aggregate market value of the Common Stock, $.01 par value, held by
non-affiliates of the Registrant based upon the average bid and asked prices on
May 14, 1999, as reported on The NASDAQ Stock Market, was approximately
$10,094,830. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
As of May 14, 1999 there were 1,932,503 shares of Common Stock, $.01 par value,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the definitive Proxy
Statement dated May 19, 1999 filed with the Commission pursuant to Regulation
14A, are incorporated into Part III.
The exhibit index is located on page E-1
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PART I
ITEM 1. BUSINESS.
General
Andersen Group, Inc., referred to herein as the "Company" or the "Registrant",
was incorporated under the laws of the State of Connecticut in 1951. On April
24, 1998, the Company re-incorporated to the State of Delaware.
The Company has historically made investments in companies that operated in
several highly diverse segments, and which required extensive management
participation in operation and restructure. These segments have included dental
distribution and manufacture, electronics manufacturing and supply businesses,
ultrasonic cleaning equipment, communications electronics, medical products and
services and video products. More recently, however, the Company has increased
its level of investments that do not require extensive management participation.
These passive investments include investments in certain U.S.-based financial
institutions and in the securities of Russian and Eastern European companies.
The Company intends to continue to make minority, non-controlling investments in
the future.
Since 1991 the Registrant's primary investment, currently comprising
approximately 70% of the Company's total consolidated assets, has been The J.M.
Ney Company (JM Ney) which historically operated in two industry segments:
Electronics, consisting of JM Ney's electronics and ultrasonics divisions, and
Dental. In November 1995, JM Ney sold the assets and certain liabilities of the
Dental segment. In 1997, Ney Ultrasonics Inc., a subsidiary of JM Ney, was
classified as a separate industry segment (Ultrasonic Cleaning Equipment) and,
effective February 28, 1998, substantially all of the assets of the Ultrasonic
Cleaning Equipment segment were sold.
In December 1997, JM Ney borrowed $7.5 million on a 10.26% subordinated note due
2004, with warrants entitling the lender to purchase 40,000 shares of JM Ney
common stock at a fixed price, in order to have funds available for a strategic
acquisition designed to grow JM Ney's business. If JM Ney makes an acquisition,
the Company's ownership of JM Ney may become diluted through the issuance of JM
Ney common stock as part of the consideration paid. While criteria for a
strategic acquisition have been identified, no negotiations have yet commenced
and no agreements have been reached concerning any possible targets.
Industry Segment Information
Financial information regarding the Company's industry segments is contained in
Note 19 to the Registrant's Consolidated Financial Statements contained in Item
8 herein.
Description of Business
During the fiscal year ended February 28, 1999, the Company operated in two
business segments, Electronics and Corporate. The Electronics segment is
comprised of the activities of JM Ney. Corporate activities are comprised of
investment activities. As previously noted, the Ultrasonic Cleaning Equipment
segment was sold effective February 28, 1998 and has been treated as a
discontinued operation in the Company's Consolidated Financial Statements.
Electronics Segment
Products. The Electronics segment is a full-service, precious metal and parts
supplier to automotive, medical, industrial electronics, military and
semi-conductor manufacturers. JM Ney's fully integrated approach includes
fabrication and manufacture of its precious metal alloys, as well as design,
engineering and metallurgical support. The fabrication capabilities include
stamping, wire drawing, rolling from ingot to foil, precision turning, injection
and insert molding, and refining.
JM Ney specializes in the engineering and manufacturing of precious metal alloy
contacts and contact assemblies aimed at low amperage applications. Electrical
contacts made of precious metals, including gold, platinum, palladium and
silver, are considered extremely dependable as the materials are inert and
highly resistant to corrosion and wear. In developing a finished contact or
assembly, JM Ney's technical staff works closely with customers, typically on an
engineer-to-engineer level, in order to design a product that meets all of the
metallurgical, electronic, dynamic and other performance specifications required
for the customer's applications. JM Ney designs and builds the necessary molds
and tools as well as designs and manufactures the end product. By controlling
the total process, JM Ney believes it has a competitive advantage over other
companies in technology, cost and response time. JM Ney has attained ISO 9001
certification and QS9000 certification for the manufacture of its products, as
well as approval by the Japanese Industrial Standards (JIS) and the United
States Food and Drug Administration.
In connection with the sale of the assets and liabilities of the Company's
Dental segment in November, 1995, JM Ney (and the Company, solely for purposes
of a non-competition covenant) entered into a three-year manufacturing agreement
to alloy and fabricate precious metals for Ney Dental International, Inc. (NDI),
a successor company to the purchaser of JM Ney's dental business. As part of
this agreement, JM Ney and the Company agreed, for a ten-year period, not to
sell alloys, equipment or merchandise into the dental market that NDI serves. JM
Ney is, however, permitted to continue producing, selling and marketing precious
metal copings and other machined and molded parts and material for use in the
dental implant industry. Although the three-year manufacturing agreement expired
in November 1998, JM Ney still manufactures products for NDI, but at
significantly reduced levels.
Competition. JM Ney's business has limited direct competition with regard to the
manufacture of low amperage precious metal contacts and contact assemblies, due
to the inherent risks which accompany the engineering and manufacture of
precious metals (i.e., high start-up and inventory costs, theft, etc.). While
some competitors offer similar products, the Company believes that these
operations lack vertical integration to compete across the entire spectrum of
products. JM Ney faces indirect competition from companies such as Engelhard
Corporation and Johnson Matthey, Inc., which have significantly greater
resources and which are involved in higher volume production of more standard
precious metal alloys.
Sales and Marketing. JM Ney sells to more than 800 customers, with approximately
84% of its sales being made to customers in the United States. JM Ney's sales
are made domestically through both field sales and manufacturers'
representatives located in key geographic markets. Internationally, JM Ney sells
through manufacturers' representatives, independent distributors and original
equipment manufacturers.
Two customers in the Electronics segment (Implant Innovations, Inc., a purchaser
of precision machined precious metal components and precious metal materials,
and First Inertia, Inc., a purchaser of electronic components for the automotive
market) accounted for 16.1% and 13.9%, respectively, of the Registrant's
consolidated sales in fiscal 1999. During the prior year, these customers
comprised 14.9% and 12.6% of sales, respectively.
Research and Development. During fiscal years 1999, 1998, and 1997 research and
development expenditures from continuing operations totaled approximately
$1,888,000, $1,444,000 and $1,228,000, respectively.
Sources and Availability of Raw Materials and Components. JM Ney purchases its
raw materials, including precious metals, and the components used in the
manufacture of its products from a number of domestic suppliers, and generally
is not dependent upon any single supplier. Although JM Ney utilizes Russian
palladium in the manufacture of many of its products, and despite recent
publicized events regarding availability of palladium shipments from Russia to
the world market, the Company believes that its sources of supply are adequate
for its continuing needs.
Corporate Segment
The Corporate Segment is comprised of the Company's investment and
administrative activities. This includes the management of the Company's trading
portfolios and longer-term investments, as described below. This segment also
includes the operation of Andersen Realty, Inc., which holds a 108,000 square
foot office building in Bloomfield, Connecticut, and the monitoring of the
Company's continuing interest in the ultrasonic cleaning technology sold during
the prior fiscal year. Such continuing interest is represented by royalties
received pursuant to a technology assignment agreement, as amended, which was
entered into with the buyer of the former Ultrasonics Cleaning Equipment
segment. During the fiscal year ended February 28, 1999, the Company realized
approximately $60,000 of revenue pursuant to this agreement.
Trading Portfolio. At February 28, 1999, the Company had a portfolio of
short-term investments with a reported value of $6,014,000. The reported amount
is reflected net of a $65,000 valuation reserve to provide for volatility and
liquidity concerns relating to marketable investments in the Ukraine and Poland.
The larger components of these investments include $5.5 million of common stocks
of domestic savings banks, an investment in the FM Emerging Russia Fund with a
recorded value of $294,000, and JM Ney's investment in a Russian bond fund with
an estimated fair value of $98,000. JM Ney expects to realize this investment
during the next 12 months through the receipt of periodic liquidating
distributions.
See Note 3 to the Company's Consolidated Financial Statements contained in Item
8 herein.
Institute for Automated Systems. The Company also holds a 50% investment in
Treglos Investments, LTD, a joint venture that is investing in the Institute for
Automated Systems (IAS), a Russian telecommunications company that has
agreements to develop a data transmission network throughout the Commonwealth of
Independent States. The joint venture owns approximately 6% of IAS. Although the
Company's investment, including certain development costs, totals approximately
$835,000, it is recorded at $83,500 due to other than temporary impairment in
its value reflecting the collapse in the market value for Russian securities.
Among the joint venture partners are the Company's Chairman and another
Director. See Note 7 to the Company's Consolidated Financial Statements
contained in Item 8 herein, and Certain Relationships and Related Transactions
in Item 13.
VSMPO. The Company also owns 43,803 shares of VSMPO, a Russian-based titanium
producer and processor. These shares were acquired through the purchase in
fiscal 1998 of 9,734 shares of AVISMA, a predecessor company to VSMPO, for an
aggregate cost of approximately $1,225,000. The investment is valued for
financial reporting purposes at $122,500 due to an other than temporary
impairment in its value reflecting the collapse of Russian securities. See Note
7 to the Company's Consolidated Financial Statements contained in Item 8 herein,
and Certain Relationships and Related Transactions in Item 13.
Discontinued Ultrasonic Cleaning Equipment Segment
Effective February 28, 1998, the Company sold the net assets of Ney Ultrasonics
Inc. (Ney Ultrasonics) which until that date comprised the Company's Ultrasonic
Cleaning Equipment segment. The Company received $2.4 million at closing while
additional consideration was dependent on the finalization of FY98 financial
information. The determination of the purchase price remained in dispute until a
settlement agreement was reached in February 1999, resulting in $400,000 of
additional consideration being paid to the Company. The Company expects to
receive further consideration during the next several years based on growth of
sales of certain products by the purchasers of this business. See Note 5 to the
Company's Consolidated Financial Statements contained in Item 8 herein.
Compliance with Environmental Protection Laws
Management of the Company believes that the Company and its operating
subsidiaries are in material compliance with applicable federal, state and local
environmental regulations. Compliance with these regulations has not in the past
had any material effect on the Company's capital expenditures, consolidated
statements of operations or competitive position, nor does the Company
anticipate that compliance with existing regulations will have any such effect
in the near future.
Employees
As of April 30, 1999, the Company, including all subsidiaries, had 188 full-time
employees and two part-time employees. None of these employees is represented by
a labor union, and the Company is not aware of any organizing activities.
Neither the Company nor any of its subsidiaries has experienced any significant
work stoppage due to any labor problems. The Company considers its employee
relations to be satisfactory.
Executive Officers of the Company
The Executive Officers of the Company and certain significant employees of its
subsidiaries are as follows:
<TABLE>
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<S> <C> <C> <C>
Officer
Name Age Position Since
- ------------------------------- -------- ----------------------------------------------------------- -----------------
Francis E. Baker 69 Chairman and Secretary 1959
Oliver R. Grace, Jr. 45 President and Chief Executive Officer 1997
Peter R. Barker 48 Vice President and Chief Financial Officer 1999
Ronald N. Cerny 47 President, The J.M. Ney Company 1993
Andrew M. O'Shea 40 Chief Financial Officer and Secretary,
The J.M. Ney Company 1995
Eugene E. Phaneuf 52 Vice President - Operations,
The J.M. Ney Company 1996
- ------------------------------- -------- ----------------------------------------------------------- -----------------
</TABLE>
Except as set forth below, all of the officers and significant employees of its
subsidiaries have been associated with the Company in their present positions
for more than the past five years.
Mr. Grace, Jr. has been a Director of the Company since 1986 and President
and Chief Executive Officer since June 1, 1997. Mr. Grace, Jr. was Chairman of
the Company from March 1990 to May 1997. Mr. Grace, Jr. has also been President
of AG Investors, Inc., one of the Company's subsidiaries, since 1992. Mr. Grace,
Jr. is a General Partner of The Anglo American Security Fund L.P. Mr. Grace,
Jr., is the brother of John S. Grace, a member of the Company's Board of
Directors.
Mr. Baker became Chairman on June 1, 1997. He has been a Director of the
Company since 1959 and was President and Chief Executive Officer from 1959 until
May 1997. Mr. Baker is also the Secretary of the Company, a position he has held
since May 1997.
Mr. Barker became Vice President and Chief Financial Officer of the Company in
January 1999. Prior to joining the Company, he served as Managing Director and
Chief Financial Officer of Spring Investment Corporation from 1994 to 1998 and
previously held the position of Founder and Executive Vice President of Global
Intermediary, Inc. from 1982 to 1994.
Mr. Cerny has served as President of JM Ney since November 1995. From April 1993
to November 1995, Mr. Cerny was the General Manager of JM Ney's Electronics
Division. From 1988 until joining JM Ney, Mr. Cerny served as Director of
Operations (1990-1993) and Director of Sales & Marketing (1988 to 1990) for the
Materials Technology Division of Johnson Matthey, Inc., a precious metals
fabricator.
Mr. O'Shea joined the Company in December 1995 as Treasurer and Chief
Financial Officer of JM Ney. In November 1997 he was also appointed JM Ney's
Secretary. From 1994 until joining the Company, Mr. O'Shea was Vice-President of
Finance and Administration for the WorldCrisa Corporation. From 1990 to 1994,
Mr. O'Shea worked for Buxton Co. in various financial management capacities,
including Senior Vice-President, Finance and Administration. Mr. O'Shea is a
Certified Public Accountant.
Mr. Phaneuf joined JM Ney in 1990. He was promoted to Vice
President-Operations of JM Ney in March 1996. From April 1994 to February 1996,
Mr. Phaneuf was JM Ney's Director of Operations. He was also Acting General
Manager of Ney Ultrasonics from April 1995 through December 1996. From 1990 to
1994, Mr. Phaneuf was JM Ney's Manager of Engineering and Manufacturing.
ITEM 2. PROPERTIES.
The Company's principal executive offices have been located in New York, New
York since May 1998. The Company subleases office space from an entity owned by
Oliver R. Grace, Jr., the Company's President and Chief Executive Officer, at
lease rates that approximate market.
The Company's subsidiary, Andersen Realty, Inc., owns a 108,000 square foot
building located in Bloomfield, Connecticut. Portions of this facility are
leased to the present owner of its former Ultrasonic Cleaning Equipment segment,
as well as to third parties.
JM Ney owns a 100,000 square foot facility within a 16.5 acre industrial park in
Bloomfield, Connecticut. This site contains JM Ney's principal operations and
general administrative offices.
The Registrant believes that its plants and properties, and the production
capacities thereof, are suitable and adequate for its business needs of the
present and immediately foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
Morton International, Inc. v. A.E. Staley Mfg. Co. et al. and Velsicol
Chemical Corp. v. A.E. Staley Mfg. Co. et al.
As originally reported in the Company's Form 10-K for the year ended February
28, 1997, in July 1996, two companion lawsuits were filed in the United States
District Court for the District of New Jersey, by various owners and operators
of the Ventron-Velsicol Superfund Site (Site). The lawsuits, which were
subsequently consolidated, were filed under the Comprehensive Environmental
Resource Compensation and Liability Act (CERCLA), the Resource Conservation and
Recovery Act, the New Jersey Spill Act and New Jersey common law, alleging that
the defendants (over 100 companies, including JM Ney) were generators of certain
wastes allegedly processed at the site. The lawsuits seek recovery of costs
incurred and a declaration of future liability for costs to be incurred by the
owners and operators in studying and remediating the Site.
Based on preliminary disclosure of information relating to the claims made by
plaintiffs and defendants, JM Ney, which produced and refined precious metals
used in dental amalgams, is one of the smaller parties to have had any
transactions with one of the plaintiff's predecessors in interest. However,
under both CERCLA and the New Jersey Spill Act, a party is jointly and severally
liable, unless there is a basis for divisibility. At this time, there is
insufficient information to determine the appropriate allocation of costs as
between or among the defendant group, if liability to the generator defendants
is ultimately proven. Moreover, because of the incomplete status of discovery,
the Company is unable to predict the probable outcome of the lawsuit, whether
favorable or unfavorable, and has no basis to ascertain a range of loss, should
any occur, with respect to an outcome that might be characterized as
unfavorable.
The Company continues to investigate whether any liability, which may accrue at
some future date, may be subject to reimbursement in whole or in part from
insurance proceeds. The Company intends to continue to vigorously defend the
lawsuit.
James S. Cathers and Sylvia Jean Cathers, his wife v. Kerr Corporation,
Whip-Mix Corporation, The J.M. Ney Company and Dentsply Corporation, Inc.
As originally reported in the Company's Form 10-Q for the Quarter ended August
31, 1997, in August 1997, JM Ney was included as a defendant in an asbestos
related civil action for negligence and product liability filed in the Court of
Common Pleas of Allegheny County, Pennsylvania, in which the Plaintiffs claim
damages in excess of $30,000 (the jurisdictional limit) from being exposed to
asbestos and asbestos products alleged to have been manufactured and supplied by
the defendants, including Ney's former Dental Division, while one of the
Plaintiffs worked in a dental lab from 1960 to 1986 at an unspecified location
in Pittsburgh, Pennsylvania. The Plaintiffs allege that this exposure to
asbestos and asbestos products caused the wrongful death of one of the
Plaintiffs from cancer (mesothelioma). The Plaintiffs have not provided any
specific allegations of facts as to which defendants may have manufactured or
supplied asbestos and asbestos products which are alleged to have caused the
injury.
The Company has determined that it has insurance that potentially covers this
claim and has called upon the insurance carriers to provide reimbursement of
defense costs and liability, should any arise. As of this date, the Company has
no basis to conclude that the litigation may be material to the Company's
financial condition or business. The Company intends to vigorously defend the
lawsuit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
The Registrant's Common Stock is traded on The NASDAQ Stock Market under the
symbol (ANDR) with quotes supplied by the National Market System of the National
Association of Securities Dealers, Inc. (NASDAQ).
The approximate number of record and beneficial holders of the Registrant's
Common Stock on May 7, 1999 was 608 and 1,100, respectively. The Company's high,
low and closing sales prices for the common equity, for each full quarterly
period within the two most recent fiscal years, are included below. The stock
prices shown, which were obtained from NASDAQ, represent prices between dealers
and do not include retail markups, markdowns or commissions and may not
necessarily represent actual transactions.
<TABLE>
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Year ended February 28, 1999 High Low Close
- ---------------------------------------------- --------------------- ------------------------ ----------------------
<S> <C> <C> <C>
First Quarter 9 1/4 5 3/4 7 1/2
Second Quarter 9 4 5/8 4 5/8
Third Quarter 4 9/16 2 5/8 3 5/8
Fourth Quarter 7 5/8 2 11/16 4
- ---------------------------------------------- --------------------- ------------------------ ----------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ---------------------------------------------- ------------------------ --------------------- ----------------------
Year ended February 28, 1998 High Low Close
- ---------------------------------------------- ------------------------ --------------------- ----------------------
First Quarter 5 1/2 4 1/2 5 1/8
Second Quarter 6 3/4 5 6 1/2
Third Quarter 10 1/4 6 1/4 7 5/8
Fourth Quarter 7 1/2 4 7/8 5 5/8
- ---------------------------------------------- ------------------------ --------------------- ----------------------
</TABLE>
The Company has not paid dividends on its common stock since fiscal year ended
February 28, 1993, and it does not anticipate paying any dividends in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain financial data with respect to the
Company and is qualified in its entirety by the Consolidated Financial
Statements of the Company contained in Item 8 herein, (amounts in thousands,
except per share data).
<TABLE>
<CAPTION>
- ---------------------------------------------- ---------------- --------------- --------------- -------------- -------------
Years Ended February 1999 1998 1997 1996 1995
- ---------------------------------------------- ---------------- --------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues1 $23,600 $28,868 $20,501 $19,437 $24,520
(Loss) income from continuing
operations (2,964) 1,770 334 (1,921) (397)
Net (loss) income (3,080) 2,212 299 1,933 (388)
(Loss) income applicable to
common shares (3,465) 1,772 22 2,389 (975)
(Loss) income from continuing
operations per common share,
diluted (1.74) .68 .03 (.76) (.90)
(Loss) income per common share,
diluted (1.80) .91 .01 1.23 (.50)
Depreciation, amortization and
accretion 1,434 1,480 1,419 1,887 2,329
Total assets 37,119 44,771 37,677 38,798 43,679
Total debt 13,857 14,537 10,119 8,485 12,328
Redeemable preferred stock - - 4,891 5,280 10,593
Common and other stockholders'
equity2 16,429 20,196 13,647 13,625 9,913
Book value per common share 6.18 7.97 7.05 7.04
5.13
- ---------------------------------------------- ---------------- --------------- --------------- -------------- -------------
</TABLE>
1 The results of Digital GraphiX are included in 1995 and two months of 1996.
Revenues and (loss) income from continuing operations, exclude the results of
operations of the Company's Ultrasonic Cleaning Equipment and Dental segments as
a result of their sales in February 1998 and November 1995, respectively.
2 1999 and 1998 amounts include preferred stock as a result of the elimination
of its mandatory redemption provisions.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
1999 vs. 1998
For the year ended February 28, 1999 (FY99), the Company incurred a net loss
applicable to common shareholders of $3,465,000, or $(1.80) per share, basic and
diluted. During the prior fiscal year, the Company reported net income
applicable to common shareholders of $1,772,000, or $.92 per share basic and
$.91 diluted.
