<PAGE>
<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
ANDAL CORP.
(Name of Registrant as Specified In Its Charter)
--
(Name of Person(s) Filing Proxy Statement
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11
1) Title of each class of securities to which
transaction applies:
Common Stock, $20.00 Par Value
_______________________________________________________
2) Aggregate number of securities to which transaction
applies:
447,360
_______________________________________________________
<PAGE>
<PAGE>
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined):
_______________________________________________________
4) Proposed maximum aggregate value of transaction:
_______________________________________________________
5) Total fee paid:
_______________________________________________________
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided
by Exchange Act Rule 0-11(a)(2) and identify the filing
for which the offsetting fee was paid previously.
Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
_______________________________________________________
2) Form, Schedule or Registration Statement No.:
_______________________________________________________
3) Filing Party:
_______________________________________________________
4) Date Filed:
_______________________________________________________
<PAGE>
<PAGE>
ANDAL CORP.
A New York Corporation
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held on September 22, 1997
TO THE STOCKHOLDERS OF ANDAL CORP.
The Annual Meeting of the Stockholders of ANDAL CORP. (the "Company") will
be held in the Algonquin Room #4 at the Parsippany Hilton Hotel, One Hilton
Court, Parsippany, New Jersey, on Monday, September 22, 1997 at 10:00 a.m. for
the following purposes:
(1) To elect four (4) directors of the Company to serve until the next
succeeding Annual Meeting of Stockholders and until their successors
have been elected and have qualified.
(2) To approve the action by the Board of Directors of the Company in
voting all shares of stock of Multi-Arc Inc. held by the Company in
favor of the merger of Multi-Arc with a subsidiary of Bernex Inc.,
which constitutes in substance a sale of substantially all of the
assets of Andal Corp.
(3) To transact such other business as may properly come before the
meeting or any adjournments.
Only stockholders of record at the close of business on the 14th day of
August, 1997, are entitled to notice of and to vote at this meeting.
If the Merger is approved, shareholders will have appraisal rights in
accordance with New York law. Section 623 of the New York Business Corporation
Law is attached.
PLEASE COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING PROXY
IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED.
By order of the Board of Directors
Walter N. Kreil, Jr., Secretary
September 10, 1997<PAGE>
<PAGE> 1
ANDAL CORP.
Corporate Headquarters:
200 Roundhill Drive
Rockaway, New Jersey 07866
Telephone Number: (201) 625-3400
Facsimile Number: (201) 625-2244
PROXY STATEMENT
[Black Box]
SUMMARY OF PROXY STATEMENT
The following summary is intended only to highlight certain
information contained in this Proxy Statement. This summary is
not intended to be a complete statement of all material features
of the proposed Merger (as such term is defined below) and is
qualified in its entirety by reference to the more detailed
information contained elsewhere in this Proxy Statement.
Stockholders are urged to read this Proxy Statement in its
entirety.
Time, Date and Place of Annual Meeting
The annual meeting (the "Annual Meeting") of stockholders of
Andal Corp., a New York corporation ("Andal" or the "Company"),
will be held on Monday, September 22, 1997 at 10:00 a.m., local
time, in the Algonquin Room #4 at the Parsippany Hilton Hotel,
One Hilton Court, Parsippany, New Jersey.
Purpose of the Annual Meeting
At the Annual Meeting, holders of shares of common stock,
$20.00 par value (the "Common Stock"), of Andal will be asked to
consider and vote upon (i) the election of four directors to the
Board of Directors of the Company; and (ii) a proposal
recommended by a Special Negotiating Committee of the Board of
Directors of Andal (the "Special Committee") and by the Board of
Directors to approve an Agreement and Plan of Merger, dated as of
June 9, 1997 (the "Merger Agreement"), by and between Bernex
Inc., a Delaware corporation, M-A Acquisition Corp., a Delaware
corporation, Multi-Arc Inc., a Delaware corporation ("Multi-Arc"),
and the Company.
<PAGE>
<PAGE> 2
Record Date; Shares Entitled to Vote; Vote Required to Approve
the Merger Agreement
Only holders of record of shares of Common Stock at the
close of business on August 14, 1997 will be entitled to notice
of and to vote at the Annual Meeting or any adjournment or
adjournments or postponement or postponements thereof. As of
that date, there were 447,360 shares of Common Stock outstanding
and entitled to vote. Stockholders of record on August 14, 1997
are entitled to one vote per share on any matter that may
properly come before the Annual Meeting. Directors will be
elected by a plurality of votes cast. The affirmative vote of
the holders of two-thirds of the outstanding shares of the Common
Stock is required to approve the Merger Agreement.