Revenues
Total revenues of $23,600,000 for FY99 were 18.2% lower than total revenues from
continuing operations reported for the fiscal year ended February 28, 1998
(FY98). The decline was due to a $6,709,000 decrease in Investment Income (Loss)
and Other Income, which was partially offset on a 5.7% increase in net sales
from The J.M. Ney Company (JM Ney).
During FY99, JM Ney's sales increased by $1,441,000. Such sales increase
primarily reflected the pass-through effect of increased selling prices for
products containing palladium as a result of higher market prices for this
particular precious metal. During FY99, the average market value for palladium
was approximately $302 per troy ounce, compared to approximately $198 per troy
ounce during FY98. During each of the last two years, the market for palladium
has been both volatile and generally increasing. During FY99, the products sold
by JM Ney contained approximately 24,000 troy ounces of palladium.
Overall sales growth was hampered by (i) the General Motors labor strike, which
reduced demand for many of JM Ney's products that are sold to the automotive
industry; (ii) the expiration of an exclusive manufacturing contract with the
Company's former Dental segment which resulted in a sales decline of $280,000;
and (iii) delays in the implementation of several sales programs to customers
who had purchased the required tooling from JM Ney but did not request the
anticipated level of parts production.
Activities which comprise Investment Income (Loss) and Other Income
produced a net loss of $3,238,000 during FY99, versus income of $3,471,000
during FY98 as follows (in thousands):
<TABLE>
<S> <C> <C>
FY99 FY98
Net (loss) gain from domestic investment portfolio $ (725) $ 1,759
Net (loss) gain from Russian and Eastern European
portfolio (2,213) 665
Write-down of long-term Russian investments (1,609) -
Interest and dividends 349 228
Rental income 482 376
Ultrasonic royalty income 60 -
Gain from Digital GraphiX 24 196
Other, net 394 247
--------- --------
$(3,238) $ 3,471
======== =======
</TABLE>
The domestic portfolio loss is comprised of net realized and unrealized losses
of $861,000 from the Company's portfolio of savings bank stocks, $4,000 of
losses from the sale of municipal bonds and a net gain of $140,000 from the sale
of the Company's investment in Centennial Cellular. During FY99, the market
value for Russian securities decreased significantly resulting in an unrealized
decline of 78% in the Company's portfolio of Russian, Ukrainian and Polish
trading investments. In addition, a JM Ney investment in a Russian bond fund
declined in value by approximately $299,000, or 60% of the original investment.
The Company also wrote down the value of its long-term investments in IAS and
VSMPO due to the Russian market conditions, and the perceived impact on the
Company's ability to realize value from these investments in the near term.
During FY98, increases in both the domestic and Eastern European markets
resulted in unrealized appreciation in the value of the Company's investment
portfolio.
Cost of Sales
Cost of sales totaled $18,255,000, or 68.0% of net sales, compared to
$17,040,000, or 67.1% of net sales in FY98. The decline in gross margins from
32.9% to 32.0% was the result of the previously noted higher palladium prices
which were passed on in the form of higher selling prices without a commensurate
margin markup.
During FY99, sales of precious metal materials in the form of wire, strip and
rod, represented 33.1% of sales, as compared to 31.8% for FY98. Material
products generally have lower average gross margins, due to the commodity nature
of this product class, versus highly engineered parts and components, which
involve more value-added processing and higher gross billing margins. This sales
mix, and the resultant underabsorption of operating expenses contributed to
lower average gross margins during FY99 compared to the prior year.
The FY99 margin decline was somewhat offset through expanded metals purchasing
programs that included forward purchases of palladium and sales of put options
for the purchase of palladium as a hedge against JM Ney's manufacturing
requirements. In addition, JM Ney reduced its inventory of palladium by
approximately 2,600 troy ounces which resulted in a LIFO gain of approximately
$349,000 when measured against the beginning of the fiscal year palladium
prices. One further element contributing to offsetting narrower margins was a
reclassification of approximately $240,000 in engineering costs to more properly
reflect management's analysis of costs that related to the manufacture of its
products.
Selling, General and Administrative Expenses
Selling, general and administrative expenses of $6,170,000 during FY99 represent
a modest decline from the costs incurred in the prior fiscal year. The Company
incurred costs in FY99 totaling $481,000 to convert JM Ney's primary operating
software to be Y2K compliant; $128,000 of such costs incurred in FY98. Lower
legal fees and corporate level compensation expense contributed to the overall
decline in these costs.
Research and Development Expenses
Research and development expenses increased 30.7% to $1,888,000, or 7.0% of net
sales, compared to $1,444,000, or 5.7% of net sales in FY98. The increase was
attributable to effort expended to develop new alloys and expand JM Ney's
technical competencies in meeting the changing requirements of its target
markets, and to approximately $240,000 of costs that were formerly allocated to
product costs.
Interest Expense
Interest expense of $1,735,000 during FY99 was 49.2% higher than the $1,163,000
of interest expense incurred during FY98. Most of the increase relates to a full
year of interest on a $7.5 million subordinated note which JM Ney issued during
the fourth quarter of FY98. In addition, JM Ney incurred increased interest
expense on high interest rate palladium leases which served to hedge market
risk, primarily attributable to its refining operations. Such interest costs
were offset by charges to JM Ney's refining customers that were included in
Other Income.
Income Taxes
An income tax benefit from continuing operations of $1,484,000 was recorded for
FY99 which represents an effective tax rate of 33.4%. The $4,547,000 of net
capital losses during FY99 was comprised of $482,000 of realized investment
gains and $5,029,000 of net change in unrealized losses. As a result, $1,076,000
of the tax benefit is being deferred.
Discontinued Operations
In February 1999, the Company reached a settlement agreement with the buyer of
the net assets of its Ultrasonics segment which it had sold as of February 28,
1998. Under the terms of this settlement, the Company received $400,000 of
previously escrowed funds in addition to the $2.4 million it had received at the
closing. In addition, the Company also granted the buyer certain allowances
against current-year and future royalty payments. As a result of the settlement
and costs incurred leading to the agreement, the Company recognized a net loss
from the sale of this segment of $116,000, net of $71,000 of income tax
benefits.
In the prior year, the Company had recorded a gain of $97,000 on this sale, net
of $84,000 of income taxes.
Preferred Dividends
During FY99, the Company incurred $385,000 of preferred dividends based upon the
revised terms of $1.50 per share. During FY98, a total of $477,000 in dividends
and discount accretion were accrued based on former terms under which the
preferred dividends were linked to the operating results of JM Ney.
1998 vs. 1997
Revenues
Total revenues from continuing operations of $28,868,000 for the fiscal year
ended February 28, 1998 (FY98) were 40.8% more than the $20,501,000 of revenues
recorded for the year ended February 28, 1997 (FY97). This increase represented
a 23.0% increase in sales generated by The J.M. Ney Company (JM Ney), and an
increase of $3,613,000 of investment and other income over the net losses of
$142,000 recorded in FY97.
JM Ney's increase in sales to $25,397,000 reflected growth in sales of contacts
for sensors used in the automotive industry, and increased sales of precious
metal materials, particularly materials for use in the manufacture of dental
implant components. Such sales growth during FY98 is reflected net of a 2%
decline in sales to the Company's former Dental segment.
Investment and other income totaled $3,471,000 for FY98, compared to a loss
of $142,000 in FY97, as follows (in thousands):
<TABLE>
<S> <C> <C>
FY98 FY97
Net gains from domestic investment portfolio $1,759 $ 1,032
Net gains from Russian and Eastern European portfolio 665 -
Interest and dividends 228 366
Rental income 376 342
Gain from Digital GraphiX 196 -
Loss from investments in Phoenix Shannon - (2,175)
Other, net 247 293
-------- -------
$ 3,471 $ (142)
======= ========
</TABLE>
Gains from the Company's domestic investment portfolio increased due to a
rebound in the market value of the Company's investment in Centennial Cellular,
which had experienced a decline in value in FY97, and to continued growth in
value from the Company's portfolio of financial institutions. All gains from
this portion of the investment portfolio in FY98 and FY97 represented increases
in net unrealized appreciation of the underlying investments. Also, during FY98,
the Company significantly expanded its investment activities in Russia and
Eastern Europe. This resulted in the recording of net realized and unrealized
gains of $665,000, net of valuation allowances of $617,000 established for the
foreign trading portfolio, and $245,000 established for a Russian security held
for longer-term investment. Such reserves were established to address volatility
and liquidity concerns within these markets.
During FY98, Digital GraphiX, Incorporated, an investment whose results had been
consolidated with those of the Company through April 1995, sold its net assets
and used the proceeds to repay notes, redeem its preferred stock, and issue
liquidating dividends on its common stock. As a result, the Company received
$196,000 in excess of the net carrying value of its investment.
During FY97, the Company wrote off $2,175,000 in the value of its investment in
the common stock of, and a note receivable from, Phoenix Shannon, p.l.c. which
had been received as part of the consideration for the sale of the net assets of
the Company's former Dental segment in FY96.
Cost of Sales
Cost of sales from continuing operations totaled $17,040,000, or 67.1% of net
sales in FY98, compared to $13,259,000, or 64.2% of net sales in FY97. The
decline in the gross margins from 35.8% to 32.9% was caused primarily by
significant increases and volatility in the price of palladium which is used in
the majority of JM Ney's products, and by increases in materials sales as a
percentage of overall sales. However, gross margins of $8,357,000 in FY98
represented a 13.2% increase over FY97 levels.
During most of FY97, the price of palladium remained relatively stable between
$141 per troy ounce and $115 per troy ounce, with an increase at fiscal year end
to above $155 per ounce. Such a market condition enabled JM Ney to replace the
metal it had sold with metal of approximately equal value for LIFO accounting
purposes. However, during FY98, the price of palladium fluctuated widely. Prices
ranged from a low of $142 per troy ounce to a high of $240 per ounce. During
much of this period, the market viewed these price increases as temporary, as
reflected in the lower cost for palladium in future months. Accordingly, for
certain segments of its business, this price increase could not be immediately
passed on to JM Ney's customers. Although JM Ney had certain hedging programs in
place, such strategies did not cover all sales programs involving significant
quantities of palladium.
In addition, the Company's FY98 gross margin benefited from lower gold prices,
which served to slightly offset the impact of the effects of the palladium price
increases and volatility.
Also, during FY98, sales of precious metal materials, in the form of wire,
strip, and rod represented approximately 31.8% of sales, compared to material
sales of 24.4% in FY97. Material products generally have lower average gross
margins, due to the commodity nature of the product, versus highly engineered
parts and components, which involve more value-added processing, and higher
gross margins. Such sales mix contributed further to the lower average gross
margins during FY98.
Selling, General and Administrative Expenses
Selling, general and administrative expenses from continuing operations totaled
$6,260,000, or 8.5% more than the costs incurred during FY97. Costs of
approximately $128,000 incurred in the process of upgrading JM Ney's
manufacturing system to be Year 2000 compliant, an increase of $167,000 of
recruiting costs, including personnel fees and advertising, and legal costs
incurred in connection with the exchange of the Company's 10 1/2% Debentures and
change of the terms of its Preferred Stock, all contributed to the growth in
these expenses.
Research and Development Expenses
Research and development expenses increased from $1,228,000, or 5.9% of sales in
FY97, to $1,444,000, or 5.7% of sales in FY98. While increased material sales
served to lower the relative comparison, the absolute increase of 17.6% reflects
the cost of efforts to develop new proprietary alloys that have similar physical
attributes to existing alloys with lower palladium content to reduce exposure to
market fluctuations, and to work on new manufacturing processes which enable JM
Ney to offer product alternatives.
Interest Expense
Interest expense increased from $790,000 in FY97 to $1,163,000 in FY98.
Increased borrowings under JM Ney's revolving line of credit to support both its
working capital requirements and those of Ney Ultrasonics served to increase
interest expense. In addition, significant increases in the leasing rates of
palladium and platinum also served to increase financing costs under its line of
credit. JM Ney was not exposed to these volatile interest rates to the extent
that many other companies using palladium were, thus this impact was contained.
Also, during the year, JM Ney closed on a $7.5 million seven-year subordinated
note that bears interest at the annual rate of 10.26%. Interest and amortization
of deferred financing costs for two months added to the interest expense total.
Income Taxes
Income tax expense from continuing operations totaled $1,191,000 for FY98,
versus a tax benefit from continuing operations of $882,000 for FY97. The FY98
expense included a net increase of $1,016,000 in deferred income taxes payable.
The effective tax rate for FY97 was favorably impacted by the settlement of
audits of prior state income tax returns.
<PAGE>
Discontinued Operations
Effective February 28, 1998, the Company sold the net assets of Ney Ultrasonics
Inc. for a purchase price which was estimated to be approximately $3.5 million,
and additional contingent consideration. Net of expenses incurred in and accrued
for the transaction, the Company recognized a gain of $97,000, net of tax. For
the year then ended, Ney Ultrasonics Inc. generated approximately $345,000 of
net income on sales of $5,713,000. During FY98 these operations generated an
increase in sales of 47.5% over FY97, which produced the first operating profit
in its history.
Preferred Dividends
Preferred dividends, including the amortization of issuance costs, totaled
$477,000 during FY98, which is a 16.1% increase over the dividends of $411,000
accrued for FY97. The dividends per preferred share, which include a
participating dividend based on the operating income of JM Ney, increased from
approximately $1.24 per share in FY97 to approximately $1.69 in FY98. However,
due to purchases of shares of preferred stock during both years, the aggregate
preferred dividends increased by a lower amount. Reversals of previously accrued
but unpaid dividends added $37,000 and $134,000 to income applicable to common
shareholders in FY98 and FY97, respectively.
As a result of the shareholder approval of the change in the terms of the
Preferred Stock, dividends that had been accrued from May 1993 through November
1997 were paid in February 1998.
Net Income
As a result of the income of $1,770,000 generated from continuing operations,
income of $345,000 from discontinued operations, and the gain of $97,000 on the
sale of Ney Ultrasonics Inc., total net income for FY98 was $2,212,000, versus
net income of $299,000 in FY97. After net preferred dividends, income applicable
to common shareholders for FY98 was $1,772,000, or $.92 per share basic, $.91
diluted, versus income applicable to common shareholders of $22,000, or $0.01
per basic and diluted share in FY97.
LIQUIDITY AND CAPITAL RESOURCES
At February 28, 1999, consolidated cash and short-term investments totaled
$8,555,000, which is a decrease of $2,962,000, or 25.7%, from February 28, 1998.
Within the current year total is a portfolio of common stocks of savings banks
valued at $5,362,000, the Company's trading portfolio of Russian and Eastern
European securities with a reported value of $554,000, and JM Ney's investment
in a Russian bond fund with a reported value of $98,000.
Under the terms of its $7.5 million subordinated note agreement and revolving
credit agreement with a commercial bank, JM Ney is restricted from making
payments to the Company except as defined. The defined payments are subject to
JM Ney's meeting certain financial covenants. At February 28, 1999, JM Ney's
working capital was $8,883,000 or 59.1% of consolidated net current assets, and
its net worth, net of net liabilities to the Company, including a $4 million
subordinated note payable, totaled $7,125,000, or 43.4% of the Company's
consolidated total.
The Company is dependent upon defined payments from JM Ney, which in FY99
totaled $820,000, and on income from its investments to meet its operating
expenses, debt service and preferred dividend obligations. The Company believes
it can meet these requirements in the foreseeable future from these defined
sources of cash flows, or from the proceeds of liquidations of existing
investments.
During FY99, the prices of the precious metals that JM Ney utilizes in the
alloying and manufacturing of its products experienced significant volatility.
Primarily as a net result of an increase of approximately $80 per ounce of the
palladium content of its inventory, and a $10 per ounce decline in the gold
component of its inventory, JM Ney's LIFO reserve increased by $969,000 to
maintain the net recorded value of these inventories at their historical values.
In June 1998, SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" was issued. SFAS No. 133 requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Gains and losses resulting
from changes in the values of those derivatives would be recognized immediately
or deferred depending on the use of the derivative and if the derivative is a
qualifying hedge. The Company plans to adopt SFAS No. 133 by January 1, 2000, as
required. The Company is currently assessing the impact of this statement on the
Company's consolidated financial statements.
Forward-looking Statements
Statements contained in this Form 10-K that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. In addition, words such as
"believes," "anticipates," "expects" and similar expressions are intended to
identify forward-looking statements. The Company cautions that a number of
important factors could cause actual results for fiscal 2000 and beyond to
differ materially from those expressed in any forward-looking statements made by
or on behalf of the Company. Such statements contain a number of risks and
uncertainties, including, but not limited to (i) economic and political
developments in Russia and Eastern Europe; (ii) changes and volatility in the
market for domestic equity securities, particularly in the financial services
sector, (iii) changes in technology that would affect JM Ney's products, or
affect the value of the ultrasonic cleaning technology on which contingent
consideration is based; (iv) acceptance of new product developments and (v) the
price and volatility of precious metals. The Company cannot assure that it will
be able to anticipate or respond timely to changes which could adversely affect
its operating results in one or more fiscal quarters. Results of operations in
any past period should not be considered indicative of results to be expected in
future periods. Fluctuations in operating results may result in fluctuations in
the price of the Company's common stock.
Year 2000
The Year 2000 problems stem from three main issues: two-digit data storage, leap
year calculations, and special meanings for dates (i.e., 9/9/99). There is not a
simple solution to the Year 2000 issue due to the fact that the use of dates for
calculations is pervasive throughout software and the use of these calculations
is not standardized.
State of Readiness. The Company has formalized a comprehensive Year 2000 plan
that encompasses its products, vendors, customers, manufacturing equipment,
technical infrastructure, facilities, telecommunications, and business systems.
The plan consists of the following phases: inventory, assessment, remediation,
testing, implementation, and a contingency plan for each area. The plan also
contains the cost associated with providing Year 2000 solutions for each area.
The Company's plan has been viewed favorably by a Year 2000 consulting firm,
which reviewed each element of the plan.
The Company has completed the process of identifying and assessing the extent to
which the Year 2000 issue will affect its products, vendors, customers,
manufacturing equipment, technical infrastructure, facilities,
telecommunications and business systems. To date, most of the financial and
operational effort has been expended in implementing Year 2000 compliant
solutions or JM Ney's enterprise resource planning (ERP) systems and technical
infrastructure. This effort was completed in October 1998. The Company is now in
the process of remediation, testing and implementation of Year 2000 compliant
solutions for its manufacturing equipment, telecommunications, facilities and
some minor business systems. These processes are scheduled to be complete by
September 1999.
Costs. Through February 28, 1999, approximately $609,000 has been expended on
the Year 2000 project, including $481,000 expended during FY99. Additional Year
2000 expenses to be incurred have been estimated to total less than $200,000.
However, there can be no assurance that the Company will not incur any
unanticipated costs in completing its remediation for non-compliant
manufacturing equipment.
Risks. The Company views its greatest area of exposure as being the degree of
compliance of some of JM Ney's manufacturing equipment. There are machines that
do not have blue prints, and information regarding the programmable logic
controls is not always easy to obtain. These same machines do not have a
mechanism to change the date, nor do they display or print a date. These same
reasons could be a positive indicator to support the idea that they are not
date-sensitive machines. JM Ney will be performing extensive tests on all
manufacturing equipment during the second fiscal quarter of FY 2000. Other risks
relate to the degree of readiness of the Company's vendors, suppliers,
customers, and other third parties. Any failure by these parties to ensure the
Year 2000 compliance could have an adverse effect on the Company's position.
Contingency. The Company will continue to develop its contingency
strategies for every area. Special attention will be paid to the manufacturing
and third party disciplines.
During the first quarter of FY2000, the Company has been evaluating the
responses from its single-source and critical suppliers, and will be requesting
updates from these suppliers as the year progresses. Additional or second
sources will be identified for those suppliers who fail to provide sufficient
Year 2000 information or who are not compliant by September 1999.
Based upon a comprehensive review of exposure areas, the Company believes that
manufacturing and other operational and administrative activities will not be at
significant risk due to the Year 2000 problem.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
The Company and JM Ney are exposed to market risk from changes in equity
security prices, certain commodity prices, interest rates and from factors that
impact equity investment in Russia, the Ukraine and Poland.
Equity Securities Risk
At February 28, 1999, the Company owned a portfolio of savings bank stock with a
market value of $5,362,000. The Company has pledged this portfolio to secure
short-term borrowings of $1,392,000. A decline in the value of these securities,
in addition to reducing working capital could cause the Company to sell
securities or use other sources of funds to reduce the margin loan.
Foreign Investment Risk
The Company has a trading portfolio of Russian, Ukraine and Polish investments
with a net reported value of $558,000 and longer term Russian investments with a
reported value of $206,000. In addition, JM Ney has an investment in a Russian
bond fund with a reported value of $98,000. The realizable value of these
investments, particularly Russian components, is subject to currency
fluctuations, illiquid markets and political risks. The Company has no
derivative financials instruments to hedge the risks associated with these
investments.
Commodity Price Risk
JM Ney utilizes significant amounts of precious metals in the products it
manufactures and sells. Significant increases in the market value of these
metals, palladium, gold and platinum, in particular, may impact the demand for
its products. JM Ney generally adjusts the selling prices of its products if
market prices change significantly, or it hedges fixed selling price programs.