Effect of the Merger
If the Merger Agreement is approved by the stockholders of
the Company and certain conditions are met or waived, M-A
Acquisition Corp., an indirect subsidiary of Saurer AG, will be
merged (the "Merger") with and into Multi-Arc, which will be the
surviving corporation in the Merger and will continue to be named
"Multi-Arc Inc.", but will be wholly owned by Bernex Inc., an
indirect Saurer AG subsidiary. As a result of the Merger, each
share of common stock of Multi-Arc outstanding at the time the
Merger is consummated (the "Effective Time") (other than shares
as to which appraisal rights are perfected) will be converted
into the right to receive (i) $292 per Multi-Arc share, portions
of which are to be distributed to several escrow accounts,
including (1) an Expense Escrow ($7.50 per Multi-Arc share); a
main Escrow Account ($29.20 per Multi-Arc share); and an Andal
Escrow Account ($12.50 per Multi-Arc share). The Company will
hold at closing approximately 84,000 shares of common stock of
Multi-Arc. In substance, this will amount to a sale of
substantially all of the assets of Andal for cash.
Andal expects to receive gross proceeds of approximately
$24,500,000 of which approximately $4,000,000 will be placed into
the Escrows. From the remainder, Andal will repay an
intercompany loan in the approximate amount of $1,300,000 and
make payments to officers and employees for severance and
termination of approximately $2,300,000. Thus, Andal will derive
net cash immediately from the transaction of approximately
$16,500,000, plus $1,000,000 from the exercise of Multi-Arc
employee stock options. Andal expects to receive from the
various escrows approximately $3,100,000 in the future. Andal
anticipates that the gain on this transaction will be
approximately $9,150,000 before the possible future receipt of
escrowed amounts.
Recommendation of Andal's Special Committee and
Board of Directors
After receiving the recommendation of the Special Committee
(consisting of Andrew J. Frankel and Alan N. Cohen), the Board of
Directors determined that the Merger Agreement was fair and in
the best interests of all the holders of Common Stock. No member
of the Special Committee is, or is expected to become, an
affiliate of, or has, or is expected to acquire, any equity
interest in the acquiring company or, after the Effective Time,
Multi-Arc. Each member of the Special Committee owns a
substantial number of shares of the Common Stock. The Special
<PAGE>
<PAGE> 3
Committee and the Board recommend that stockholders vote in favor
of approval of the Merger Agreement. The recommendations of the
Special Committee and the Board and their conclusions that the
Merger is fair to, and in the best interests of all Andal
stockholders are based upon their evaluation of the price offered
by Saurer AG.
Interests of Certain Persons in the Merger
In considering the Merger, stockholders should be aware that
Mr. Flood and Mr. Kreil, respectively the Chief Executive Officer
and Chief Financial Officer of Andal and both members of the
Board of Directors, have certain interests which might present
them with conflicts of interest in connection with the Merger.
These conflicts include the receipt of substantial amounts of
cash with respect to termination of employee stock options of
both Andal and Multi-Arc, $378,000 and $67,000 respectively,
termination and severance benefits, $1,120,000 and $465,000
respectively, ownership of 6% Convertible Subordinated Debentures
due 2004 issued by Multi-Arc (the "Multi-Arc Debentures") of
$270,000 and $50,000 respectively, ownership of Multi-Arc common
stock 1,316.25 shares and 243.75 shares, respectively, and
anticipated continuing employment relationships with Multi-Arc
after the closing of the Merger. The Multi-Arc Debentures are
convertible into one share of Multi-Arc common stock for each
$266.67 of principal amount. The total principal amount of
Multi-Arc Debentures outstanding is $1,510,000. After the
Merger, Mr. Flood and Mr. Kreil will become subordinate employees
in a much larger organization. Their base salary and other terms
of employment will be substantially identical (see "Employment
Agreements"); however, the structure of their incentive
compensation will change to be more dependent in the future upon
long term operating results.
Conditions to the Merger
The closing of the Merger is subject to a number of
conditions, including compliance with New Jersey's Industrial
Site Recovery Act, the consent of Multi-Arc's lender, the signing
of new employment agreements by Mr. Flood and Mr. Kreil with
Multi-Arc and the conversion of 90% of the Multi-Arc Debentures.