Accordingly, while a change in precious metals prices may impact cost of sales,
such impact is generally met with an approximately equivalent charge in sales,
so that the impact on earnings is minimal or not present. Significant
fluctuations and volatility in precious metal price creates risk that purchases
of precious metals may not be efficiently coordinated with sales. While JM Ney
believes it has the programs in place to limit this risk, there can be no
assurance that volatility in price does not result in intended profits or
losses. Also, while increases or decreases in precious metal prices impact the
economic value of JM Ney's inventory, such changes are generally reflected with
a corresponding change in the LIFO reserve and do not affect the net reported
value of its inventory.
Interest Rate Risk
JM Ney has a revolving line of credit which bears interest at floating rates as
described in Note 8 to the Company's consolidated financial statements. In
addition, the Company has short-term borrowings in the form of a margin loan.
Neither the Company nor JM Ney hedges its interest rate risk, including the note
associated with precious metal consignment arrangements which are tied to
precious metal leasing.
A 1% change in interest rates would impact the Company's interest cost of its
short-term borrowings by approximately $15,000. During most of FY99, JM Ney did
not have outstanding cash borrowings on its revolving line of credit, thus a 1%
change in interest rates would have a minimal impact on reported interest
expense. Most of JM Ney's usage of its credit line is in the form of consignment
borrowings of precious metals, much of which hedge precious metals inventory
represented by scrap metal of its refining operations. A 1% change in precious
metal leasing rates would impact JM Ney's interest cost by approximately
$20,000, much of which would be offset by changes in market risk surcharges to
US refining customers. Such leasing costs are also impacted by charges in the
market prices for the precious metals being leased. During FY99 the leasing
rates and market prices for palladium fluctuated significantly. Leasing costs
ranged from a high of 210% per annum to a low of 9.5%, with an unweighted
average of approximately 40%. Market prices for palladium contacts ranged from
$242 per troy ounce to $397 per troy ounce. As a result, daily lease costs for
palladium ranged from approximately $2.16 per ounce to approximately $0.10 per
ounce.
The Company passed these metal fluctuations and market sensitive lease costs to
US refining customers, in the form of charges that are included in Other Income.
Accordingly, the net impact of such fluctuations is estimated to not be material
to the Company's consolidated results of operations. Due to the interest risk of
financing and managing precious metals inventory, there can be no assurance that
changes in either or both precious metals prices or leasing rates will not have
a material impact on future results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following table summarizes certain financial data with respect to the
Company and is qualified in its entirety by the Company's Consolidated Financial
Statements contained in this Item (amounts in thousands, except per share data).
<TABLE>
<CAPTION>
Selected Quarterly Financial Data
1999 Quarterly Financial Data May 31 August 31 November 30 February 28
- -------------------------------------------------- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net sales and revenues from continuing
operations $7,831 $1,116 $7,842 $6,811
Gross profit 2,515 2,086 2,215 1,767
Income (loss) from continuing operations 53 (3,351) 611 (277)
Net income (loss) 53 (3,351) 611 (393)
Income (loss) applicable to common shares (50) (3,447) 515 (483)
- -------------------------------------------------- ------------------ ------------------ ------------------ ------------------
Earnings (Loss) Per Common Share1:
Continuing operations (.03) (1.77) .27 (.25)
Net income (loss) (.03) (1.77) .27 (.25)
- -------------------------------------------------- ------------------ ------------------ ------------------ ------------------
1998 Quarterly Financial Data May 31 August 31 November 30 February 28
- -------------------------------------------------- ------------------ ------------------ ------------------ ------------------
Net sales and revenues from continuing
operations $6,338 $9,346 $6,396 $6,788
Gross profit 2,073 1,938 2,226 2,120
Income (loss) from continuing operations 217 2,088 (283) (252)
Net income (loss) 267 2,111 (183) 17
Income (loss) applicable to common shares 141 2,040 (305) (104)
- -------------------------------------------------- ------------------ ------------------ ------------------ ------------------
Earnings (Loss) Per Common Share1:
Continuing operations .05 .78 (.21) (.19)
Net income (loss) .07 .79 (.16) (.05)
- -------------------------------------------------- ------------------ ------------------ ------------------ ------------------
</TABLE>
1 The sum of earnings per share for the four quarters may not equal earnings per
share for the total year due to certain items in the diluted earnings per share
calculation for an individual quarter that were anti-dilutive for the total
year.
<PAGE>
<TABLE>
<CAPTION>
ANDERSEN GROUP, INC.
Consolidated Balance Sheets
February 28, 1999 and 1998
(in thousands, except share data)
1999 1998
- ------------------------------------------------------------------------- ----------------------- ----------------------- ----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,541 $ 2,516
Marketable securities 6,014 9,001
Receivable from sale of subsidiary - 3,521
Accounts and other receivables, less allowance for doubtful
accounts of $110 in 1999, and $130 in 1998 4,098 3,870
Inventories 7,821 8,076
Prepaid expenses and other current assets 100 142
- ------------------------------------------------------------------------- ----------------------- ----------------------- ----------
Total current assets 20,574 27,126
Property, plant and equipment, net 9,305 9,443
Prepaid pension expense 5,033 4,665
Investments 206 1,815
Other assets 2,001 1,722
- ------------------------------------------------------------------------- ----------------------- ----------------------- ----------
$37,119 $44,771
- ------------------------------------------------------------------------- ----------------------- ----------------------- ----------
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 443 $ 595
Short-term borrowings 2,356 2,183
Accounts payable 659 951
Accrued liabilities 1,501 3,352
Deferred income taxes 582 1,286
- ------------------------------------------------------------------------- ----------------------- ----------------------- ----------
Total current liabilities 5,541 8,367
Long-term debt, less current maturities 3,729 4,459
Subordinated note payable, net of unamortized discount 7,329 7,300
Other long-term obligations 1,902 1,888
Deferred income taxes 2,189 2,561
- ------------------------------------------------------------------------- ----------------------- ----------------------- ----------
Total liabilities 20,690 24,575
- ------------------------------------------------------------------------- ----------------------- ----------------------- ----------
Commitments and contingencies (Notes 18 and 21)
Stockholders' equity:
Cumulative convertible preferred stock, no par value;
authorized 800,000 shares, outstanding 256,416 shares 4,769 4,769
Common stock, $.01 par value in 1999, no par value in 1998;
authorized 6,000,000 shares, issued 1,958,478 shares in 1999
and 1998 20 2,103
Treasury stock, at cost, 30,549 shares in 1999, and 21,800
shares in 1998 (142) (82)
Receivable from officer (250) -
Additional paid-in capital 5,339 3,248
Retained earnings 6,693 10,158
- ------------------------------------------------------------------------- ----------------------- ----------------------- ----------
- ------------------------------------------------------------------------- ----------------------- ----------------------- ----------
Total stockholders' equity 16,429 20,196
- ------------------------------------------------------------------------- ----------------------- ----------------------- ----------
$37,119 $44,771
- ------------------------------------------------------------------------- ----------------------- ----------------------- ----------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ANDERSEN GROUP, INC.
Consolidated Statements of Operations
Years ended February 28, 1999, 1998 and 1997
(in thousands, except per share data)
<S> <C> <C> <C>
1999 1998 1997
- ------------------------------------------------------- -------------------------- ----------------------- --------------------
Revenues:
Net sales $26,838 $25,397 $20,643
Investment income (loss) and other income (3,238) 3,471 (142)
- ------------------------------------------------------- -------------------------- ----------------------- --------------------
23,600 28,868 20,501
- ------------------------------------------------------- -------------------------- ----------------------- --------------------
Costs and expenses:
Cost of sales 18,255 17,040 13,259
Selling, general and administrative 6,170 6,260 5,772
Research and development 1,888 1,444 1,228
Interest expense 1,735 1,163 790
- ------------------------------------------------------- -------------------------- ----------------------- --------------------
28,048 25,907 21,049
- ------------------------------------------------------- -------------------------- ----------------------- --------------------
(Loss) income from continuing operations
before income taxes (4,448) 2,961 (548)
Income tax (benefit) expense (1,484) 1,191 (882)
- ------------------------------------------------------- -------------------------- ----------------------- --------------------
(Loss) income from continuing operations (2,964) 1,770 334
Income (loss) from discontinued Ultrasonics
segment, net of income taxes (benefit) of
$221 and ($22), respectively - 345 (35)
(Loss) gain on sale of discontinued Ultrasonics
segment, net of income taxes (benefit) of
($71) and $84, respectively (116) 97 -
- ------------------------------------------------------- -------------------------- ----------------------- --------------------
Net (loss) income (3,080) 2,212 299
Preferred dividends (385) (477) (411)
Reversal of preferred dividends - 37 134
- ------------------------------------------------------- -------------------------- ----------------------- --------------------
(Loss) income applicable to common
shareholders $(3,465) $ 1,772 $ 22
- ------------------------------------------------------- -------------------------- ----------------------- --------------------
Earnings (loss) per common share:
BASIC
Continuing operations $ (1.74) $ .69 $ .03
Discontinued operations - .18 (.02)
(Loss) gain on sale of discontinued segment (.06) .05 -
- ------------------------------------------------------- -------------------------- ----------------------- --------------------
(Loss) income per common share, basic $ (1.80) $ .92 $ .01
- ------------------------------------------------------- -------------------------- ----------------------- --------------------
DILUTED
Continuing operations $ (1.74) $ .68 $ .03
Discontinued operations - .18 (.02)
(Loss) gain on sale of discontinued segment (.06) .05
-
- ------------------------------------------------------- -------------------------- ----------------------- --------------------
(Loss) income per common share, diluted $ (1.80) $ .91 $ .01
- ------------------------------------------------------- -------------------------- ----------------------- --------------------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ANDERSEN GROUP, INC.
Consolidated Statements of Changes in Stockholders' Equity Years ended February
28, 1999, 1998 and 1997
(in thousands, except share data)
<S> <C> <C> <C> <C> <C>
1999 1998 1997
Outstanding Outstanding Outstanding
Shares Amount Shares Amount Shares Amount
- ---------------------------------------- -------------- ----------------- --------------- ------------------ ------------- ---------
Preferred Stock
Beginning balance 256,416 $ 4,769 - - - -
Reclassification due to removal of
redemption provisions of preferred 256,416 $ 4,769 - -
stock
- ---------------------------------------- -------------- ----------------- --------------- ------------------ ------------- ---------
256,416 $ 4,769 256,416 $ 4,769 - -
- ---------------------------------------- -------------- ----------------- --------------- ------------------ ------------- ---------
Common Stock
Beginning balance 1,958,478 $ 2,103 1,958,478 $ 2,103 1,958,205 $ 2,103
Shares issued from prior -
conversion of preferred stock - - 273
Adjustment to reflect redomestication
and (2,083) - - - -
new par value for common shares
- ---------------------------------------- -------------- ----------------- --------------- ------------------ ------------- ---------
1,958,478 $ 20 1,958,478 $ 2,103 1,958,478 $ 2,103
- ---------------------------------------- -------------- ----------------- --------------- ------------------ ------------- ---------
Additional Paid-in Capital
Beginning balance $ 3,248 $ 3,248 $ 3,248
Adjustment to reflect redomestication
and 2,083 - -
new par value for common shares
Net gain on issuances of treasury 8 - -
shares
- ---------------------------------------- -------------- ----------------- --------------- ------------------ ------------- ---------
$ 5,339 $ 3,248 $ 3,248
- ---------------------------------------- -------------- ----------------- --------------- ------------------ ------------- ---------
Retained Earnings
Beginning balance $10,158 $ 8,386 $ 8,364
Net (loss) income (3,080) 2,212
299
Preferred stock dividends and
accretion (385) (477)
(411)
Reversal of preferred dividends and
accretion - 37
134
- ---------------------------------------- -------------- ----------------- --------------- ------------------ ------------- ---------
$ 6,693 $10,158 $ 8,386
- ---------------------------------------- -------------- ----------------- --------------- ------------------ ------------- --------
Receivable from Officer
Beginning balance - - -
Receivable pursuant to officer's
purchase $ ( 250) - -
of common stock
- ---------------------------------------- -------------- ----------------- --------------- ------------------ ----------------- -----
$ ( 250) - -
- ---------------------------------------- -------------- ----------------- --------------- ------------------ ------------- ---------
Treasury Stock
Beginning balance 21,800 $ (82) 24,000 $ (90) 24,000 $
(90)
Shares issued (20,772) 78 (2,200) 8 - -
Shares issued to officer (62,500) 250
Treasury shares purchased 92,021 (388) - - - -
- ---------------------------------------- -------------- ----------------- --------------- ------------------ ------------- ---------
30,549 $ (142) 21,800 $ (82) 24,000 $
(90)
- ---------------------------------------- -------------- ----------------- --------------- ------------------ ------------- ---------
- ---------------------------------------- -------------- ----------------- --------------- ------------------ ------------- ---------
Total stockholders' equity $16,429 $20,196 $13,647
- ---------------------------------------- -------------- ----------------- --------------- ------------------ ------------- ---------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ANDERSEN GROUP, INC.
Consolidated Statements of Cash Flows
Years ended February 28, 1999, 1998 and 1997
(in thousands)
<S> <C> <C> <C>
1999 1998 1997
- -------------------------------------------------------------------- ---------------------- -------------------- -------------------
Cash flows from operating activities:
Net (loss) income $(3,080) $ 2,212 $ 299
Adjustments to reconcile net (loss) income to net cash used in operating
activities:
Depreciation, amortization and accretion 1,434 1,480 1,419
Deferred income taxes (1,076) 1,016 67
Loss (gain) on sale of Ney Ultrasonics 116 (97) -
Losses (gains) from securities and investments 4,547 (2,619) 1,149
Purchases of securities (1,836) (2,218) (1,625)
Proceeds from sales of securities 1,885 1,230 526
Pension income (368) (391) (247)
(Gain) loss on disposal of property, plant and equipment (25) - 58
Investment in Digital GraphiX - - (87)
Changes in operating assets and liabilities, net of changes from sale of Ney
Ultrasonics in 1998:
Accounts and other receivables (228) (2,048) 1,564
Inventories 255 (386) (428)
Prepaid expenses and other assets 57 (97) (339)
Accounts payable (292) 507 (1,799)
Accrued liabilities and other long-term obligations (1,273) (1,105) (930)
- -------------------------------------------------------------------- ---------------------- -------------------- -------------------
Net cash provided by (used in) operating activities 116 (2,516) (373)
- -------------------------------------------------------------------- ---------------------- -------------------- -------------------
Cash flows from investing activities:
Proceeds from sale of Ultrasonics segment 2,800 - -
Proceeds from sale of property, plant and equipment 223 - 4
Purchase of property, plant and equipment (1,702) (1,740) (1,191)
Purchase of investments - (1,225) -
Proceeds from collection of investments - 1,542 -
- -------------------------------------------------------------------- ---------------------- -------------------- -------------------
Net cash provided by (used in) investing activities 1,321 (1,423) (1,187)
- -------------------------------------------------------------------- ---------------------- -------------------- -------------------
Cash flows from financing activities:
Principal payments on long-term debt (882) (2,760) (1,250)
Proceeds from issuance of subordinated debt - 7,500 -
Redemptions of preferred stock - (160) (392)
Proceeds (payment) of short-term borrowings, net 173 (122) 2,305
Stock options exercised 50 - -
Treasury shares purchased, net (352) - -
Preferred dividends paid (401) (1,222) -
- -------------------------------------------------------------------- ---------------------- -------------------- ---------------
Net cash (used in) provided by financing activities (1,412) 3,236 663
- -------------------------------------------------------------------- ---------------------- -------------------- ---------------
Net increase (decrease) in cash and cash equivalents 25 (703) (897)
Cash and cash equivalents, beginning of year 2,516 3,219 4,116
- -------------------------------------------------------------------- ---------------------- -------------------- ---------------
Cash and cash equivalents, end of year $ 2,541 $ 2,516 $ 3,219
- -------------------------------------------------------------------- ---------------------- -------------------- ---------------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Andersen Group, Inc.
Notes to Consolidated Financial Statements
Years ended February 28, 1999, 1998 and 1997
(1) Nature of Business
Andersen Group, Inc. (the Company) is a diversified holding company which
invests in both marketable and illiquid securities of domestic and foreign-based
companies. It also owns a consolidated subsidiary, The J.M. Ney Company (JM
Ney), which manufactures electronic connectors, components and precious metal
materials for sale to the automotive, defense, semiconductor and medical and
dental markets.
(2) Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Principles of Consolidation
The Company's financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents include funds held in investments with an original
maturity of three months or less.
Marketable Securities
The Company's marketable securities are carried as trading securities at market
value in accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115).
The Company has established a valuation allowance to provide for volatility and
liquidity concerns relating to its investments in Russia and other Eastern
European countries. Any changes in the valuation of the portfolio are reflected
in the accompanying Consolidated Statements of Operations.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the last-in, first-out (LIFO) method for precious metals and at standard costs
which approximate the first-in, first-out (FIFO) and average cost methods for
the balance of the inventories.
Property, Plant and Equipment
Property, plant and equipment, including capital leases, are stated at cost and
depreciated using the straight-line method over the estimated useful life of the
respective assets, as follows:
Buildings and improvements 10-50 years
Machinery and equipment 5-10 years
Furniture and fixtures 3-10 years
Unamortized Discounts
Unamortized discounts on subordinated notes payable are accreted using the
effective interest method.
Income Taxes
Income taxes are determined using the asset and liability approach. This method
gives consideration to the future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities at
currently enacted tax rates.
Earnings Per Share
In accordance with Statement of Financial Accounting Standards No. 128 -
"Earnings Per Share" (SFAS 128), basic earnings per share is computed based upon
the weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed based upon the weighted average number of
common shares plus the assumed issuance of common shares for all potentially
dilutive securities. See Note 14 for additional information and a reconciliation
of the basic and diluted earnings per share computations.
Inventory Hedging
The Company has entered into precious metal forward contracts as a hedge against
precious metal fluctuations for firm price deliveries. These contracts limit the
Company's exposure to both favorable and unfavorable precious metals price
fluctuations. Gains or losses on these contracts are recognized when the product
deliveries being hedged have been made. The Company also utilizes precious
metals leasing and deferred payment purchases of precious metals to manage the
price exposure of certain components of its inventory.
Financial Statement Presentation
Certain reclassifications have been made to the prior years' financial
statements in order to conform with the FY99 presentation.
<TABLE>
<CAPTION>
(3) Marketable Securities
Marketable securities consist of the following (in thousands):
<S> <C> <C>
February 28, 1999 February 28, 1998
- --------------------------------------------------------------- ------------------------- -------------------------- --
Common stock of savings banks $5,362 $5,611
FM Emerging Russia Fund 294 2,422
Portfolio of Ukraine stocks 108 314
Common stock of Bank Handlowey 217 348
Renaissance Russia Bond Fund 98 -
Valuation reserve - foreign investments (65) (617)
Common stock of Centennial Cellular - 430
Municipal bonds - 493
- --------------------------------------------------------------- ------------------------- -------------------------- --
$6,014 $9,001
- --------------------------------------------------------------- ------------------------- -------------------------- --
</TABLE>
<TABLE>
<CAPTION>
(4) Inventories
Inventories consist of the following (in thousands):
<S> <C> <C>
February 28, 1999 February 28, 1998
--------------------------------------------------------------- ------------------------- ---------------------------
Raw material $ 3,498 $ 2,989
Work in process 4,661 6,509
Finished goods 2,710 657
------------------------------------------------------------ ------------------------- ---------------------------
10,869 10,155
Less LIFO Reserve 3,048 2,079
------------------------------------------------------------ ------------------------- ---------------------------
$ 7,821 $ 8,076
------------------------------------------------------------ ------------------------- ---------------------------
</TABLE>
At February 28, 1999 and 1998, inventories valued at LIFO cost comprised 76% and
79% of total inventories, respectively. At February 28, 1999, inventories valued
at LIFO consisted of 9,565 troy ounces of gold, 11,817 troy ounces of silver,
3,396 troy ounces of platinum and 14,086 troy ounces of palladium. Such
quantities of precious metals are net of 400 ounces of palladium held by the
Company's primary operating subsidiary, JM Ney, subject to leasing arrangements
with the precious metals division of JM Ney's primary bank.
(5) Discontinued Operations
Ney Ultrasonics Inc.
Effective February 28, 1998, the Company sold the net assets of Ney Ultrasonics
Inc. for an amount which at February 28, 1998 was estimated to be approximately
$3,521,000. As a result, during FY98 the Company recorded a gain of $97,000, net
of expenses relating to the transaction and net of income taxes of $84,000.
During FY99, the Company and the purchaser of the business reached a settlement
agreement to resolve disputes relating to the determination of the purchase
price. Under this settlement, the Company received $400,000 of additional
consideration beyond the $2,400,000 it had received at closing. This settlement,
net of expenses incurred in excess of previous accruals, resulted in a current
year loss of $187,000 before related tax benefits. The Company also expects to
receive additional consideration, which is contingent on the growth of the sales
of products and technology transferred as part of the sale.
Ney Ultrasonics' results of operations have been presented as discontinued
operations. Revenue from the segment totaled approximately $5,713,000 and
$3,874,000 in FY98 and FY97, respectively.