At present it appears that this latter condition will not be
satisfied at closing and the Company is negotiating with the
buyer for a waiver of this condition.
Appraisal Rights
Holders of Andal Common Stock who do not vote to approve the
Merger Agreement may dissent and elect to have the fair value of
their shares, based on all relevant factors and excluding any
element of value arising from the accomplishment or expectation
of the Merger, judicially appraised and paid to them in cash.
Such stockholders must deliver a written demand for such
appraisal to the Company prior to the taking of the vote on the
Merger Agreement and comply with the other requirements of
Section 623 of the New York Business Corporation Law, the full
text of which is attached to this Proxy Statement. Any deviation
from such requirements may result in a forfeiture of appraisal
rights.
<PAGE>
<PAGE> 4
Selected Historical and Pro Forma Consolidated Financial
Information
The following tables present summary consolidated financial
data for Andal for the five fiscal years ended September 30, 1996
and the nine months ended June 30, 1997 and 1996 and pro forma
consolidated information for the nine months ended June 30, 1997
and the year ended September 30, 1996 for Andal after giving
effect, among other things, to the Merger.
<TABLE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(Dollars in thousands except per share data)
Historical Financial Data:
Nine Months
Ended June 30, Fiscal Year Ended September 30,
(unaudited)
___________________ ____________________________________________________
1997 1996 1996 1995 1994 1993 1992
(Thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $26,240 $23,222 $31,615 $30,383 $27,077 $24,887 $20,834
Income (loss) from
operations 2,403 1,789 1,635 2,414 1,627 832 (1,048)
Income (loss) from
continuing operations 1,367 360 8,151(1) 879 (771) (433) (2,733)
Income (loss) from
discontinued operations 10 238 234 1,007 (350) (527) (2,067)
Net income (loss) 1,377 598 8,385 1,886 (1,121) (960) (4,800)
Income (loss) per share from
continuing operations 3.06 1.09 24.00 2.67 (2.34) (1.31) (8.29)
Net income (loss) per share 3.08 1.81 24.69 5.72 (3.40) (2.91) (14.55)
Average number of common
shares outstanding (000) 447 330 340 330 330 330 330
Total assets 31,021 $27,196 $23,625 $20,457 $23,475 $24,282
Long-term obligations (excluding
current maturities) 12,252 10,181 17,585 16,141 18,721 20,398
Shareholders' equity (deficit) 6,232 4,855 (5,098) (6,984) (5,863) (4,903)
Book value (deficit) per
share at year end 13.93 10.85 (15.46) (21.17) (17.77) (14.86)
________________________
(1) Includes a one-time gain of $6,000,000 upon the sale of real estate.
</TABLE>
<PAGE>
<PAGE> 5
Pro Forma Financial Data:
<TABLE>
Nine Months Fiscal Year Ended
Ended June 30, 1997(1)(2) September 30, 1996(1)
__________________________ _____________________
(Thousands of dollars, except per share amounts)
<S> <C> <C>
Operating revenues
Income (loss) from
continuing operations (231) 7,152(3)
Net income (loss) from continuing
operations per share (0.51) 21.06
Average number of common shares
outstanding (000) 447 340
Total assets 21,950
Long-term obligations
(excluding current maturities) 0
Deferred income 3,103
Shareholders' equity 15,382
Book value per
share at year end 34.38
__________________________
(1) The pro forma income data for the nine months ended June 30, 1997 and for the fiscal
year ended September 30, 1996 assume that the Merger and other transactions took place at
the beginning of each of such fiscal periods. See "Pro Forma Financial Information".
(2) The pro forma balance sheet data assumes the Merger took place on June 30, 1997.
(3) Includes a one-time gain of $6,000,000 upon the sale of real estate.
</TABLE>
<PAGE>
<PAGE> 6
GENERAL
This Proxy Statement is furnished to the stockholders of
Andal in connection with the solicitation of proxies by order of
the Board of Directors of the Company for the Annual Meeting of
Stockholders to be held on September 22, at 10:00 A.M., Eastern
Daylight Time, in the Algonquin Room #4 at the Parsippany Hilton
Hotel, One Hilton Court, Parsippany, New Jersey, for the purposes
set forth in the accompanying Notice of Annual Meeting of
Stockholders.
The approximate date on which this Proxy Statement and the
enclosed Proxy will be first sent or given to stockholders is
September 10, 1997.
The enclosed Proxy is being solicited on behalf of the Board
of Directors of the Company and all costs of solicitation will be
borne by the Company. Such costs include preparation, printing
and mailing of the Notice of Annual Meeting of stockholders, Form
of Proxy and Proxy Statement which are herein enclosed. The
solicitation will be conducted principally by mail, although
directors, officers and regular employees of the Company may
solicit proxies personally or by telephone or facsimile. Such
persons will not receive special compensation for such services.
Arrangements will be made with brokerage houses and other custo-
dians, nominees and fiduciaries for proxy material to be sent to
their principals, and the Company will reimburse such persons for
their reasonable expenses in so doing.
You are requested to mark, sign and complete the
accompanying Proxy and return it in the envelope provided.
Proxies in such form, if duly signed and received in time for the
voting, will be voted in accordance with the directions of each
stockholder. The proxy holders identified on the proxy have been
selected by the Board of Directors. The proxy holders shall have
the discretionary authority to vote for the election of Directors
and distribute such votes among the nominees standing for
election (except as otherwise instructed by a stockholder in the
accompanying Proxy), to vote to approve the Multi-Arc Vote (as
defined below), and on any other matters that may properly come
before the Annual Meeting of Stockholders.
If the enclosed Proxy is executed and returned, it may,
nevertheless, be revoked at any time before it has been exercised
upon written notice to the Secretary of the Company. The proxy
shall also be deemed revoked if a Stockholder is present at the
Meeting and elects to vote in person.
Each holder of the Company's Common Stock, at the close of
business on August 14, 1997 is entitled to one vote per share on
each matter that comes before the meeting. The election of
directors is by plurality of votes. The approval of the
Agreement and Plan of Merger requires a two-thirds vote of all
shareholders. With respect to any other matters to be voted
upon, a vote of a majority of the number of shares voting is
required for approval. Abstentions will be counted as votes
cast, but proxies submitted by brokers with a "not voted"
direction will not be counted as votes cast with respect to each
matter to be voted upon where such instruction is given.
At the close of business on August 14, 1997, there were
outstanding 447,360 shares of Common Stock, the only class of
equity stock outstanding.
<PAGE>
<PAGE> 7
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Information Concerning Directors and Nominees for Director
The stockholders are being asked to elect four directors,
who will comprise the entire Board of Directors of the Company,
to serve for the ensuing year and until their successors are duly
elected and qualified. The nominees are all current members of
the Board of Directors. In the event that any nominee for
director should become unavailable, which event the Board of
Directors does not anticipate, it is intended that votes will be
cast pursuant to the enclosed Proxy for such substitute nominee
as may be nominated by the Board of Directors, unless otherwise
indicated by the Stockholder on the Proxy.
The following information is furnished with respect to the
nominees for Directors of the Company:
Name Age Position(s) with the Company
____ ___ ____________________________
Peter D. Flood 53 Chairman of the Board of Directors,
Chief Executive Officer, and
President
Walter N. Kreil, Jr. 49 Senior Vice President, Secretary,
Chief Financial Officer, and Director
Andrew J. Frankel 64 Director
Alan N. Cohen 66 Director
Peter D. Flood has been Chairman of the Board, Chief
Executive Officer, and President of the Company since September
1996, a Director of the Company since December 1985, and the
Chief Executive Officer of Multi-Arc since March 1981.
Walter N. Kreil, Jr. was appointed a Director and elected
Senior Vice President and Chief Financial Officer of the Company
in September 1996. Mr. Kreil served as Vice President of the
Company from September 1987 through August 1996 and serves as
Vice President and Chief Financial Officer of Multi-Arc. Mr.
Kreil joined the Company as Assistant Vice President and
Controller in June 1984.
<PAGE>
<PAGE> 8
Andrew J. Frankel has been a Director of the Company since
1971 and served as Chairman of the Board of Directors and Chief
Executive Officer of the Company from 1971 through August 1996.
Alan N. Cohen has been a Director of the Company since
October 1979 and served as President of the Company from October
1981 through August 1996. Between January 1981 and October 1981,
Mr. Cohen served as Vice Chairman of the Board of the Company.
Mr. Cohen was a member of the Board of Directors of Integrated
Brands, Inc. from December 1985 until June 1993. From December
1986 until September 1993, Mr. Cohen was Vice Chairman of the
Board and Treasurer of Celtics, Inc., the general partner of
Boston Celtics Limited Partnership.
Mr. Flood and Mr. Kreil will resign as directors and
officers of Andal upon closing of the Merger. Thereafter, Mr.
Frankel and Mr. Cohen are authorized to, but need not, fill
vacancies on the Board.