<TABLE>
<CAPTION>
(6) Property, Plant and Equipment
Property, plant and equipment consist of the following (in thousands):
<S> <C> <C>
February 28, 1999 February 28, 1998
- ------------------------------------------------------- ---------------------------- ------------------------------
Land and improvements $ 1,056 $ 1,056
Buildings and improvements 9,308 9,392
Machinery and equipment 11,494 10,539
Furniture and fixtures 873 867
- ------------------------------------------------------- ---------------------------- ------------------------------
22,731 21,854
Less accumulated depreciation and
amortization 13,426 12,411
- ------------------------------------------------------- ---------------------------- ------------------------------
$ 9,305 $ 9,443
- ------------------------------------------------------- ---------------------------- ------------------------------
</TABLE>
Depreciation and amortization expense was $1,350,000, $1,405,000 and $1,393,000
in FY99, FY98 and FY97, respectively.
At February 28, 1999 and 1998, property, plant and equipment includes $579,000
and $1,146,000, respectively, of machinery and equipment acquired under capital
leases, which expire through FY02, with related accumulated amortization of
$268,000 and $728,000, respectively.
(7) Investments
Investments consist of the following (in thousands):
February 28, 1999 February 28, 1998
- ------------------------------------------ ------------------- -----------------
Investment in Institute for Automated
Systems $ 84 $ 835
Investment in VSMPO 122 980
- ------------------------------------------ ------------------- -----------------
$ 206 $ 1,815
- ------------------------------------------ ------------------- -----------------
At February 28, 1999, the Company had an investment with a cost basis of
$835,000 in a joint venture, which has an equity investment in the Institute for
Automated Systems, a Russian telecommunications company that has plans to
develop a data transmission network throughout Russia. Two of the Company's
directors are among a group of investors in this joint venture.
During FY98, the Company invested approximately $1,225,000 in the common stock
of AVISMA, a Russian titanium producer which was subsequently merged into VSMPO,
a Russian titanium processing company. Three of the Company's directors and an
investment fund controlled by one of these directors are also investors in
VSMPO.
These two investments, which the Company intends to hold long term and are
recorded using the cost basis method of accounting, were written down in value
during FY99 to reflect other than temporary impairments in their values due to
significant declines in the market values of Russian securities.
(8) Short-term Borrowings
J.M. Ney has a $6.0 million revolving credit and deferred payment sales
agreement with a commercial bank. At February 28, 1999, $964,000 was
outstanding. The facility is secured by substantially all of JM Ney's assets. At
JM Ney's discretion, interest is charged at the bank's prime rate, which was
7.75% and 8.5% at February 28, 1999 and 1998, respectively, or at LIBOR plus
1.75% if the borrowing is fixed for a period of time, or at 1.75% over the
bank's precious metals leasing rate if the borrowing is represented by deferred
payment purchases of precious metals. A fee of 0.25% is charged on the unused
balance of the facility. This agreement includes restrictive covenants that
limit the amount of dividends and distributions from JM Ney to the Company and
which require JM Ney to maintain a specified amount of stockholders' equity. At
February 28, 1999 the amount of net assets which JM Ney was restricted from
distributing to the Company totaled approximately $11,125,000.
In addition, at February 28, 1999, the Company had a $1,392,000 demand loan,
which was secured by a portion of the Company's portfolio of marketable
securities. Interest on this borrowing was charged at a floating rate, which was
5.8% at February 28, 1999.
(9) Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
<PAGE>
<TABLE>
<CAPTION>
February 28, 1999 February 28, 1998
- ---------------------------------------- ------------------------------------ -------------------------------------
<S> <C> <C>
Employee compensation $ 430 $ 449
Accrued dividends 96 112
Income taxes - 201
Accrued interest 276 314
Deferred hedging gains 165 346
Other 534 1,930
- ---------------------------------------- ------------------------------------ -------------------------------------
$ 1,501 $ 3,352
- ---------------------------------------- ------------------------------------ -------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(10) Long-term Debt and Subordinated Notes Payable
Long-term debt and subordinated notes payable consist of the following (in
thousands):
February February
28, 1999 28, 1998
- ---------------------------------------------------------------------- ---------------------- ---------------------- --
<S> <C> <C>
Convertible subordinated debentures, due October 2007; interest at 10.5%,
payable semi-annually; annual principal payments in varying amounts
through maturity; unsecured $ 3,759 $ 4,311
Subordinated note payable of JM Ney due
December 2004; unsecured; quarterly interest
payments at 10.26% 7,500 7,500
Other 413 743
- ---------------------------------------------------------------------- ---------------------- ---------------------- --
11,672 12,554
Less unamortized discount on subordinated
note payable 171 200
- ---------------------------------------------------------------------- ---------------------- ---------------------- --
11,501 12,354
Less current maturities 443 595
- ---------------------------------------------------------------------- ---------------------- ---------------------- --
$11,058 $11,759
- ---------------------------------------------------------------------- ---------------------- ---------------------- --
</TABLE>
The terms of the 2007 convertible subordinated debentures call for the annual
redemption of approximately $431,000 of principal. The debentures are
convertible into common stock of the Company at any time prior to maturity,
unless previously redeemed, at $16.17 per share, subject to adjustment under
certain conditions. At February 28, 1999, 232,468 shares of common stock were
reserved for conversion.
In connection with the issuance of the subordinated note payable, JM Ney issued
warrants to the lender to acquire 34,000 shares of its common stock at an
exercise price of $1.00 per share, and 6,000 warrants with an exercise price of
$10.00 per share. The value of these warrants is being amortized over the life
of the note. The lender has an option to put these warrants back to JM Ney at
the earlier of December 2002 or the date of an initial public offering of JM
Ney's Common Stock on terms as defined in the agreement.
Maturities of long-term debt for each of the next five fiscal years and
thereafter are as follows (in thousands):
2000 $ 443
2001 538
2002 543
2003 439
2004 440
Thereafter 9,269
$ 11,672
<TABLE>
<CAPTION>
(11) Income Taxes
For FY99, FY98 and FY97, income tax expense (benefit) consists of the following
(in thousands):
<S> <C> <C> <C>
1999 1998 1997
- --------------------------------------------------------- ------------------- -------------------- ---------------------
Current Federal $ (377) $ 350 $ (410)
Current State (102) 130 (561)
Deferred Federal (977) 940 62
Deferred State (99) 76 5
- --------------------------------------------------------- ------------------- -------------------- ---------------------
$ (1,555) $ 1,496 $ (904)
- --------------------------------------------------------- ------------------- -------------------- ---------------------
</TABLE>
The difference between the actual income tax (benefit) expense and the income
tax (benefit) expense computed by applying the statutory Federal income tax rate
of 34% to income (loss) before taxes is attributable to the following (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------- ----------------- ----------------------- ---------------------
<S> <C> <C>
Income tax (benefit) expense $ (1,576) $ 1,261 $ (206)
State income taxes, net of Federal benefit (132) 206 107
Change in enacted tax rates - - (264)
Adjustment of accrual for prior years' taxes - - (546)
Other 153 29 5
- --------------------------------------------------------- ----------------- ----------------------- ---------------------
$ (1,555) $ 1,496 $ (904)
- --------------------------------------------------------- ----------------- ----------------------- ---------------------
</TABLE>
During FY97, the Company settled a state income tax audit covering FY89 through
FY96. This settlement is the primary reason for the $546,000 benefit adjustment
of accrual for prior years' taxes reported in the above reconciliation.
The principal components of the net deferred tax asset (liability) as of
February 28, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
----------- ----------
Deferred tax liabilities:
Fixed asset basis differences $ (1,273) $ (1,229)
Inventory (1,314) (1,486)
Pension (1,940) (1,726)
Unrealized gains on marketable securities, net - (470)
Installment sale - (30)
- ---------------------------------------------------------------- -------------------------- --------------------------
Total deferred tax liabilities (4,527) (4,941)
- ---------------------------------------------------------------- -------------------------- --------------------------
Deferred tax assets:
Post-retirement benefits other than pensions 406 395
Unrealized losses on marketable securities, net 361 -
Allowance for uncollectible receivables 42 48
Federal credit carry-forwards 618 337
Other 329 314
- ---------------------------------------------------------------- -------------------------- --------------------------
Total deferred tax assets 1,756 1,094
- ---------------------------------------------------------------- -------------------------- --------------------------
Net deferred tax liabilities $ (2,771) $ (3,847)
- ---------------------------------------------------------------- -------------------------- --------------------------
</TABLE>
At February 28, 1999 and 1998 the Company recorded no valuation allowance. The
Company believes that it is more likely than not that the sale of certain
assets, investment securities and certain real property, will generate
sufficient income to fully utilize its deferred tax assets. At February 28,
1999, the Company had $618,000 of Federal credit carry-forwards, $172,000 of
which were attributable to the alternative minimum tax that have no expiration
date. The remaining credits, totaling $446,000, expire from 2000 through 2002.
(12) Series A Cumulative Convertible Preferred Stock
During February 1998, the Company amended its Certificate of Incorporation to
modify the terms of the Company's Series A Preferred Stock (Preferred Stock) to
provide for a fixed annual dividend rate of $1.50 per preferred share and to
eliminate the mandatory redemption feature of the Preferred Stock. Prior to this
modification, quarterly dividend payments, ranging from $.1875 to $.4375 per
share, were accrued based upon the operating income of JM Ney, as defined.
Approximately $1.69 and $1.24 per preferred share of dividends were accrued
during FY98 and FY97, respectively.
During FY98 and FY97, the Company purchased 8,776 and 24,283 shares,
respectively, of its Preferred Stock at $18.25 per share in FY98, and at $16.15
per share in FY97. As a result of the purchases, the Company reversed accrued
dividends and accreted discounts of $37,000 and $134,000 in FY98 and FY97,
respectively.
During FY98 and FY97 approximately $40,000 and $58,000; respectively, of
the accretion of a discount were recorded as part of the preferred dividend
requirement.
The preferred shares are convertible into the Company's common stock at any time
at a rate of 1.935 shares of common stock for each preferred share. At February
28, 1999, 496,165 shares of common stock have been reserved for conversion.
(13) Common Stock
During FY99, the Company's shareholders approved a change of the Company's state
of incorporation from Connecticut to Delaware. Among the impacts of this change
in domicile was the change from a no par value common stock to common stock with
a par value of $.01 per share. Accordingly, the accompanying financial
statements reflect the adjustment of the par value of the common stock for
issued and outstanding shares with a corresponding adjustment to the value of
additional paid-in capital.
(14) Earnings Per Share
The computation of basic and diluted earnings per share is as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
- ---------------------------------------------------------------- ------------------ ------------------ ----------------
Numerator for basic and diluted earnings per share:
(Loss) income applicable to common shareholders $(3,465) $ 1,772 $ 22
- ---------------------------------------------------------------- ------------------ ------------------ ----------------
Denominator for basic earnings per share:
Weighted average shares 1,928 1,935 1,934
Effect of dilutive securities - stock options - 18 -
- ---------------------------------------------------------------- ------------------ ------------------ ----------------
Denominator for diluted earnings per share 1,928 1,953 1,934
- ---------------------------------------------------------------- ------------------ ------------------ ----------------
Basic earnings per share $ (1.80) $ .92 $ .01
Diluted earnings per share $ (1.80) $ .91 $ .01
- ---------------------------------------------------------------- ------------------ ------------------ ----------------
</TABLE>
For each of FY99, FY98 and FY97, the effects of the conversion of Preferred
Stock or the 10 1/2% Debentures have been excluded because the impacts of such
conversions would have been antidilutive.
(15) Stock Option Plans
The Company's and JM Ney's incentive stock option plans provide for option
grants to directors and key employees at prices equal to at least 100% of the
stock's fair market value at date of grant. The per share weighted average fair
value of stock options granted during FY99, FY98 and FY97 under these plans were
$4.06, $6.22 and $3.90, respectively, using the Black Scholes option pricing
model with the following weighted average assumptions: expected dividend yield
of 0%; risk-free interest rates of 6.0%, 6.5%, and 6.5%; expected life of five
to seven years; and expected volatility of 33.3%.
The Company has adopted the disclosure provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation". Accordingly, no compensation expense has been
recognized for the stock option plans. Had compensation cost for the Company's
stock option plans, including the JM Ney plan, been determined based on the fair
value on the grant date for awards during FY99, FY98 and FY97 consistent with
the provisions of SFAS No. 123, the Company's net earnings applicable to common
shares, and earnings per share would have been reduced to the pro forma amounts
indicated below (amounts in thousands, except per share data):
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
(Loss) income applicable to common shareholders:
As reported $(3,465) $ 1,772 $ 22
Pro forma $(3,695) $ 1,581 $ (68)
(Loss) earnings per share - diluted:
As reported $ (1.80) $ .91 $ .01
Pro forma $ (1.92) $ .81 $ (.03)
</TABLE>
The Company reserved 139,000 shares of common stock for the exercise of stock
options. At February 28, 1999, the Company had 43,100 options available for
issuance under the plan. JM Ney has reserved 150,000 shares of its common stock
for the exercise of stock options, of which 7,200 were available for issuance at
February 28, 1999.
Activity under the Company's plan, which includes an expired plan, but excluding
J.M. Ney's plan, was as follows:
<TABLE>
<S> <C> <C> <C>
Number Weighted Average Range of
Outstanding Options Of Shares Exercise Price Exercise Prices
- ----------------------------------------- -------------------- ------------------------------ ------------------------
Balance at February 29, 1996 39,700 $7.77 $6.50 - $9.38
Granted 75,000 $4.29 $3.81 - $6.13
Canceled (13,000) $7.50 $3.81 - $9.38
- ----------------------------------------- -------------------- ------------------------------ ------------------------
Balance at February 28, 1997 101,700 $5.02 $3.81 - $8.38
Exercised (2,200) $3.81 $3.81
Canceled (20,300) $5.43 $3.81 - $7.00
- ----------------------------------------- -------------------- ------------------------------ ------------------------
- ----------------------------------------- -------------------- ------------------------------ ------------------------
Balance at February 28, 1998 79,200 $5.02 $3.81 - $8.38
Granted 37,000 $6.30 $6.25 - $6.44
Exercised (10,700) $4.54 $3.81 - $5.38
Canceled (11,500) $6.76 $3.81 - $7.50
- ----------------------------------------- -------------------- ------------------------------ ------------------------
- ----------------------------------------- -------------------- ------------------------------ ------------------------
Balance at February 28, 1999 94,000 $5.31 $3.81 - $8.38
- ----------------------------------------- -------------------- ------------------------------ ------------------------
</TABLE>
<PAGE>
At February 28, 1999, the range of exercise prices and the weighted average
remaining contractual life of the options was as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
Weighted Average Weighted
Range of Exercise Weighted Average Remaining Average
Prices Number Exercise Price Contractual Life Number Exercise Price
Outstanding Exercisable
- ---------------------- ----------------- ------------------ --------------------- ----------------- ----------------
$8.38 6,000 $8.38 2.3 years 6,000 $8.38
$7.00 - $5.38 46,000 $6.27 8.2 years 9,000 $6.13
$3.81 42,000 $3.81 7.1 years 42,000 $3.81
- ---------------------- ----------------- ------------------ --------------------- ----------------- ----------------
94,000 $5.31 7.3 years 57,000 $4.66
- ---------------------- ----------------- ------------------ --------------------- ----------------- ----------------
</TABLE>
Also, during FY99, FY98 and FY97, options to purchase 4,250, 16,800 and 130,000
shares of JM Ney, at average exercise prices of $11.47, $10.86 and $10.00 per
share, respectively, were issued. During FY99 and FY98, options to acquire 7,750
and 500 shares, respectively, of JM Ney at $10.00 per share were forfeited. At
February 28, 1999, 87,974 of the 142,800 total outstanding JM Ney options were
exercisable. At February 28, 1999, the Company owned all 850,000 outstanding
shares of JM Ney. There presently is no public market for JM Ney's common stock.
(16) Retirement Plans
The Company maintains both noncontributory defined benefit and defined
contribution plans, which collectively cover substantially all full-time
employees. The defined contribution plans are funded annually through
contributions in amounts that can be deducted for Federal income tax purposes.
Benefits payable under all plans are based upon years of service and
compensation levels.
The following table sets forth the changes in benefit obligations, changes in
fair value of plan assets, funded status and net amount recognized in the
Consolidated Balance Sheets (in thousands).
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
- ----------------------------------------------------- ---------------------- --------------------- -------------------
Changes in Benefit Obligations
Benefit obligation at beginning of year $10,212 $10,021 $10,062
Service cost 240 234 253
Interest cost 781 736 723
Experience loss 842 243 -
Distributions (2,885) (1,022) (1,017)
Effect of curtailment (64) - -
Effect of early retirement program
settlement 511 - -
Effect of assumption changes 2,026 - -
- ----------------------------------------------------- ---------------------- --------------------- -------------------
Benefit obligation end of year 11,663 10,212 10,021
- ----------------------------------------------------- ---------------------- --------------------- -------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Change in Fair Value of Plan
Assets
Fair value of plan assets at beginning of
year 18,087 16,815 15,642
Actual return on assets (672) 2,294 2,190
Benefits paid (2,885) (1,022) (1,017)
- ----------------------------------------------------- ---------------------- --------------------- -------------------
Fair value of plan assets at end of
year 14,530 18,087 16,815
- ----------------------------------------------------- ---------------------- --------------------- -------------------
Funded status 2,867 7,875 6,794
Unrecognized net actuarial loss (gain) 2,277 (3,079) (2,379)
Unrecognized past service cost (111) (131) (141)
- ----------------------------------------------------- ---------------------- --------------------- -------------------
Prepaid pension expense $ 5,033 $ 4,665 $ 4,274
- ----------------------------------------------------- ---------------------- --------------------- -------------------
For FY99, FY98 and FY97, the projected benefit obligations and pension income
were determined using the following assumptions:
1999 1998 1997
-------------------- -------------------
- --------------------------------------------------------- -------------------
Discount rate 7.0% 7.5% 7.5%
Future compensation growth rate 5.0% 5.5% 5.5%
Long-term rate of return on plan assets 8.0% 8.0% 8.0%
Net pension income for the Company's funded defined benefit plan for FY99, FY98
and FY97 includes the following components (in thousands):
1999 1998 1997
- ------------------------------------------------------------- -------------------- ----------------- ------------------
Service cost of benefits accrued $ 240 $ 234 $ 253
Interest cost on projected benefit obligations 781 736 723
Expected return on plan assets (1,413) (2,294) (2,190)
Unrecognized net (loss) gain (42) 933 967
Effect of early retirement program 139 - -
Effect of Ultrasonics curtailment (73) - -
- ------------------------------------------------------------- -------------------- ----------------- ------------------
Pension (income) $ (368) $ (391) $ (247)
- ------------------------------------------------------------- -------------------- ----------------- ------------------
</TABLE>
Pension expense for all defined contribution plans totaled $189,000,
$122,000 and $121,000 in FY99, FY98 and FY97, respectively.
(17) Post-retirement Benefit Obligations
During FY93, the Company amended its retiree health care plan to include only
those retirees currently in the plan and discontinued the benefit for current
employees. The Company's cost of its unfunded retiree health care plan for FY99,
FY98, and FY97 was approximately $18,000, $56,000, and $53,000, respectively,
including interest. At February 28, 1999 and 1998, the accumulated benefit
obligation for post-retirement benefits was approximately $769,000 and $803,000,
respectively. At February 28, 1999, 31 retirees were receiving benefits under
this plan. The accumulated benefit obligation was determined using the unit
credit method and assumed discount rates of 7.25% at February 28, 1999, 1998 and
1997. At February 28, 1999, 1998 and 1997, the accumulated benefit obligation
was compiled using assumed health care cost trend rates of 8%, 9% and 10%,
respectively, gradually declining to 6% for the remainder of the projected
payout period of the benefits.
The estimated effect on the present value of the accumulated benefit obligation
at March 1, 1999 of a 1% increase each year in the health care cost trend rate
used would result in an estimated increase of approximately $3,000 in the
service and interest cost, and approximately $43,000 in the accumulated benefit
obligation. A 1% decrease each year in the health care trend rate would result
in a decrease of approximately $3,000 in the service and interest costs, and a
decrease of approximately $39,000 in the accumulated benefit obligation.
(18) Leases
The Company leases various manufacturing and office facilities and equipment
under operating lease agreements expiring through December 2004. In addition,
the Company earns rental income from office space leased to tenants under
operating leases expiring through November 2000. Lease expense was $299,000,
$264,000, and $209,000 for FY99, FY98, and FY97, respectively, while rental
income totaled $482,000, $376,000 and $342,000 for FY99, FY98, and FY97,
respectively.
Future minimum lease payments and rental income under the terms of the leases
for each of the years ending February 28/29, are as follows (in thousands):
Lease Payments Rental Income
2000 253 256
2001 185 104
2002 176 -
2003 174 -
2004 148 -
Thereafter 76 -
(19) Business Segments and Export Sales
During FY99, the Company operated in two continuing segments, Electronics, which
comprises the operations of JM Ney, and Corporate, which includes the Company's
investment, real estate and corporate administrative activities. Ney Ultrasonics
was discontinued in FY98. Operating income consists of net sales, less cost of
sales and selling, general and administrative expenses directly allocated to the
industry segments. Corporate revenues consist of investment and other income not
attributable to a specific segment. Corporate identifiable assets include
marketable securities and short-term investments, and assets not directly
attributable to JM Ney, or a specific segment.
<PAGE>
Summarized financial information for business segment is as follows (in
thousands):
<TABLE>
<S> <C> <C> <C>
FY99 FY98 FY97
Net sales and revenues:
Electronics $26,837 $25,397 $20,643
Corporate (3,237) 3,471 (142)
------------------ ------------------- --------------------
$23,600 $28,868 $20,501
------------------ ------------------- --------------------
Operating income (loss):
Electronics $ 2,558 $ 2,860 $ 2,598
Corporate (5,271) 1,264 (2,356)
------------------ ------------------ ---------------------
$ (2,713) $ 4,124 $ 242
------------------ ------------------- --------------------
Interest expense:
Electronics $ 1,228 $ 468 $ 13
Corporate 507 695 777
------------------ ------------------- --------------------
$ 1,735 $ 1,163 $ 790
------------------ ------------------- --------------------
Identifiable assets:
Electronics $25,900 $25,337 $22,467
Ultrasonics - - 1,798
Corporate 11,219 19,434 13,412
------------------ ------------------- --------------------
$37,119 $44,771 $37,677
------------------ ------------------- --------------------
Depreciation, amortization and accretion:
Electronics $ 1,277 $ 1,126 $ 1,142
Ultrasonics - 139 95
Corporate 157 215 240
------------------ ------------------- --------------------
$ 1,434 $ 1,480 $ 1,477
------------------ ------------------- --------------------
Capital expenditures:
Electronics $ 1,680 $ 1,597 $ 1,512
Ultrasonics - 109 234
Corporate 22 34 24
------------------ ------------------- --------------------
$ 1,702 $ 1,740 $ 1,770
------------------ ------------------- --------------------
</TABLE>
Export sales for FY99, FY98 and FY97 were $4,303,000, $4,370,000, and
$3,417,000, respectively. Such sales were made primarily to customers in Europe
and the Pacific Rim.
During FY99, sales to two customers accounted for 16.1% and 13.9% of net sales,
while during FY98 these two customers accounted for 14.9% and 12.6% of net
sales. No customer accounted for greater than 10% of net sales in FY97.
(20) Estimated Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable, short
term borrowings, accounts payable and other accrued liabilities are reasonable
estimates of their fair value based upon their current maturities. The carrying
value of marketable securities approximates fair value as determined by quoted
market prices.
At February 28, 1999, gains totaling $165,000 from expired or sold palladium
futures contracts have been deferred from income recognition until the
underlying orders for which the futures contracts served as a hedge have been
shipped. At February 28, 1999, there were no open futures contracts.
The carrying values of long-term debt issued by banks and capital lease
obligations approximate fair value based on interest rate and repayment terms,
and the extent to which the individual debts are secured. The fair value of the
Company's 10.5% convertible debentures approximates carrying value based upon
market interest rates, its subordinated status, and the market value of the
Company's common stock in relation to the conversion feature of the debt.
(21) Litigation
The Company is involved in various legal proceedings generally incidental to its
business. While the results of any litigation or regulatory issues contain an
element of uncertainty, management believes that the outcome of any known,
pending or threatened legal proceeding, or all of them combined, will not have a
material adverse effect on the Company's financial position or results of
operations.
(22) New Accounting Standards
In June 1998, SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" was issued. SFAS No. 133 requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Gains and losses resulting
from changes in the values of those derivatives would be recognized immediately
or deferred depending on the use of the derivative and if the derivative is a
qualifying hedge. The Company plans to adopt SFAS No. 133 by January 1, 2000, as
required. The Company is currently assessing the impact of this statement on the
Company's consolidated financial statements.
(23) Supplemental Disclosure of Cash Flow Information
The information below supplements the cash flow data presented in the Company's
Consolidated Statements of Cash Flows (in thousands):
1999 1998 1997
---- ---- ----
Cash paid (received) for:
Interest $1,702 $1,129 $ 863
Income taxes, net $ (210) $ 360 $ 85
During FY98, the Company exchanged $4,311,000 of its convertible subordinated
debentures due October 2002 for an equal amount of convertible subordinated
debentures due 2007. In addition to the extended average maturity of the notes,
the new notes do not contain the restrictive covenants that were present in the
original issue. Interest and conversion terms of the old notes remain the same
in the new notes.
During FY97, the Company incurred capital lease obligations totaling $579,000 in
connection with lease agreements to acquire equipment. This non-cash financing
activity has been excluded from the FY97 Consolidated Statement of Cash Flows.
(24) Related Party Transactions
During FY99 the Company accepted a $200,000 two-year 7% note receivable and a
$50,000 demand note from an executive officer for the purchase of 62,500 shares
of the Company's common stock. These amounts have been presented in the
Stockholders' Equity section of the Consolidated Balance Sheet.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Andersen Group, Inc.:
We have audited the accompanying consolidated balance sheets of Andersen Group,
Inc. and subsidiaries as of February 28, 1999 and 1998 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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, such consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Andersen Group, Inc.
and subsidiaries at February 28, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Hartford, Connecticut
April 30, 1999
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Andersen Group, Inc.:
We have audited the accompanying consolidated statements of operations, changes
in stockholders' equity, and cash flows of Andersen Group, Inc. and subsidiaries
for the year ended February 28, 1997. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Andersen Group, Inc. and subsidiaries for the year ended February 28, 1997 in
conformity with generally accepted accounting principles.
/s/KPMG LLP
Hartford, Connecticut
April 8, 1997
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
The information required by this Item is not applicable because it has been
previously reported in the Registrant's definitive Proxy Statement, dated May
19, 1999.
PART III
Certain information required by Part III is omitted from this Report in that the
Registrant has filed a definitive proxy statement pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year covered by this Report and
certain information included therein is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is incorporated by reference to the
Registrant's definitive Proxy Statement, dated May 19, 1999, and is incorporated
by reference to the Section in Part I hereof entitled, Executive Officers of the
Registrant.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference to the
Registrant's definitive Proxy Statement, dated May 19, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The information required by this Item is incorporated by reference to the
Registrant's definitive Proxy Statement, dated May 19, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference to the
Registrant's definitive Proxy Statement, dated May 19, 1999.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.
(a)1. Consolidated Financial Statements applicable to the Registrant
contained in Item 8:
Pages
Consolidated Balance Sheets
as of February 28, 1999 and 1998 20
Consolidated Statements of Operations
or the years ended February 28, 1999, 1998 and 1997 21
Consolidated Statements of changes in Stockholders' Equity
for the years ended February 28, 1999, 1998 and 1997 22
Consolidated Statements of Cash Flows
for the years ended February 28, 1999, 1998 and 1997 23
Notes to Consolidated Financial Statements 24
Independent Auditors' Consents E-8 to E-9
(a)2. Consolidated Financial Statement Schedules:
Schedule
I Condensed Financial Information F-1 to F-4
II Valuation and Qualifying Accounts F-5
Note: Schedules other than those listed above, are omitted as not
applicable, not required, or the information is included in the Consolidated
Financial Statements or notes thereto.
(a)3. Exhibits required by Item 601 of Regulation S-K:
<PAGE>
Exhibit
No. Description
3.1 Second Amended and Restated Certificate of Incorporation of the
Registrant.
3.11 Amended and Restated By-Laws of the Registrant as of April 18, 1997,
incorporated herein by reference to Exhibit 3.2 to the Registrant's Annual
Report on Form 10-K for the year ended February 28, 1997 (Commission File No.
0-1460).
3.2 Restated By-laws for the State of Delaware.*
4.1 Indenture, dated as of February 26, 1998, between the Registrant and
The Chase Manhattan Bank, as Trustee, in respect of $4,311,000, aggregate
principal amount, 10 1/2% Convertible Subordinated Debentures Due 2007.
10.1 Andersen Group, Inc. Incentive Stock Option Plan incorporated herein
by reference to Appendix A to the Registrant's Post-Effective Amendment No. 1 to
Form S-8 (File No. 333-17659) filed February 27, 1997.
10.2 Andersen Group, Inc. Incentive and Non-Qualified Stock Option Plan
incorporated herein by reference to Appendix B to the Registrant's
Post-Effective Amendment No. 1 to Form S-8 (File No. 333-17659) filed February
27, 1997.
10.3. Deferred Compensation Agreement, entered into as of September 30, 1992,
by and between the Registrant and Francis E. Baker, incorporated herein
by reference to Exhibit 10.26 of the Registrant's Annual Report on Form
10-K for the year ended February 28, 1995 (Commission File No. 0-1460).
10.4 Letter Agreement, dated March 7, 1993, between the Registrant and Ronald
N. Cerny, incorporated herein by reference to Exhibit 10.30 to the
Registrant's Annual Report on Form 10-K for the year ended February 28,
1995 (Commission File No.
0-1460).
10.5 Letter Agreements, dated February 23, 1995 and March 20, 1995, between
the Registrant and Ronald N. Cerny.
10.6 Asset Purchase Agreement among Phoenix Shannon p.l.c., Andersen Group,
Inc., The J.M. Ney Company and Ney Dental International, Inc. dated as of August
10, 1995, incorporated herein by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ending August 31, 1995 (Commission
file No. 0-1460).
10.7 Amendment No. 1 to Asset Purchase Agreement by and among Phoenix
Shannon p.l.c., The J.M. Ney Company, Andersen Group, Inc. and Ney Dental
International, Inc. made as of October 30, 1995, incorporated herein by
reference to Exhibit 10.1 to the Registrant's current report on Form 8-K dated
December 13, 1995 (Commission file No. 0-1460).
10.8 Amendment No. 2 to Asset Purchase Agreement by and among Phoenix
Shannon p.l.c., The J. M. Ney Company, Andersen Group, Inc., and Ney Metals,
Inc. (f/k/a Ney Dental International, Inc.) made as of October 30, 1995,
incorporated herein by reference to Exhibit 10.2 to the Registrant's current
report on Form 8-K dated December 13, 1995 (Commission file No. 0-1460).
10.9 Revolving Credit and Deferred Payment Sales Agreement by and among The
J. M. Ney Company, Bank of Boston Connecticut and Rhode Island Hospital
Trust National Bank made as of the 8th day of October 1996, incorporated
herein by reference to exhibit 10.13 of the Registrant's Annual Report
on Form 10-K for the year ended February 28, 1997.
10.10 Securities Purchase Agreement dated as of December 29, 1997 by and
between The J.M. Ney Company and BankBoston, N.A.
10.11 Asset Purchase Agreement made effective as of February 28, 1998 among
CAE U.S., Inc., Ney Ultrasonics Inc. and Andersen Group, Inc.
10.12 Amendment to Revolving Credit and Deferred Payment Sales Agreement by
and among The J.M. Ney Company, BankBoston and Rhode Island Hospital
Trust National Bank dated December 29, 1997.
10.13 Peter Barker Service Agreement effective January 11, 1999.*
10.14 Settlement Agreement with between CAE (U.S.) Inc. ("CAE"); Ney
Technology, Inc. f/k/a Ney Ultrasonics, Inc.; and Andersen Group, Inc.*
21. Subsidiaries of the Registrant.*
23 Consent of Deloitte & Touche LLP.*
27. Financial Data Schedule.*
(b) Reports on Form 8-K. None.
*Filed herein
<PAGE>
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 on May 19, 1999.
ANDERSEN GROUP, INC. ANDERSEN GROUP, INC.
Registrant Registrant
/s/ Oliver R. Grace, Jr. /s/ Peter R. Barker
Oliver R. Grace, Jr. Peter R. Barker
Principal Executive Officer Vice President/Chief Financial Officer
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.
NAME TITLE DATE
Chairman, Secretary
/s/ Francis E. Baker and
Francis E. Baker Director May 19, 1999
President, Chief
/s/ Oliver R. Grace, Jr. Executive Officer
Oliver R. Grace, Jr. and Director May 19, 1999
/s/ Peter N. Bennett
Peter N. Bennett Director May 19, 1999
/s/ John S. Grace
John S. Grace Director May 19, 1999
/s/ Louis A. Lubrano
Louis A. Lubrano Director May 19, 1999
/s/ James J. Pinto
James J. Pinto Director May 19, 1999
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Andersen Group, Inc.:
We have audited the consolidated financial statements of Andersen Group, Inc.
and subsidiaries as of February 28, 1999 and 1998 and for the years then ended,
and have issued our report thereon dated April 30, 1999; such report is included
elsewhere in this Form 10-K. Our audit also included the financial statement
schedules of Andersen Group, Inc. and subsidiaries, listed in Item 14. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly, in
all material respects, the information set forth therein.
/s/ Deloitte and Touche LLP
Hartford, Connecticut
April 30, 1999
<PAGE>
<TABLE>
<CAPTION>
ANDERSEN GROUP, INC.
Schedule I - Condensed Financial Information of the Registrant
Condensed Balance Sheets
February 28, 1999 and 1998
(amounts in thousands)
<S> <C> <C>
1999 1998
- -------------------------------------------------------------------------- ----------------------- -----------------------
Assets
Current assets:
Cash and cash equivalents $ 1,614 $ 1,441
Marketable securities 5,916 9,001
Receivable from sale of subsidiary - 3,521
Accounts and other receivables, less allowance for doubtful
accounts 230 125
Prepaid expenses and other assets 5 5
Deferred income taxes 546 -
- -------------------------------------------------------------------------- ----------------------- -----------------------
Total current assets 8,311 14,093
Investment in The J. M. Ney Company 6,921 6,604
Subordinated note receivable from The J.M. Ney Company 4,000 4,000
Investments 206 1,815
Property, plant and equipment, net 2,308 2,629
Other assets 940 896
Deferred income taxes 222 -
- -------------------------------------------------------------------------- ----------------------- -----------------------
$22,908 $30,037
- -------------------------------------------------------------------------- ----------------------- -----------------------
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 1,392 $ 1,487
Current maturities of long-term debt 316 441
Accounts payable 157 297
Due to The J. M. Ney Company - 656
Accrued liabilities 449 1,728
Deferred income taxes - 161
- -------------------------------------------------------------------------- ----------------------- -----------------------
Total current liabilities 2,314 4,770
Long-term debt, less current maturities 3,522 4,124
Other long-term liabilities 643 596
Deferred income taxes 351
-
- -------------------------------------------------------------------------- ----------------------- -----------------------
Total liabilities 6,479 9,841
- -------------------------------------------------------------------------- ----------------------- -----------------------
Commitments and contingencies (Note 7)
Stockholders' equity:
Cumulative convertible preferred stock,
no par value; authorized 800,000 shares; issued
789,628 shares; outstanding 256,416 shares;
liquidation preference $18.75 per share 4,769 4,769
Common stock, no par value; authorized 6,000,000
shares, issued 1,958,478 shares 20 2,103
Additional paid-in capital 5,339 3,248
Treasury stock, at cost, 30,549 shares in 1999; 21,800 shares in 1998 (142) (82)
Receivable from officer (250) -
Retained earnings 6,693 10,158
- -------------------------------------------------------------------------- ----------------------- -----------------------
Total stockholders' equity 16,429 20,196
- -------------------------------------------------------------------------- ----------------------- -----------------------
$22,908 $30,037
- -------------------------------------------------------------------------- ----------------------- -----------------------
See accompanying notes to condensed financial information.
F-1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ANDERSEN GROUP, INC.
Schedule I - Condensed Financial Information of the Registrant
Condensed Statements of Operations
Years ended February 28, 1999 and 1998
(amounts in thousands, except per share data)
<S> <C> <C>
1999 1998
- ------------------------------------------------------- ----------------------------------- ------------------------------------
Revenues:
Investment (loss) income and other income $(2,376) $ 3,691
- ------------------------------------------------------- ----------------------------------- ------------------------------------
Costs and expenses:
General and administrative 2,080 2,223
Interest expense 503 694
- ------------------------------------------------------- ----------------------------------- ------------------------------------
2,583 2,917
- ------------------------------------------------------- ----------------------------------- ------------------------------------
(Loss) income from continuing operations
before income taxes and equity in earnings
of The J.M. Ney Company (4,959) 774
Income tax (benefit) expense (1,678) 361
- ------------------------------------------------------- ----------------------------------- ------------------------------------
(Loss) income from continuing operations
before equity in earnings of
The J.M. Ney Company (3,281) 413
Equity in earnings of The J.M. Ney Company 317 1,357
- ------------------------------------------------------- ----------------------------------- ------------------------------------
(Loss) income from continuing operations (2,964) 1,770
Income from discontinued operations,
net of income taxes - 345
(Loss) gain on sale of discontinued segment,
net of income taxes (116) 97
- ------------------------------------------------------- ----------------------------------- ------------------------------------
Net (loss) income (3,080) 2,212
Preferred dividends (385) (477)
Reversal of preferred dividend - 37
- ------------------------------------------------------- ----------------------------------- ------------------------------------
(Loss) income applicable to common shares $(3,465) $ 1,772
- ------------------------------------------------------- ----------------------------------- ------------------------------------
(Loss) earnings per common share:
BASIC
Continuing operations $ (1.74) $ 0.69
Discontinued operations - 0.18
(Loss) gain on sale of discontinued segment (.06) 0.05
- ------------------------------------------------------- ----------------------------------- ------------------------------------
(Loss) income per common share, basic $ (1.80) $ 0.92
- ------------------------------------------------------- ----------------------------------- ------------------------------------
DILUTED
Continuing operations $ (1.74) $ 0.68
Discontinued operations - 0.18
(Loss) gain on sale of discontinued segment (.06) 0.05
- ------------------------------------------------------- ----------------------------------- ------------------------------------
(Loss) income per common share, diluted $ (1.80) $ 0.91
- ------------------------------------------------------- ----------------------------------- ------------------------------------
See accompanying notes to condensed financial information.
F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ANDERSEN GROUP, INC.
Schedule I - Condensed Financial Information of the Registrant
Condensed Statements of Cash Flows
Years ended February 28, 1999 and 1998
(amounts in thousands)
<S> <C> <C>
1999 1998
- ----------------------------------------------------------- ------------------------------- --------------------------------
Cash flows from operating activities:
Net (loss) income $(3,080) $ 2,212
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Equity in earnings of The J. M. Ney Company (317) (1,357)
Equity in earnings of Ney Ultrasonics - (345)
Depreciation, amortization and accretion 157 216
Deferred income taxes (1,280) 880
(Loss) gain on sale of Ney Ultrasonics 116 (97)
Net losses (gains) from securities 4,247 (2,619)
Purchases of securities (1,336) (2,218)
Proceeds from sales of securities 1,783 1,230
Gain on sale of property (25) -
Changes in operating assets and liabilities:
Accounts and notes receivable (105) (72)
Prepaid expenses and other assets 1 372
Accounts payable, accrued liabilities and other
long-term obligations (1,464) (409)
- ----------------------------------------------------------- ------------------------------- --------------------------------
Net cash used in operating activities (1,303) (2,207)
- ----------------------------------------------------------- ------------------------------- --------------------------------
Cash flows from investing activities:
Proceeds from sale of Ultrasonics segment 2,800
Purchase of property, plant and equipment (22) (34)
Proceeds from sale of property 223 -
Proceeds from collection of investments - 1,542
Investment in other assets - (1,225)
- ----------------------------------------------------------- ------------------------------- --------------------------------
Net cash provided by investing activities 3,001 283
- ----------------------------------------------------------- ------------------------------- --------------------------------
Cash flows from financing activities:
Principal payments on long-term debt (727) (2,561)
Proceeds from short-term debt (95) 1,486
Redemption of preferred stock - (160)
Stock options exercised 50 -
Treasury shares purchased, net (352) -
Dividends paid (401) (1,222)
Dividends received from The J. M. Ney Company - 3,518
- ----------------------------------------------------------- ------------------------------- --------------------------------
Net cash (used in) provided by financing activities (1,525) 1,061
- ----------------------------------------------------------- ------------------------------- --------------------------------
Net increase (decrease) in cash and cash equivalents 173 (863)
Cash and cash equivalents, beginning of year 1,441 2,304
- ----------------------------------------------------------- ------------------------------- --------------------------------
Cash and cash equivalents, end of year $ 1,614 $ 1,441
- ----------------------------------------------------------- ------------------------------- --------------------------------
Supplemental disclosure of cash flow information
Cash paid (received) for:
Interest $ 538 $ 766
Income taxes, net $ (210) $ 360
- ----------------------------------------------------------- ------------------------------- --------------------------------
See accompanying notes to condensed financial information.
F-3
</TABLE>
<PAGE>
ANDERSEN GROUP, INC
Schedule I - Condensed Financial Information
of the Registrant
Notes to Condensed Financial Information
February 28, 1999 and 1998
NOTE 1 - GENERAL
The Condensed Financial Information presented herein is required because the
Registrant's wholly owned subsidiary, The J. M. Ney Company (JM Ney), entered
into a Revolving Credit and Deferred Payment Sales Agreement with a commercial
bank in October 1996 which was subsequently amended December 30, 1997. This
agreement contains covenants that limit the transfer of cash and other resources
from JM Ney to the Registrant.
The Condensed Financial Information of the Registrant should be read in
conjunction with the Consolidated Financial Statements and the Notes to
Consolidated Financial Statements which are included in Item 8 herein. The
Condensed Financial Information of the Registrant includes the accounts of
several wholly owned subsidiaries which are immaterial to the Registrant's
Condensed Financial Information.