<PAGE>
<PAGE> 9
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information as of August 14, 1997, with
respect to all shareholders known by Andal to be the beneficial owners of
more than 5% of its outstanding common stock, each director, and all
officers and directors as a group.
<TABLE>
Name & Address of Amount and Nature Percent of
Beneficial Owner of Beneficial Ownership Class
________________ _______________________ ____________
<S> <S> <C>
Frankhill Associates 124,437 shares (1)
909 Third Avenue
Ninth Floor
New York, NY 10022
Andrew J. Frankel 1,730 (1)
909 Third Avenue 124,437 (2)
Ninth Floor 2,019 (3)
New York, NY 10022 602 (4)
_________
128,788 shares 28.8%
Alan N. Cohen Family 47,500 shares
Company LLC
909 Third Avenue
Ninth Floor
New York, NY 10022
Alan N. Cohen 47,500 (10)
909 Third Avenue 27,712 (1)
Ninth Floor 4,250 (5)
New York, NY 10022 _________
79,462 shares 17.8%
Builtland Partners 63,294 shares (1)(6)
c/o Milstein Properties
1271 Avenue of the Americas
New York, NY 10020
Paul Milstein 99,337 shares (7)(8) 22.6%
c/o Milstein Properties
1271 Avenue of the Americas
New York, NY 10020
Peter D. Flood 11,664 shares (1)(11) 2.6%
Walter N. Kreil, Jr. 750 shares (9) *
All officers and directors
as a group (4 persons) 221,763 shares (1) 49.5%
___________________
(1) Direct record and beneficial ownership.
<PAGE>
<PAGE> 10
(2) As the managing general partner of, and a person designated to
exercise voting power and investment power on behalf of, Frankhill
Associates, the record holder of these shares.
(3) Held as co-trustee with his sister, with whom Mr. Frankel shares
voting power. Mr. Frankel and his children have an interest in one-half of
the principal and income of the trust.
(4) Held as co-trustee with his wife of trusts for Mr. Frankel's three
children.
(5) Includes 4,250 shares held by a not-for-profit corporation of which
Mr. Cohen is an officer and director. Mr. Cohen disclaims beneficial
ownership of such shares owned by the Corporation.
(6) Builtland Partners is a New York General Partnership comprised of
Seymour Milstein, Paul Milstein, and members of their respective families.
(7) Includes all the shares owned by Builtland Partners, as well as shares
wholly beneficially owned by Paul Milstein, directly and indirectly.
(8) Includes 4,485 shares owned by Milstein Family Foundation, Inc., a New
York not-for-profit corporation of which Mr. Milstein is president and a
director. Mr. Milstein disclaims any beneficial interest in such shares.
(9) These shares may be acquired upon exercise of options held.
(10) As manager of the Alan N. Cohen Family Company, LLC, the record
holder of these shares.
(11) Includes 250 shares held jointly with Mr. Flood's wife and 5,000
shares which may be acquired upon exercise of options held.
* Less than 1%.
</TABLE>
<PAGE>
<PAGE> 11
Information Concerning the Board of Directors
The Board has established a Compensation Committee, presently
consisting of Messrs. Frankel and Cohen, which administers the Company's
stock option plan and reviews employee compensation and benefits. The
Compensation Committee met once during the last fiscal year.
The Board does not have a separate audit or nominating committee.
Nominations are considered and made by the Board as a whole. The Board
will consider nominees for the Board of Directors recommended by
Stockholders. Stockholders desiring to make such recommendations should
write directly to the Board at the Company's executive offices at 200
Roundhill Drive, Rockaway, New Jersey 07866.
The Board established during the current fiscal year a Special
Negotiating Committee, consisting of Messrs. Frankel and Cohen, to
negotiate the terms of the Merger (See "The Multi-Arc Vote" below).
The Board of Directors met four times during the fiscal year ended
September 30, 1996. During that fiscal year, each of the incumbent
directors attended at least 75% of the aggregate of (1) the total number of
meetings of the Board of Directors held during the period for which he has
been a director and (2) the total number of meetings held by all Committees
of the Board on which he served during the period that he served.
There is no family relationship between any officers or directors nor
are there any understandings among any officers or directors and any other
person(s) pursuant to which any such officer or director was or is to be
selected as such.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE ELECTION
OF MESSRS. FLOOD, KREIL, FRANKEL AND COHEN.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
for the past three fiscal years of the Chief Executive Officer of the
Company and all other executive officers whose annual salary exceeded
$100,000 for the year ended September 30, 1996.