NOTE 2 - TRANSACTIONS WITH AFFILIATES
The Registrant and its wholly owned subsidiaries share certain administrative
services. The costs of these services are allocated to the entity which receives
the service. The following are among the types of services which have been
provided to the Registrant by JM Ney: maintenance, accounting, human resources,
management information systems and the rental of office space in JM Ney's
facility. Services provided by the Registrant to JM Ney include the following:
legal, tax, and business advisory services. During FY98, JM Ney made a $4
million distribution to the Registrant in the form of an 8% junior subordinated
note due January 31, 2005. Effective December 1997, the Registrant and JM Ney
also entered into a Financial, Investment Banking and Professional Services
Agreement under which, subject to JM Ney's compliance with certain covenants, JM
Ney will pay the Registrant fees for defined services. The retainer for the
first 15 months of this agreement was at the annual rate of $500,000.
Thereafter, the retainer will increase by $100,000 per year. The agreement runs
through November 30, 2002. During FY99 and FY98, JM Ney paid or accrued to the
Registrant a total of $820,000 and $205,000, respectively under these two
agreements.
In connection with JM Ney entering into the Revolving Credit and Deferred
Payment Sales Agreement referred to above, the Registrant and JM Ney entered
into a Tax Sharing Agreement, effective as of March 1, 1996, which requires JM
Ney to pay the Registrant an amount which may be equal to the maximum allowable
amount of any Federal and State income taxes for which JM Ney or any of its
subsidiaries would have been liable for in the particular year. During FY98, the
Registrant and JM Ney refined their accounting for deferred income taxes, which
resulted in a transfer of $1,041,000 of deferred tax obligations from the
Registrant to JM Ney. The Registrant files a consolidated Federal income tax
return with its subsidiaries.
F-4
<PAGE>
NOTE 3 - SHORT TERM BORROWINGS
At February 28, 1998, the Registrant had a $1,392,000 demand loan, which was
secured by a portion of the Company's portfolio of marketable securities. At
February 28, 1999 interest on this borrowing was charged at 5.8%.
NOTE 4 - LONG TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following (in thousands):
<S> <C> <C>
February 28, 1999 February 28, 1998
----------------- -----------------
Convertible subordinated debentures, due October 2007; interest at 10.5%,
payable semi-annually; annual principal payments in varying amounts through
maturity, unsecured $3,759 $4,311
Other 79 254
-------- - --------
3,838 4,565
Less current maturities 316 441
------- - --------
$3,522 $4,124
====== ======
</TABLE>
The terms of the 2007 convertible subordinated debentures call for the annual
redemption of approximately $431,000 of principal The debentures are convertible
into common stock of the Company at any time prior to maturity, unless
previously redeemed, at $16.17 per share, subject to adjustment under certain
conditions. At February 28, 1999, 232,468 shares of common stock were reserved
for conversion.
Maturities of long-term debt for each of the next five fiscal years are as
follows (in thousands):
2000 $ 316
2001 439
2002 439
2003 439
2004 440
Thereafter 1,765
-------
$3,838
NOTE 5 - CUMULATIVE CONVERTIBLE PREFERRED STOCK
See Note 12 to the Registrant's Consolidated Financial Statements contained in
Item 8 herein.
NOTE 6 - CASH DIVIDENDS
The amount of cash dividends paid to the Registrant by JM Ney during FY98
was approximately $3,518,000. No such dividends were paid or declared during
FY99.
<PAGE>
NOTE 7 - LITIGATION
The Registrant is involved in various legal proceedings generally incidental to
its business. While the results of any litigation or regulatory issues contain
an element of uncertainty, management believes that the outcome of any known,
pending or threatened legal proceeding, or all of them combined, will not have a
material adverse effect on the Company's financial position or results of
operations.
<PAGE>
ANDERSEN GROUP, INC.
Schedule II - Valuation and Qualifying Accounts
(Amounts in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Additions
Balance at Charged to Charged to
beginning costs and to other Balance at
Description Of year expenses accounts Deductions end of year
February 28, 1999
- ----------------------- ----------------- ------------------ ------------------- ------------------- ------------------
Allowance for
doubtful accounts $ 130 (22) 2(a) $110
Reserve for returns
$ 95 (15) $ 80
February 28, 1998
- ----------------------- ----------------- ------------------ ------------------- ------------------- ------------------
Allowance for
doubtful accounts $ 190 17 (36)(b) (41)(a) $130
Reserve for returns $ 95 $ 95
Warranty reserve $ 70 (30) (40)(b) $ 0
February 28, 1997
- ----------------------- ----------------- ------------------ ------------------- ------------------- ------------------
Allowance for
doubtful accounts $124 76 (10)(a) $190
Reserve for returns
$ 0 95 $ 95
Warranty reserve $100 (30) $ 70
(a) Write offs net of recoveries.
(b) Transferred in connection with sale of certain assets of Ultrasonics
segment.
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description Page
3.1 Second Amended and Restated Certificate of Incorporation. E-2
4.1 Indenture, dated as of February 26, 1998, between the Registrant and
The Chase Manhattan Bank, as trustee, in respect of $4,311,000, aggregate
principal amount, 10 1/2% Convertible Subordinated Debentures Due 2007.* E-3
10.9 Securities Purchases Agreement dated as of December 29, 1997. E-3 by
and between The J.M. Ney Company and BankBoston, N.A. E-4
10.10 Asset Purchase Agreement made effective as of February 28, 1998 among
CAE U.S., Inc., Ney Ultrasonics Inc. and Andersen Group, Inc. E-5
10.11 Amendment to Revolving Credit and Deferred Payment Sales Agreement by
and among The J.M. Ney Company, BankBoston and Rhode Island Hospital Trust
National Bank dated December 29, 1997. E-6
21. Subsidiaries of the Registrant. E-7
23. Consent of Deloitte & Touche LLP. E-8
27. Financial Data Schedule. E-9
E-1
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
State or
Country of
Name or Organization Incorporation
AG Investors, Inc. Florida
AGI Technology, Inc. Connecticut
Andersen Realty, Inc. Delaware
Ney International, Inc. U.S. Virgin Islands
Ney Technology, Inc.
(f/k/a Ney Ultrasonics Inc.) Delaware
The J.M. Ney Company Delaware
New Jersey Precious Metals, Inc. Delaware
Garden State Refining, Inc. Delaware
E-7
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post Effective Amendment
No. 1 to Registration Statement No. 333-17659 of Andersen Group, Inc. and
subsidiaries on Form S-8 of our reports dated April 30, 1999, relating to the
consolidated financial statement and financial statement schedules appearing in
this Annual Report on Form 10-K of Andersen Group, Inc. and subsidiaries for the
year ended February 28, 1999.
/s/Deloitte & Touche LLP
Hartford, Connecticut
May 21, 1999
E-8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(E-9)
</LEGEND>
<CIK> 0000006383
<NAME> Andersen Group, Inc.
<MULTIPLIER> 1000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Feb-28-1999
<PERIOD-START> Mar-01-1998
<PERIOD-END> Feb-28-1999
<EXCHANGE-RATE> 1,000
<CASH> 2,541
<SECURITIES> 6,014
<RECEIVABLES> 4,208
<ALLOWANCES> (110)
<INVENTORY> 7,821
<CURRENT-ASSETS> 20,574
<PP&E> 22,731
<DEPRECIATION> (13,426)
<TOTAL-ASSETS> 37,119
<CURRENT-LIABILITIES> 5,541
<BONDS> 11,058
0
4,769
<COMMON> 20
<OTHER-SE> 11,640
<TOTAL-LIABILITY-AND-EQUITY> 37,119
<SALES> 26,838
<TOTAL-REVENUES> 23,600
<CGS> 18,255
<TOTAL-COSTS> 26,313
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (22)
<INTEREST-EXPENSE> 1,735
<INCOME-PRETAX> (4,448)
<INCOME-TAX> (1,484)
<INCOME-CONTINUING> (2,964)
<DISCONTINUED> 0
<EXTRAORDINARY> (116)
<CHANGES> 0
<NET-INCOME> (3,465)
<EPS-BASIC> (1.80)
<EPS-DILUTED> (1.80)
</TABLE>
Exhibit 3.2
BY-LAWS
OF
ANDERSEN GROUP, INC.
ARTICLE I
Stockholders
Section 1.1. Annual Meetings. An annual meeting of stockholders shall be
held for the election of directors at such date, time and place either within or
without the State of Delaware as may be designated by the Board of Directors
from time to time. Any other proper business may be transacted at the annual
meeting.
Section 1.2. Special Meetings. Special meetings of stockholders may be
called at any time by the Chairman of the Board, if any, the President or the
Board of Directors, to be held at such date, time and place either within or
without the State of Delaware as may be stated in the notice of the meeting. A
special meeting of stockholders shall be called by the Secretary upon the
written request, stating the purpose of the meeting, of stockholders who
together own of record a majority of the outstanding shares of each class of
stock entitled to vote at such meeting. Business transacted at any special
meeting shall be limited to the purposes stated in the notice of the special
meeting.
Section 1.3. Notice of Meetings. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the stockholder at such stockholder's address as it
appears on the records of the Corporation.
Section 1.4. Adjournments. Any meeting of stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 1.5. Quorum. At each meeting of stockholders, except where
otherwise provided by law or the certificate of incorporation or these by-laws,
the holders of a majority of the outstanding shares of each class of stock
entitled to vote at the meeting, present in person or represented by proxy,
shall constitute a quorum. For purposes of the foregoing, two or more classes or
series of stock shall be considered a single class if the holders thereof are
entitled to vote together as a single class at the meeting. In the absence of a
quorum the stockholders so present may, by majority vote, adjourn the meeting
from time to time in the manner provided by Section 1.4 of these by-laws until a
quorum shall attend. Shares of its own capital stock belonging on the record
date for the meeting to the Corporation or to another corporation, if a majority
of the shares entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the Corporation, shall neither
be entitled to vote nor be counted for quorum purposes; provided, however, that
the foregoing shall not limit the right of the Corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
Section 1.6. Organization. Meetings of stockholders shall be presided
over by the Chairman of the Board, if any, or in the absence of the Chairman of
the Board by the President, or in the absence of the President by a Vice
President, or in the absence of the foregoing persons by a chairman designated
by the Board of Directors, or in the absence of such designation by a chairman
chosen at the meeting. The Secretary shall act as secretary of the meeting, or
in the absence of the Secretary by an Assistant Secretary, or in their absence
the chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 1.7. Voting; Proxies. Unless otherwise provided in the
certificate of incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
such stockholder which has voting power upon the matter in question. Each
stockholder entitled to vote at a meeting of stockholders or to express consent
or dissent to corporate action in writing without a meeting may authorize
another person or persons to act for such stockholder by proxy, but no such
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or another duly executed proxy bearing a later date with the Secretary of
the Corporation. Voting at meetings of stockholders need not be by written
ballot and need not be conducted by inspectors unless the holders of a majority
of the outstanding shares of all classes of stock entitled to vote thereon
present in person or by proxy at such meeting shall so determine. At all
meetings of stockholders for the election of directors a plurality of the votes
cast shall be sufficient to elect each director. With respect to other matters,
unless otherwise provided by law or by the certificate of incorporation or these
by-laws, the affirmative vote of the holders of a majority of the shares of all
classes of stock present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders,
provided that (except as otherwise required by law or by the certificate of
incorporation) the Board of Directors may require a larger vote upon any such
matter. Where a separate vote by class is required, the affirmative vote of the
holders of a majority of the shares of each class present in person or
represented by proxy at the meeting shall be the act of such class, except as
otherwise provided by law or by the certificate of incorporation or these
by-laws.
Section 1.8. Fixing Date for Determination of Stockholders of Record.
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be more than sixty
nor less than ten days before the date of such meeting, nor more than sixty days
prior to any other action. If no record date is fixed: (1) the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; (2) the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board is necessary, shall
be the day on which the first written consent is expressed; and (3) the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board may fix a new record date for the adjourned meeting.
Section 1.9. List of Stockholders Entitled to Vote. The Secretary shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present.
Section 1.10. Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided in the certificate of incorporation, any action required by
law to be taken at any annual or special meeting of stockholders of the
Corporation, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE II
Board of Directors
Section 2.1. Powers; Number; Qualifications. The business and affairs
of the Corporation shall be managed by or under the direction of the Board of
Directors, except as may be otherwise provided by law or in the certificate of
incorporation. The Board shall consist of one or more members, the number
thereof to be determined from time to time by the Board. Directors need not be
stockholders.
Section 2.2. Election; Term of Office; Resignation; Removal; Vacancies.
Each director shall hold office until the annual meeting of stockholders next
succeeding his or her election and until his or her successor is elected and
qualified or until his or her earlier resignation or removal. Any director may
resign at any time upon written notice to the Board of Directors or to the
President or the Secretary of the Corporation. Such resignation shall take
effect at the time specified therein, and unless otherwise specified therein no
acceptance of such resignation shall be necessary to make it effective. Any
director or the entire Board of Directors may be removed, with or without cause,
by the holders of a majority of the shares then entitled to vote at an election
of directors; except that, if the certificate of incorporation provides for
cumulative voting and less than the entire Board is to be removed, no director
may be removed without cause if the votes cast against his or her removal would
be sufficient to elect him or her if then cumulatively voted at an election of
the entire Board, or, if there be classes of directors, at an election of the
class of directors of which he or she is a part. Whenever the holders of any
class or series of stock are entitled to elect one or more directors by the
provisions of the certificate of incorporation, the provisions of the preceding
sentence shall apply, in respect to the removal without cause of a director or
directors so elected, to the vote of the holders of the outstanding shares of
that class or series and not to the vote of the outstanding shares as a whole.
Unless otherwise provided in the certificate of incorporation or these by-laws,
vacancies and newly created directorships resulting from any increase in the
authorized number of directors elected by all of the stockholders having the
right to vote as a single class or from any other cause may be filled by a
majority of the directors then in office, although less than a quorum, or by the
sole remaining director. Whenever the holders of any class or classes of stock
or series thereof are entitled to elect one or more directors by the provisions
of the certificate of incorporation, vacancies and newly created directorships
of such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by the
sole remaining director so elected.
Section 2.3. Regular Meetings. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware and
at such times as the Board may from time to time determine, and if so determined
notice thereof need not be given.
Section 2.4. Special Meetings. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the Chairman of the Board, if any, by the President
or by any two directors.
Reasonable notice thereof shall be given by the person or persons calling the
meeting.
Section 2.5. Participation in Meetings by Conference Telephone
Permitted. Unless otherwise restricted by the certificate of incorporation or
these by-laws, members of the Board of Directors, or any committee designated by
the Board, may participate in a meeting of the Board or of such committee, as
the case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this by-law shall
constitute presence in person at such meeting.
Section 2.6. Quorum; Vote Required for Action. At all meetings of the
Board of Directors one-third of the entire Board shall constitute a quorum for
the transaction of business. The vote of a majority of the directors present at
a meeting at which a quorum is present shall be the act of the Board unless the
certificate of incorporation or these by-laws shall require a vote of a greater
number. In case at any meeting of the Board a quorum shall not be present, the
members of the Board present may adjourn the meeting from time to time until a
quorum shall attend.
Section 2.7. Organization. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, if any, or in the absence of the
Chairman of the Board by the President, or in their absence by a chairman chosen
at the meeting. The Secretary, or in the absence of the Secretary an Assistant
Secretary, shall act as secretary of the meeting, but in the absence of the
Secretary and any Assistant Secretary the chairman of the meeting may appoint
any person to act as secretary of the meeting.
Section 2.8. Action by Directors Without a Meeting. Unless otherwise
restricted by the certificate of incorporation or these bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board or of such committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
or committee.
Section 2.9. Compensation of Directors. The Board of Directors shall have
the authority to fix the compensation of directors.
<PAGE>
ARTICLE III
Committees
Section 3.1. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in place
of any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board, shall have and may exercise all the
powers and authority of the Board in the management of the business and affairs
of the Corporation, and may authorize the seal of the Corporation to be affixed
to all papers which may require it; but no such committee shall have power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, recommending to the stockholders a dissolution of the Corporation or a
revocation of dissolution, removing or indemnifying directors or amending these
bylaws; and, unless the resolution expressly so provides, no such committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock.
Section 3.2. Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board may adopt, amend and repeal
rules for the conduct of its business. In the absence of a provision by the
Board or a provision in the rules of such committee to the contrary, a majority
of the entire authorized number of members of such committee shall constitute a
quorum for the transaction of business, the vote of a majority of the members
present at a meeting at the time of such vote if a quorum is then present shall
be the act of such committee, and in other respects each committee shall conduct
its business in the same manner as the Board conducts its business pursuant to
Article II of these bylaws.
ARTICLE IV
Officers
Section 4.1. Officers; Election. As soon as practicable after the
annual meeting of stockholders in each year, the Board of Directors shall elect
a President and a Secretary, and it may, if it so determines, elect from among
its members a Chairman of the Board. The Board may also elect one or more Vice
Presidents, one or more Assistant Vice Presidents, one or more Assistant
Secretaries, a Treasurer and one or more Assistant Treasurers and such other
officers as the Board may deem desirable or appropriate and may give any of them
such further designations or alternate titles as it considers desirable. Any
number of offices may be held by the same person.
Section 4.2. Term of Office; Resignation; Removal; Vacancies. Except as
otherwise provided in the resolution of the Board of Directors electing any
officer, each officer shall hold office until the first meeting of the Board
after the annual meeting of stockholders next succeeding his or her election,
and until his or her successor is elected and qualified or until his or her
earlier resignation or removal. Any officer may resign at any time upon written
notice to the Board or to the President or the Secretary of the Corporation.
Such resignation shall take effect at the time specified therein, and unless
otherwise specified therein no acceptance of such resignation shall be necessary
to make it effective. The Board may remove any officer with or without cause at
any time. Any such removal shall be without prejudice to the contractual rights
of such officer, if any, with the Corporation, but the election of an officer
shall not of itself create contractual rights. Any vacancy occurring in any
office of the Corporation by death, resignation, removal or otherwise may be
filled for the unexpired portion of the term by the Board at any regular or
special meeting.
Section 4.3. Chairman of the Board. The Chairman of the Board, if any,
shall preside at all meetings of the Board of Directors and of the stockholders
at which he or she shall be present and shall have and may exercise such powers
as may, from time to time, be assigned to him or her by the Board and as may be
provided by law.
Section 4.4. President. In the absence of the Chairman of the Board,
the President shall preside at all meetings of the Board of Directors and of the
stockholders at which he or she shall be present. The President shall be the
chief executive officer and shall have general charge and supervision of the
business of the Corporation and, in general, shall perform all duties incident
to the office of president of a corporation and such other duties as may, from
time to time, be assigned to him or her by the Board or as may be provided by
law.
Section 4.5. Vice Presidents. The Vice President or Vice Presidents, at
the request of the President, shall perform the duties of the President, and
when so acting shall have the powers of the President. If there be more than one
Vice President, the Board of Directors may determine which one or more of the
Vice Presidents shall perform any of such duties; or if such determination is
not made by the Board, the President may make such determination; otherwise any
of the Vice Presidents may perform any of such duties. The Vice President or
Vice Presidents shall have such other powers and shall perform such other duties
as may, from time to time, be assigned to him or her or them by the Board or the
President or as may be provided by law.
Section 4.6. Secretary. The Secretary shall have the duty to record the
proceedings of the meetings of the stockholders, the Board of Directors and any
committees in a book to be kept for that purpose, shall see that all notices are
duly given in accordance with the provisions of these by-laws or as required by
law, shall be custodian of the records of the Corporation, may affix the
corporate seal to any document the execution of which, on behalf of the
Corporation, is duly authorized, and when so affixed may attest the same, and,
in general, shall perform all duties incident to the office of secretary of a
corporation and such other duties as may, from time to time, be assigned to him
or her by the Board or the President or as may be provided by law.
Section 4.7. Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation and shall deposit or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by or under
authority of the Board of Directors. If required by the Board, the Treasurer
shall give a bond for the faithful discharge of his or her duties, with such
surety or sureties as the Board may determine. The Treasurer shall keep or cause
to be kept full and accurate records of all receipts and disbursements in books
of the Corporation, shall render to the President and to the Board, whenever
requested, an account of the financial condition of the Corporation, and, in
general, shall perform all the duties incident to the office of treasurer of a
corporation and such other duties as may, from time to time, be assigned to him
or her by the Board or the President or as may be provided by law.
Section 4.8. Other Officers. The other officers, if any, of the
Corporation shall have such powers and duties in the management of the
Corporation as shall be stated in a resolution of the Board of Directors which
is not inconsistent with these by-laws and, to the extent not so stated, as
generally pertain to their respective offices, subject to the control of the
Board. The Board may require any officer, agent or employee to give security for
the faithful performance of his or her duties.
ARTICLE V
Stock
Section 5.1. Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by or in the name of the
Corporation by the Chairman of the Board of Directors, if any, or the President
or a Vice President, and by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary, of the Corporation, certifying the number
of shares owned by such holder in the Corporation. If such certificate is
manually signed by one officer or manually countersigned by a transfer agent or
by a registrar, any other signature on the certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if such person were such
officer, transfer agent or registrar at the date of issue.
Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of
New Certificates. The Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or such owner's legal representative, to give
the Corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
ARTICLE VI
Miscellaneous
Section 6.1. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 6.2. Seal. The Corporation may have a corporate seal which shall
have the name of the Corporation inscribed thereon and shall be in such form as
may be approved from time to time by the Board of Directors. The corporate seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
in any other manner reproduced.
Section 6.3. Waiver of Notice of Meetings of Stockholders. Directors and
Committees. Whenever notice is required to be given by law or under any
provision of the certificate of incorporation or these by-laws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice unless so required by the certificate of incorporation
or these by-laws.
Section 6.4. Indemnification of Directors, Officers, and Employees and
Agents. The Corporation shall indemnify its directors, officers, employees and
agents in accordance with the provisions set forth in its certificate of
incorporation.
Section 6.5. Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or her or their
votes are counted for such purpose, if: (1) the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (2) the material facts as to his or her relationship
or interest and as to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (3) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board, a committee thereof, or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board or of a committee which
authorizes the contract or transaction.
Section 6.6. Form of Records. Any records maintained by the Corporation in
the regular course of its business, including its stock ledger, books of account
and minute books, may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, microphotographs or any other information storage device,
provided that the records so kept can be converted into clearly legible form
within a reasonable time. The Corporation shall so convert any records so kept
upon the request of any person entitled to inspect the same.
Section 6.7. Amendment of By-Laws. These by-laws may be amended or
repealed, and new by-laws adopted, by the Board of Directors, but the
stockholders entitled to vote may adopt additional by-laws and may amend or
repeal any by-law whether or not adopted by them.
Exhibit 10.13
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") effective as of January 11,
1999, between ANDERSEN GROUP, INC., a Delaware Corporation, (the "Employer")
with offices at 515 Madison Avenue, Suite 2000, New York, New York, 10022 and
PETER R. BARKER (the "Executive"), an individual residing at 108 East 96th
Street, New York, New York 10128.
The Employer seeks to employ the Executive and the Executive has agreed
to enter into this Agreement.
Now Therefore, the parties in consideration of the mutual promises
herein contained hereby agree as follows:
1. Term of Services. The Executive's "term of employment," as this phrase is
used throughout this Agreement, shall be for the two (2) year period beginning
January 11, 1999 and ending January 12, 2001 subject, however, to earlier
termination for either "Cause" (as defined below) or not for "Cause" as
expressly provided herein.
2. Employment. The Employer shall employ the Executive, and the Executive shall
serve, as Vice President and Chief Financial Officer of the Employer during the
term of employment.
<PAGE>
Subject to his election as such and without additional compensation, if
requested, the Executive agrees to serve during the term of employment in such
particular additional offices of comparable stature and responsibility
consistent with his performance as Vice President and Vice President and Chief
Financial Officer of the Employer to which he maybe elected from time to time in
the Employer and its subsidiaries. During the term of employment, except during
the transition period from January 11, 1999 through March 31, 1999, (the
"Transition Period") during which the Executive shall be permitted to wind up
the matters for which he has been responsible prior to term of employment, (i)
the Executive's services shall be rendered on a substantially full time,
exclusive basis, (ii) he will apply on a substantially full time basis all of
his skill and experience to the performance of his duties in such employment,
(iii) he shall have no other employment and, without the consent of a majority
of the members of the Employer's Board of Directors (the "Board"), no outside
business activities that require the devotion of substantial amounts of the
Executive's time, and (iv) unless otherwise specified by the Board, the
Executive, the headquarters for the performance of his services shall be the
principal executive offices of the Employer in the greater New York metropolitan
area (currently located 515 Madison Avenue, Suite 2000, New York, New York
10022), subject to such reasonable travel as the performance of his duties in
the business of the Employer may require.
Except during the Transition Period, during the term of employment, the
Executive shall not, directly or indirectly, render any services to any other
person, or acquire any interests of any type in any other person, that might be
deemed in competition with the Employer or any of its subsidiaries or affiliates
or in conflict with his position as Vice President and Chief Financial Officer
of the Employer; provided, however, that the foregoing shall not be deemed to
prohibit the Executive from (i) acquiring, solely as an investment and through
market purchases, securities of any corporation that are registered under
Section l2(b) or l2(g) of the Securities Exchange Act of 1934 and that are
publicly traded so long as he is not part of any control group of such
corporation(s) or companies, (ii) acquiring, solely as an investment, any
securities of a partnership, trust, corporation (other than a corporation that
has outstanding securities covered by the preceding clause (i)) or other entity
so long as such entity is not, directly or indirectly, in competition with the
Employer or any of its subsidiaries or affiliates or (iii) serving as a director
of any corporation that is not in competition with the Employer or any of its
subsidiaries or affiliates.
3. Compensation. The Compensation of the Executive shall be comprised of the
following components: Base Salary; Incentive Compensation (Bonus); Incentive
Stock Options; Other Fringe Benefits; Severance; the Stock Loan/Purchase
Program; and the Non-Qualified Stock Options.
<PAGE>
3.1 Base Salary. The Employer shall pay or cause to be paid to the
Executive during the term of employment a base salary of not less than the
annual rate of $150,000 (the "Base Salary"), payable in accordance with current
practices of the Employer, as such practices may exist from time to time, it
being understood and acknowledged by the Executive that currently the payment
practices of the Employer call for such payments to be made monthly in arrears.
Due to the short term of the Executive's employment as of February 28,
1999, the Executive will not receive a full compensation review at that time.
Instead, effective as of March 1, 1999, the Executive shall receive an increase
in his Base Salary equal to the "standard increase" (an amount equal to
approximately 4% per annum) applied to the eligible payroll of the Employer.
As of March 1, 2000, the Executive's Base Salary will be subject to a
full review by the Employer and the Employer, by action of the Compensation
Committee of the Employer's Board of Directors (the "Compensation Committee")
taken in its discretion, may increase, but not decrease, the Base Salary at any
time and from time to time during the term of employment.
3.2 Incentive Bonus Compensation ("Bonus") For Fiscal Year Ended
February 28, 1999. In addition to the Base Salary, the Executive shall be
entitled to receive an annual bonus for the approximate two (2) month period
from January 11, 1999 through the end of the Employer's fiscal year ended
February 28, 1999 in the amount of $10,000.
3.3 Incentive Bonus Compensation For Fiscal Years Ended February 29,
2000 and Thereafter. In addition to the Base Salary, the Executive shall be
eligible to receive an annual bonus (the "Annual Bonus") for the twelve (12)
month period, after March 1, 1999 in an amount equal to the annual rate of
fifteen percent (15%) of the Base Salary in effect as of February 29, 2000. The
awarding of the Annual Bonus shall be based upon the Executive achieving, as
determined in the sole discretion of the Compensation Committee, the Management
By Objective ("Management by Objectives" or "MBO") goals (the "MBO Goals") that
have been established for the Executive for the fiscal year by mutual agreement
between the Executive and the Employer.
<PAGE>
Although all of the MBO Goals for the Executive for the fiscal year
ended February 29, 2000 have not been established, the Executive and the
Employer agree that one of the Executive's MBO Goals for such time period shall
be that The J. M. Ney Company ("Ney"), a wholly-owned subsidiary of the
Employer, in a manner acceptable to the Board, shall either: (a) have completed
an acquisition of a business that has annual revenues of in excess of $15
million, or (b) have completed an initial public offering of the stock of Ney.
3.4 Incentive Stock Option. In addition to the Base Salary the Employer
has an incentive stock option plan ("ISO Plan") currently in existence and the
Executive shall be awarded 10,000 shares pursuant to the terms and subject to
the conditions of the ISO Plan, as it exists from time to time, at the mean of
the Bid and Asked prices of the Employer Common Stock in effect as of the
Executive's first day of work, currently scheduled to occur on January 11, 1999.
3.5 Executives Other Fringe Benefits. In addition to the Base Salary
the Employer shall receive such other fringe benefits ("Other Fringe Benefits")
as the Employer may have in effect from time to time, including the following
fringe benefits that are currently in effect for employees of the Employer: life
insurance, disability insurance, medical insurance and vacations in accordance
with the Employer's standard policies relating thereto, which policies, as of
the date hereof, currently provide for the following benefits (it being
acknowledge by the Executive that certain of these fringe benefits will require
contributions from the Executive):
A. Life Insurance. $250,000 of term life insurance over and above the
$50,000 of term life insurance provided by the Employer's standard benefit plan.
B. Disability Insurance. Disability insurance pursuant to such plan of
disability insurance that the Employer may have in effect from time to time for
employees of comparable status to the Executive.
C. Medical Insurance. The CIGNA Plan Major Medical (Approximately 75% of
the premiums for this insurance are currently paid for the employees by the
Employer.)
<PAGE>
D. Vacation. The Standard Vacation Policy of the Employer (and the
exceptions, where applicable, for the Executive) is as follows:
o Two Weeks Annual Vacation: during the first five (5) years of employment.
(In addition, the Executive shall receive one additional week during the initial
five (5) years of employment.)
o Three Weeks Annual Vacation: during the next four (4) years of employment
(employment years six through nine).
o Four Weeks Annual Vacation: during the tenth year of employment and
thereafter
3.6 Severance.
<PAGE>
A. No Severance If Termination Is For "Cause" By the Employer Or If
Termination Is By Executive's Own Volition. In the event of (i) termination of
the employment of the Executive by the Employer for "Cause" (as defined below)
or (ii) termination of the employment of the Executive by the Executive by his
own volition, there will be no severance ("Severance") payments and the Base
Salary shall be paid to the Executive to the date of termination and the
Executive shall not be entitled to receive any other form of compensation from
the Employer whether pursuant to this Agreement or otherwise; provided however,
with respect to the Stock Loan/Purchase Program (described and defined below),
the rights and obligations of the parties pursuant to the various documents
(including the provisions in this Agreement) that relate to such program as
otherwise set forth herein (or in the other documents relating thereto) shall
continue to be in full force and effect pursuant to their respective terms and
subject to their respective conditions notwithstanding such termination.
B. Severance Paid If Termination of Executive Is Not For
"Cause" The Executive acknowledges and agrees that
the Employer has and retains the right to terminate
the Executive's employment not for "Cause." In the
event of the termination of the employment of the
Executive by the Employer not for "Cause," the
following provisions shall apply:
i. Severance Paid If Termination Occurs
During the First Contract Year of
Employment. In the event that Executive is
terminated by the Employer not for "Cause"
during the First Contract Year, then in that
event, the Employer shall pay Executive a
sum equal to:
(A) 90 days of Base Salary (which
amount shall be payable to the
Executive in any event regardless of
the amount, if any, of the Pay
Differential, plus
(B) the "Pay Differential," if any,
(as defined and described below).
"Pay Differential" (whether for the First
Contract Year or the Second Contract Year)
shall mean and refer to the amount, if any,
by which the amount of the Base Salary (in
accord with paragraph (a) below) is greater
than the amount of Other Reportable Income
(in accord with paragraph (b) below):
<PAGE>
(a) Base Salary: the annual rate of
the Executive's Base Salary for the
contract year in question either (i)
the first contract year (the "First
Contract Year") from January 11,
1999 through January 10, 2000 or the
second contract year (the "Second
Contract Year") from January 11,
2000 to January 10, 2001 (the First
Contract Year and the Second
Contract Year are collectively
referred to as "Contract Year(s)"
where applicable; and
(b) Other Reportable Income: the
Executive's "reportable income" (as
defined by the Internal Revenue
Code) from all sources for the
Contract Year in question whether
such "reportable income" has been
paid in cash or is accrued
(including but not limited to income
received by the Executive pursuant
to this Agreement) (such income is
referred to herein as "Other
Reportable Income").
In the event that Other Reportable Income
exceeds the Base Salary for the Contract
Year in question, then in that event, there
is no Pay Differential and the Executive
would only receive 90 days Base Salary as
his Severance payment.
ii. Severance Paid If Termination Occurs
During the Second Contract Year of
Employment. In the event that Executive is
terminated by the Employer not for "Cause"
during the Second Contract Year, then in
that event, the Employer shall pay the
Executive a sum equal to:
<PAGE>
(A) 90 days of Base Salary (which
amount shall be payable to the
Executive in any event regardless of
the amount, if any, of the Pay
Differential, plus
(B) the "Pay Differential," if any,
(as defined and described above).
provided however, the payment of the Pay
Differential portion of the Severance (but
not the 90 days Base Salary portion of the
Severance) shall be conditioned upon
Executive's obligation to mitigate damages
by the Executive conducting a diligent
search for employment after such termination
and the payment of such amount shall be paid
upon the conclusion of the Contract Year in
question.
Timing of Severance Payments: Regardless of whether the Severance is being
paid in connection with the First Contract Year or the Second Contract Year,
(a) The 90 days of Base Pay portion
of the Severance shall be paid to
the Executive upon the termination
date of the Executive.
(b) The Pay Differential portion of
the Severance, if any, shall be paid
after the close of the Contract Year
in question and then within 30 days
after the Executive supplies the
Employer with such information and
documentation as are reasonably
required by the Employer in order to
be able to determine the amount, if
any, of the Other Reportable Income
of the Executive for the Contract
Year in question.
<PAGE>
Payments of Other Compensation Components In
the Event of Termination Not For Cause: In
the event of termination not for Cause, in
addition to the Severance described above,
the following shall apply:
(a) The Executive shall receive his
Incentive Bonus Compensation which
shall be determined on the basis
that (i) all of the MBO Goals have
been achieved but (ii) such amount
shall be prorated to reflect only
that portion of the year during
which the Executive was employed by
the Employer.
(b) The Incentive Stock Option Plan
only applies to employees and once
the Executive ceases to be an
employee of the Employer such plans
cease to be in effect.
(c) The Non-Qualified Stock Option
Plan shall terminate to the extent
the vesting requirements have not
been met at the time of termination.
Executives shall have thirty (30)
days from the date of termination to
exercise the non-qualified stock
options which have been vested.
3.7 Stock Loan/Purchase Program: In order to effectuate this Agreement,
the Employer agrees, on a best efforts basis, to locate a block of 62,500 shares
of Common Stock of Employer ("Employer Common Stock") that is available for sale
by existing shareholder(s) of the Employer at a price of approximately $4.00 per
share. The Executive agrees with his own funds to purchase 12,500 shares of such
shares at a price of approximately $4.00 per share purchase price. In addition,
the Employer agrees to lend (the "Executive Loan") the Executive $200,000 for
the sole and only purpose of the purchase by the Executive of the remaining
50,000 shares of Employer Common Stock from such third party pursuant to the
following terms and conditions:
A. Principal Maturity Date: All of the $200,000 of the principal amount of
the Executive Loan shall be due and payable Two years from date of making of
such $200,000 Executive Loan;
<PAGE>
B. Interest Rate: Seven percent (7%) per annum;
C. Payment of Interest: The interest of seven percent (7%) per
annum shall be paid quarterly in arrears on the unpaid
principal balance at the end of the third, sixth, ninth,
twelfth, fifteenth, eighteenth, twenty-first and twenty-fourth
months after the date of the Note.
D. Evidence of Obligation: The Executive shall execute and
deliver a promissory note (the "Executive Note") payable to
the Employer evidencing all of the terms and conditions of the
$200,000 loan being made to the Executive by the Employer.
E. Security: The Executive shall pledge (the "Executive Pledge")
all the 62,500 shares of Employer Common Stock (including the
12,500 shares of such stock acquired by use of the Executive's
own funds) in order to secure the payment of the Executive
Note pursuant to the terms and subject to the conditions of a
standard stock pledge agreement and such Executive Pledge
shall be perfected so that the Employer obtains a first
priority security interest in the such 62,500 shares pursuant
to the New York Uniform Commercial Code;
F. Executive Put: Subject to compliance with applicable federal
securities laws and any other applicable laws, the Executive
shall be able, on a dollar for dollar basis, to put (the
"Executive Put") the shares of Employer Common Stock to the
Employer in payment of the Executive Note at any time on or
prior to the maturity date of the Executive Note pursuant to
the following terms and conditions:
<PAGE>
(i) Executive Has Unlimited Upside Potential Gain:
The Executive shall be entitled to receive and retain
all of the benefit of any appreciation that may occur
with respect to the 62,500 shares of Employer Common
Stock being acquired pursuant to the Stock
Loan/Purchase Program and if the Employer Common
doubles in value from, for example, $4.00 per share
to $8.00 per share, then in that event, the Executive
shall only be required to tender 25,000 shares of the
62,500 shares of Employer Common Stock so acquired by
the Executive in order to pay off the $200,000
Executive Note and the Executive shall be entitled to
keep the remaining 37,500 shares of Employer Common
Stock free and clear of any obligation to the
Employer.
(ii) Executive Has $50,000 Maximum Downside Loss
Risk: The Executive shall also bear the risk of any
decline in the value of the Employer Common Stock,
but only to the maximum extent of the $50,000 that
Executive pays for the 12,500 shares of Employer
Common Stock that the Executive is purchasing with
his own funds. That is to say, in the event that the
Employer Common Stock declines in value from, for
example, $4.00 per share to $3.00 per share, the
Executive can extinguish all of his obligations under
the $200,000 Executive Note by tendering all 62,500
shares of Employer Common Stock (together with a
signed and guaranteed stock power signed in blank)
even though the market value of the 62,500 shares of
Employer Common Stock so tendered by the Executive is
only $187,000.
(iii) Market Value of Stock: The market value of the
Employer Common Stock for the purpose of this
Executive Put shall be determined by taking the
average of the daily mean of the bid and asked price
for such stock for the fifteen (15) days immediately
preceding the business day of the sending of the
notice exercising the Executive Put of such stock by
the Executive.
(iv) Notice: Notice of the Executive's exercise of
the Executive Put shall be given pursuant to the
notice provision of this Agreement.
<PAGE>
(v) Put Procedures: In the event that the Executive
exercises the Executive Put by giving notice thereof
pursuant to the notice provisions of this Agreement,
the Executive shall tender such number of shares of
Employer Common Stock necessary to extinguish the
Executive Note and the Executive shall be entitled to
receive the remainder of the 62,500 shares acquired
by the Executive, if any, that remain after such
tender. The shares of Employer Common Stock so
tendered by the Executive shall be delivered to
Employer together with a stock power signed in blank
by the Executive (with his signature guaranteed), and
the remaining shares of Employer Common Stock
acquired by the Executive (being held pursuant to the
Executive Pledge) shall be released from the
Executive Pledge and returned to the Executive free
from any restriction, lien or encumbrance. In
addition, the original of the Executive Note shall be
marked "paid in full" by the Employer and returned to
the Executive.
G. Prepayment: The Executive may prepay the Executive Note either
in whole or part without premium or penalty at any time prior
to the Maturity Date of the Executive Note; provided however,
in the event that of a partial prepayment of the Executive
Note, no shares of such stock held pursuant to the Executive
Pledge shall be released to the Executive until the Executive
Note is paid in full pursuant to the terms and subject to the
conditions hereof and upon the occurrence of such payment in
full, the number of shares of such stock so released from the
Executive Pledge shall be determined as set forth elsewhere in
this Agreement.
(The provisions of this Section 3.6 of this Agreement shall be referred
to as the "Stock Loan/Purchase Program.")
<PAGE>
3.8 Additional Incentive/Non-Qualified Stock Option: In addition to the
Base Salary, the Employer agrees to adopt a non-qualified stock option plan (the
"Non-Qualified Stock Option Plan") and, as part of such plan, to award the
Executive non-qualified stock options (the "Non-Qualified Stock Options") to
acquire 175,000 shares of Employer's Common Stock in accordance with the
following table the ("NQSO Table") and pursuant to the following terms and
subject to the following conditions (the "NQSO Terms and Conditions"):
NQSO Table
Grant Amount Strike Price Vesting Market Price
25,000 $4.00 $8.00
50,000 $6.00 $10.00
50,000 $8.00 $12.00
50,000 $10.00 $14.00
- -------
175,000
NQSO Terms and Conditions
A. Vesting: In order for the Executive to qualify for the vesting
in accordance with the NQSO Table, the Employer Stock bid
price (as reported on NASDAQ) must be at or higher than the
Vesting Market Price stated in the NQSO Table for fifteen (15)
consecutive business days.
B. Grant Date: The effective grant date of the Non-Qualified
Stock Options shall be the next day following the date on
which the Employer Stock price has been at the vesting price
for the required fifteen (15) day period.
C. MBO Goal Must Be Met To Make NQSO Plan Effective: In addition
to the foregoing provisions, the Non-Qualified Stock Option
Plan shall not become effective unless and until the Required
MBO Goal (as defined and described below) occurs.:
<PAGE>
The "Required MBO Goal" shall mean and refer to Ney,
in a manner acceptable to the Board, either: (a)
having completed an acquisition of a business that
has annual revenues of in excess of $15 million, or
(b) having completed an initial public offering of
the stock of Ney.
The Executive acknowledges and understands that the occurrence
of the Required MBO Goal relates solely and only to the
effectiveness of the Non-Qualified Stock Option Plan and that
other MBO Goals may, and probably will be established in
accordance with the standard practices of the Employer, for
the purpose of determining the compensation to be paid to
Executive pursuant to the Incentive Bonus Compensation plan
discussed and described above.
4. Definition of "Cause" The Executive and the Employer agree that the
Employer may terminate the Executive either for "Cause" or not for "Cause" at
any time during the term of this Agreement and the parties agree that for the
purposes of this Agreement, the term, "Cause," shall mean and refer to the
following:
A. Executive's Conviction of a Felony (which, through lapse of time or
otherwise, is not subject to appeal);
B. Material dishonesty or wrongful taking by the Executive established to
the satisfaction of a majority of the Board;
<PAGE>
C. Willful failure or refusal by the Executive without proper cause (i) to
perform his obligations under this Agreement or (ii) because of the Executive's
material breach without proper cause of any of the covenants provided for in
this Agreement or (iii) because of the Executive's willful and repeated failure
or refusal without proper cause to follow the instructions of the Board, all as
determined by a majority of the Board. Such termination as set forth in this
paragraph C. shall be effected by notice thereof delivered by the Employer to
the Executive and shall be effective as of the date of such notice; provided,
however, that if (i) such termination pursuant to this paragraph C. is because
of the Executive's willful refusal without proper cause to perform any one or
more of his obligations under this Agreement, (ii) such notice is the first such
notice of termination for any reason delivered by Employer to the Executive
hereunder within any six (6) month period and (iii) within seven days following
the date of such notice the Executive shall cease his refusal and shall use his
best efforts to perform such obligations, the termination shall not be
effective.
5. Expense Reimbursement. Employer shall pay or reimburse the Executive
for all reasonable expenses actually incurred or paid by the Executive during
the term of employment in the performance of his services hereunder upon
presentation of expense statements or vouchers or such other supporting
information as Employer may reasonably require of the Executive.
6. Indemnification. The Executive shall be entitled through the term of
employment to the benefit of the indemnification provisions contained on the
date hereof in the By-Laws of the Employer as the same may hereafter be amended,
and of any indemnification provisions that may hereafter be added to the
Certificate of Incorporation of the Employer, to the extent permitted by
applicable law at the time of the assertion of any liability against the
Executive. The Executive shall also be entitled to the benefit of any Directors
and Officers Liability Insurance that the Employer may elect to maintain in
effect pursuant to the terms and subject to the conditions of such the policies
that evidence such coverage.
7. Mitigation of Damages. In the event of the termination of the term
of employment by the Employer not for "Cause," the Executive shall,
nevertheless, be required to mitigate the Executive's damages hereunder;
provided however, the obligation of the Executive to mitigate damages shall not
apply to the 90 days Base Salary portion of the Severance payments required by
this Agreement.
<PAGE>
8. Legal Costs. If either party institutes any legal action to enforce
his or its rights under, or to recover damages for breach of, this Agreement,
each party shall pay for his or its legal cost and expenses including attorneys
fees.
9. Death and Permanent Disability. In the event of the Executive's
death or permanent disability, the Executive shall receive such payments
hereunder as shall be awarded to him by a majority of the Board as determined in
its sole and complete discretion after taking into consideration all of the
relevant circumstances. The Board decision in this regard shall be final and
binding on the parties hereto.
10. Office Facilities and Services. During the term of the employment
the Executive shall be accorded such benefits and support services, including
but not limited to office facilities, secretarial, financial, communications,
security and transportation services and other allowances as are determined to
be reasonable and necessary by the Board.
11. Other Benefits. During the term of employment, the Executive shall
remain eligible to participate in any plan or program of the Employer now
existing or established hereafter, to the extent that he is eligible under the
general provisions thereof.
12. Protection of Confidential Information.
<PAGE>
The Executive acknowledges that his employment by the Employer will,
throughout the term of employment, bring him into close contact with many
confidential affairs of the Employer, including information about costs,
profits, markets, sales, products, key personnel, pricing policies, operational
methods, technical processes and other business affairs and methods and other
information not readily available to the public, and plans for future
developments. The Executive further acknowledges that the services to be
performed under this Agreement are of a special, unique, unusual, extraordinary
and intellectual, character. The Executive further acknowledges that the
business of the Employer is international in scope, that its products are
marketed throughout the world, that the Employer competes in nearly all of its
business activities with other organizations which are or could be located in
nearly any part of the world and that the nature of the Executive's services,
position and expertise are such that he is capable of competing with the
Employer from nearly any location in the world. In recognition of the foregoing,
the Executive covenants and agrees:
A. That the Executive will keep secret all material confidential
matters of the Employer and will not intentionally disclose
them to anyone outside of the Employer, either during or after
the term of employment except with the Employer's written
consent, provided that (i) the Executive shall have no such
obligation to the extent such matters are or become publicly
known other than as a result of the Executive's breach of his
obligations hereunder and (ii) the Executive may, after giving
prior written notice to the Employer to the extent practicable
under the circumstances, disclose such matters to the extent
required by applicable laws or governmental regulations or
judicial or regulatory process; and
B. That he will deliver promptly to the Employer on termination
of his employment by the Employer, or at any other time the
Employer may so request, at the Employer's expense, all
memoranda, notes, records, reports and other documents (and
all copies thereof) relating to the Company's business, which
he obtained while employed by, or otherwise serving or acting
on behalf of, the Employer and which he may then possess or
have under his control.
C. Hiring Restrictions. If the term of employment is terminated
pursuant to this Agreement, for a period of two years after
such termination without the consent of the Employer, the
Executive shall not employ, and shall not cause any entity of
which he is an affiliate to employ, any person who was a
full-time employee of the Employer or any of its subsidiaries
at the date of such termination or within six months prior
thereto.
<PAGE>
D. Specific Remedy. In addition to such other rights and remedies
as the Employer may have at equity or in law with respect to
any breach of this Agreement, if the Executive commits a
material breach of any of the provisions of Section 4, the
Employer shall have the right and remedy to have such
provisions specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such
breach threatened breach will cause irreparable injury to the
Employer and that money damages will not provide an adequate
remedy to the Employer.
13. Ownership of Work Product. The Executive acknowledges that during
the term of employment, he may conceive of, discover, invent or create
inventions, improvements, new contributions, literary property, material, ideas
and discoveries, whether patentable or copyrightable or not (all of the
foregoing being collectively referred to herein as "Work Product") and that
various business opportunities shall be presented to him by reason of his
employment by the Employer. The Executive acknowledges that, unless the Employer
otherwise agrees in writing, all of the foregoing shall be owned by and belong
exclusively to the Employer and that he shall have no personal interest therein,
provided that they are either related in any manner to the business (commercial
or experimental) of the Employer, or are, in the case of Work Product, conceived
or made on the Employer's time or with the use of the Employer's facilities or
materials, or, in the case of business opportunities, are presented to him for
the possible interest or participation of the Employer. The Executive shall
further, unless the Employer otherwise agrees in writing, (i) promptly disclose
any such Work Product and business opportunities to the Employer; (ii) assign to
the Employer, upon request and without additional compensation, the entire
rights to such Work Product and business opportunities; (iii) sign all papers
necessary to carry out the foregoing; and (iv) give testimony in support of his
inventorship or creation in any appropriate case. The Executive agrees that he
will not assert any rights to any Work Product or business opportunity as having
been made or acquired by him prior to the date of this Agreement except for Work
Product or business opportunities, if any, disclosed to and acknowledged by the
Employer in writing prior to the date hereof.
<PAGE>
14. Notices. All notices, requests, consents and other communications,
required or permitted to be given hereunder, shall be in writing and shall be
deemed to have been duly given if delivered personally or sent by prepaid
telegram, or mailed first-class, postage prepaid, by registered or certified
mail, as follows (or to such other or additional address as either party shall
designate by notice in writing to the other in accordance herewith):
A. If to the Employer: to the address set forth on the first page of this
Agreement.
B. If to the Executive, to him at his address on the personnel records of
the Employer.
15. General.
A. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely in New York.
B. Captions. The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
C. Entire Agreement. This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings, written or
oral, between the parties
D. No Other Representations. No representation, promise or inducement has
been made by either party that is not embodied in this Agreement, and neither
party shall be bound by or liable for any alleged representation, promise or
inducement not so set forth.
<PAGE>
E. Assignability. This Agreement, and the Executive's rights and
obligations hereunder, may not be assigned by the Executive.
the Employer may assign its rights, together with its
obligations, hereunder in connection with any sale, transfer
or other disposition of all or substantially all of its
business and assets; and such rights and obligations shall
inure to, and be binding upon, any successor to the business
or substantially all of the assets of the Employer, whether by
merger, purchase of stock or assets or otherwise, and such
successor shall expressly assume such obligations.
F. Amendments; Waivers. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended and the terms or
covenants hereof may be waived, only by a written instrument
executed by both of the parties hereto, or in the case of a
waiver, by the party waiving compliance. The failure of either
party at any time or times to require performance of any
provision hereof shall in no manner affect the right at a
later time to enforce the same. No waiver by either party of
the breach of any term or covenant contained in this
Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be, or construed as, a further
or continuing waiver of any such breach, or a waiver of the
breach of any other term or covenant contained in this
Agreement.
<PAGE>
G. Changes in Capital Structure. For all purposes of this Agreement, (i)
all references to "shares" of the Employer ----------------------------- Common
Stock shall mean the shares of the Employer Common Stock as they exist on the
date hereof, and all securities issued or exchanged with respect to such shares
upon any recapitalization, reclassification, merger, consolidation, spin-off,
split, dividend, distribution, subdivision or combination of such shares or the
like; and all references regarding stock price information shall be equitably
adjusted to take into account all events or transactions referred to in the
preceding clause (i); and (iii) if sales of the Employer Common Stock are no
longer reported on the Composite Tape, all references herein to "as reported on
the Composite Tape" shall refer to as reported on the principal national
securities exchange on which the Employer Common Stock is listed or admitted to
trading, or, if the Employer Common Stock is not listed or admitted to trading
on any national securities exchange, as reported by the National Association of
Securities Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is
no longer reporting such information or if not so reported, the sales price of a
share of the Employer Common Stock shall be equitably determined.
H. Offsets. the Employer shall be entitled to offset and deduct from those
payments due to the Executive under this Agreement for money borrowed by the
Executive from the Employer.
[The Remainder of this Page Intentionally Left Blank. The Next Page is the
Signature Page.]
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
ANDERSEN GROUP, INC.
BY: __________________________
Name: __________________
Title: ___________________
------------------------------
PETER BARKER
Exhibit 10.14 SETTLEMENT AGREEMENT AND RELEASE OF CLAIMS
Date: February 28, 1999
PARTIES:
1. CAE (U.S.) Inc. ("CAE");
2. Ney Technology, Inc. f/k/a Ney Ultrasonics, Inc. ("Ney"); and
3. Andersen Group, Inc. ("Andersen").
RECITALS:
1. CAE and Ney are currently involved in two lawsuits entitled CAE
(U.S.) Inc. v. Ney Technology, Inc. f/k/a/ Ney Ultrasonics, Inc., Docket No. CV
98-584215-S, and Ney Technology, Inc. v. CAE (U.S.), Inc., Docket No. CV
98-584249-S, both in the Superior Court, Judicial District of Hartford, at
Hartford ("Lawsuits"). The Lawsuits arise out of claims made by CAE and Ney
relating to the purchase price adjustment provisions of ss.ss. 2.10 and 2.11 of
the Asset Purchase Agreement effective as of February 28, 1998 among CAE, Ney
and Andersen. CAE, Ney and Andersen deny in their entirety all allegations and
claims made in the Lawsuits.
2. CAE, Ney and Andersen desire to avoid the expense, burden, and
diversion of further litigation and desire to fully resolve the claims set forth
in the Lawsuits.
COVENANTS:
1. As part of this Settlement Agreement and Release of Claims, the
parties hereby direct the Escrow Agent, Keating, Muething & Klekamp, P.L.L., as
Escrow Agent under the Escrow Agreement dated as of March 4, 1998, among CAE,
Ney and Keating, Muething & Klekamp, P.L.L. ("Escrow Agreement"), to distribute
the $500,000.00 deposit held under the Escrow Agreement ("Deposit"), in the
following manner:
<PAGE>
1. The sum of $400,000 from the Deposit shall be paid to Ney;
2. The sum of $100,000 from the Deposit shall be paid to CAE;
3. The interest accrued on the Deposit shall be split evenly as of the date
of disbursement, with one-half (1/2) paid to Ney and one-half (1/2) paid to CAE.
2. As further consideration for this Settlement Agreement and Release of All
Claims, the parties hereby amend the Technology Assignment Agreement effective
as of February 28, 1998 and entered into by and among, J.M. Ney Company,
Andersen Group, Inc., CAE, and CAE Blackstone, Inc. ("Technology Assignment
Agreement"). The terms of such amendment shall be as follows: a. CAE represents
that pursuant to the Technology Assignment Agreement there is an outstanding
balance of Forty-Seven Thousand Eight Hundred Seventy-Nine and 96/100 Dollars
($47,879.96) as of December 25, 1998 in accrued but unpaid payments due from
CAE, pursuant to Article 4 and Article 5 of the Technology License Agreement as
payments for Payment Bearing Transducers and Category I Products, as both terms
are defined in the Technology License Agreement. The parties agree that one-half
(1/2) of this amount, or Twenty-Three Thousand Nine Hundred Thirty-Nine and
98/100 Dollars ($23,939.98) shall be paid by CAE to Ney on the date of this
Settlement Agreement, and no further payments shall be required from CAE as to
such outstanding balance due under the Technology Assignment Agreement, subject
to Ney's right of inspection and audit under Article 6 and the parties' rights
and obligations regarding dispute resolution under Article 10 of such agreement.
b. After the date of this Settlement Agreement and
Release of Claims, payments due from CAE to Ney under
Article 4 and Article 5 shall be applied as follows:
<PAGE>
1) On each payment due from CAE to Ney pursuant
to Articles 4 and 5 of the Technology
Agreement, CAE shall pay one-half (1/2) of
the actual payments due until a total of Two
Hundred Thousand Dollars ($200,000.00) of
deductions from the calculated payments due
from CAE under Articles 4 and 5 (the Payment
Bearing Transducers, Category I Products and
the Category II Products), in the aggregate,
has been achieved. Thereafter, the full
payment by CAE shall be resumed in
accordance with the terms of the Technology
Assignment Agreement, including the
Applicable Payment Period as defined in the
Technology Assignment Agreement without
reference to the modification provided
herein, except for the reduction in the cap
as set forth below at Subsection b.3.
2) The fifty percent (50%) reduced payment made
by CAE as set forth in subsection a above
shall be applied towards the aggregate
reduction of Two Hundred Thousand Dollars
($200,000.00), referenced at subsection b.1)
above.
3) Paragraph 4.2(c) of the Technology License
Agreement shall be amended so that the
maximum cumulative payment due under Article
4 of the Technology Assignment Agreement
shall be One Million Nine Hundred Thousand
Dollars ($1,900,000.00).
c. Notwithstanding the fifty percent (50%) reduced
payments due from CAE under the Technology Assignment
Agreement as amended in accordance with subsection a.
and subsection b. of this Paragraph 2, the full
amount of the payments that would have been made for
Payment-Bearing Transducers under Article 4 will be
credited towards the maximum cumulative payment of
One Million Nine Hundred Thousand Dollars
($1,900,000.00), as if the full payment had been
made. (See attachment "A" for the numerical
reconciliation of the above sections 2(a) through
2(c).)
d. By way of example, assume that (i) the payment
obligation arising under the Technology Assignment
Agreement based on of sales of Products during the
first quarter of 1999 (including sales of Payment
Bearing Transducers under Article 4, and sales of
Other Payment-Bearing Products under Article 5) is
$50,000. Assume that this amount consists of $24,000
due under Article 4 and $26,000 due under Article 5.
Assume for purposes of this example that no other
payments have been credited toward the cumulative
$200,000 deduction due under this Settlement
Agreement on amounts otherwise due under the
Technology Assignment Agreement.
<PAGE>
In this example, CAE (Assignee) will pay to Ney
(Assignor) a total of $25,000 consisting of $12,000
under Article 4, and $13,000 under Article 5. CAE's
payment of $25,000 will be credited towards the
$200,000 cumulative deduction, leaving $175,000
remaining to be deducted from payments by CAE
otherwise due under the Technology Assignment
Agreement. However, although only $25,000 is paid by
CAE in this example, CAE's payment obligation of
$50,000 on account of the first quarter sales of 1999
Payment-Bearing Products will be considered fully
satisfied. Finally, although only $12,000 is paid by
CAE under Article 4, $24,000 will be credited towards
the $1.9 million cumulative cap on Article 4
payments, leaving $1,822,355.00 (after applying prior
period payments and credit against the cap).
This same method shall apply to all subsequent
quarters until the $200,000 deduction has been
satisfied, and at that time the remaining total
obligation of the Payment Bearing Transducers cap
under Article 4 will be established for further
calculation as originally set forth in the Technology
Assignment Agreement. (See attachment "B" for
numerical calculation of example assumed in section
2(d) above).
e. The Technology Assignment Agreement is further amended as follows:
(1) Exhibit D to the Technology Assignment Agreement, as referenced in
Section 6.1 thereof, is attached to this Agreement and incorporated by reference
in the Technology Assignment Agreement.
2) Section 8.1(a) of the Technology Assignment Agreement (at page 14) is
amended so that the word "Assignor" is changed to "Assignee" in the last line
thereof.
f. The provisions in this Section 2 shall be an
amendment to the Technology Assignment Agreement
pursuant to Section 10.5 of the Technology Assignment
Agreement and the signatures of Ney, CAE, Andersen,
the J.M. Ney Company, and CAE Blackstone, Inc. below
shall serve as written agreement by these parties to
the amendments to the Technology Assignment Agreement
set forth in this Section 2. Except as provided
above, all of the other terms and conditions of the
Technology Assignment Agreement shall remain in full
force and effect and shall not be modified hereby.
<PAGE>
3. For and in consideration of the mutual promises and covenants
contained in the foregoing paragraphs, the sufficiency of which is hereby
acknowledged, CAE for itself and its present and former owners, stockholders,
directors, officers, employees, subsidiaries, parent corporations, divisions,
affiliates, agents, representatives, assigns, predecessors, successors, insurers
and attorneys, do hereby fully and forever release, hold harmless and discharge
Ney and Andersen and their present and former owners, stockholders, directors,
officers, employees, subsidiaries, parent corporations, divisions, affiliates,
agents, representatives, assigns, predecessors, successors, insurers and
attorneys, from any and all claims, demands, causes of action, or suits, arising
out of or related to the claims made by CAE in the Lawsuits, or other sums of
money, grievances, expenses, demands, controversies of every kind and
description, whether liquidated or unliquidated, known or unknown, contingent or
otherwise, and whether specifically mentioned or not, that CAE now has or has
had or which may exist or might be claimed to exist at or prior to the date of
this Agreement relating to the purchase price adjustment provisions of the Asset
Purchase Agreement contained in ss.ss. 2.10 and 2.11 of the Asset Purchase
Agreement.
4. For and in consideration of the mutual promises and covenants
contained in the foregoing paragraphs, the sufficiency of which is hereby
acknowledged, Ney and Andersen for themselves and their present and former
owners, stockholders, directors, officers, employees, subsidiaries, parent
corporations, divisions, affiliates, agents, representatives, assigns,
predecessors, successors, insurers and attorneys, do hereby fully and forever
release, hold harmless and discharge CAE and its present and former owners,
stockholders, directors, officers, employees, subsidiaries, parent corporations,
divisions, affiliates, agents, representatives, assigns, predecessors,
successors, insurers and attorneys, from any and all claims, demands, causes of
action, or suits, arising out of or related to the claims made by Ney and
Andersen in the Lawsuits, or other sums of money, grievances, expenses, demands,
controversies of every kind and description, whether liquidated or unliquidated,
known or unknown, contingent or otherwise, and whether specifically mentioned or
not, that Ney and Andersen now have or have had or which may exist or might be
claimed to exist at or prior to the date of this Agreement relating to the
purchase price adjustment provisions of the Asset Purchase Agreement contained
in ss.ss. 2.10 and 2.11 of the Asset Purchase Agreement.
<PAGE>
5. CAE, Ney and Andersen further stipulate and agree that the terms,
amount, and the fact of this Agreement are to be kept confidential, and will not
hereafter disclose any information concerning this Agreement to any persons,
firm, coalition, governmental agency or other entity without the prior written
consent of each and every party, except as may become necessary to file income
tax returns, satisfy specific reporting obligations under applicable securities
laws, keep related financial records, consult with legal counsel or to comply
with any court order, subpoena, or at the direction of a court, administrative
agency, or legislative body. If otherwise asked about, or commenting on the
matter, the parties will state that the Lawsuits were amicably settled or
resolved, and will state nothing further about the Lawsuits or this Agreement.
6. CAE and Ney agree that their counsel shall execute withdrawals of the
Lawsuits, with prejudice, all parties to bear their own costs and attorneys'
fees.
7. The undersigned parties hereby declare that they completely read, fully
understood, and voluntarily accepted the terms of this Agreement for the purpose
of making a full and final compromise, adjustment, and settlement among
themselves of any and all claims or disputes arising from the Lawsuits and as
otherwise described in paragraphs 3 and 4 above.
8. This Agreement includes the entire transaction between the parties
hereto and there are no representations, warranties, covenants or conditions
except as specified and referenced in this Agreement.
9. This Agreement shall be binding upon and enure to the benefit of the
parties, their successors and assigns.
10. This Agreement shall be governed by, construed, and interpreted in
accordance with the laws of the State of Connecticut. Any dispute relating to
this Agreement shall be brought in the state or federal courts sitting in the
State of Connecticut.
<PAGE>
CAE (U.S.) INC.
BY: -----------------------------
Title
NEY TECHNOLOGY, INC. f/k/a NEY ULTRASONICS, INC.
BY: -----------------------------
Title
ANDERSEN GROUP, INC.
BY: -----------------------------
Title
<PAGE>
The following parties' signatures constitute consent to the amendments
to the Technology Assignment Agreement set forth in paragraph 2 of the
Covenants.
THE J.M. NEY COMPANY
BY: ------------------------------
Title
CAE BLACKSTONE, INC.
BY: -----------------------------
Title