<PAGE> 12
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Compensation
Long All Other
Term Compensation
Other Annual Options/ ($)
Name and Salary Bonuses Compensation SARs (401K Plan
Principal Position Year ($) ($) (1) (#) Contributions
____________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Andrew J. Frankel 1996 157,000 0 42,739 0 0
Chief Executive Officer 1995 244,000 0 33,333 0 0
through August 1996 1994 144,000 0 27,858 0 0
Alan N. Cohen 1996 157,000 0 16,000 0 0
President through 1995 244,000 0 16,000 0 0
August 1996 1994 144,000 0 13,720 0 0
Peter D. Flood 1996 250,000 138,000 (2) 0 4,750
Chief Executive Officer 1995 250,000 151,000 (2) 2,500(3) 4,620
and President from 1994 250,000 85,000 (2) 0 4,620
September 1996 and
Chief Executive of
Multi-Arc
Walter N. Kreil, Jr. 1996 142,000 35,000 (2) 0 4,750
Senior Vice President 1995 135,200 50,000 (2) 500(3) 4,620
and Chief Financial 1994 132,600 24,000 (2) 0 4,620
Officer since September
1996 and Chief
Financial Officer of
Multi-Arc
_______________________
(1) Other Annual Compensation includes professional services which consisted of partial
reimbursement for income
tax preparation expense by accountants and supplemental life and medical insurance as follows:
Andrew J. Frankel Alan N. Cohen
_________________ _____________
Professional Supplemental Professional
Services Insurance Services
____________ ____________ ____________
1996 10,000 10,494 10,000
1995 10,000 5,194 10,000
1994 10,000 4,007 10,000
(2) Amounts were less than 10% of salary.
(3) Options to acquire common stock of Multi-Arc Inc. at $205.13 per share.
</TABLE>
<PAGE>
<PAGE> 13
No other bonuses, restricted stock awards, long term
incentive plan payouts, or other compensation was awarded or paid
to the named executives during the periods indicated.
Stock Options
No stock options or stock appreciation rights were granted
by the Company during the fiscal year ended September 30, 1996 to
the Chief Executive Officer of the Company and all other
executive officers whose annual salary exceeded $100,000 for the
fiscal year ended September 30, 1996.
The following table sets forth information with respect to
the exercise during fiscal 1996 and the value as of September 30,
1996 of unexercised stock options and stock appreciation rights
for the Chief Executive Officer and all other executive officers
whose annual salary exceeded $100,000 for the fiscal year ended
September 30, 1996.
<TABLE>
AGGREGATED OPTION/SAR EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR
END OPTION/SAR VALUES
Number of Value of Unexercised
Shares Unexercised In-the-Money
Acquired Options/SARs at Options/SARs at
on Value Fiscal Year End (#) Fiscal Year End ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
__________ ________ ________ ___________________ ____________________
<S> <C> <C> <C> <C>
Andrew J. Frankel 0 0 0/0 0/0
Alan N. Cohen 0 0 0/0 0/0
Peter D. Flood 0 0 0/5,000(1) 0/0
500/2,500(2) 0/0
Walter N. Kreil, Jr. 0 0 0/750(1) 0/0
100/500(2) 0/0
______________________
(1) Options on Andal Corp. common stock.
(2) Options on Multi-Arc Inc. common stock.
</TABLE>
Pension Plan
Messrs. Frankel and Cohen were members of a noncontributory
pension plan of the Company which was terminated effective
January 1, 1985. Upon the termination of the plan, the Company
purchased straight life annuity policies sufficient to pay each
of the individuals upon their retirement at normal retirement age
the benefits they had accrued under the plan up to January 1,
1985. The amounts payable annually at normal retirement of each
of these persons are as follows:<PAGE>
<PAGE> 14
Annual Benefit upon
Name Retirement
___________ ___________________
Andrew J. Frankel $61,402
Alan N. Cohen 36,988
Compensation of Directors
Directors who are not employed by Andal are entitled to fees
of $5,000 per annum plus $250 for each meeting of the Board they
attend and $250 for each meeting of a committee of the Board they
attend which is held on a day that the Board does not meet.
Directors are reimbursed for travel expenses incurred in
attending Board and Committee meetings.
Employment Agreements
Mr. Flood is employed by the Company as President and Chief
Executive Officer under an employment agreement effective as of
August 31, 1996 and expiring on September 20, 2001 under which he
is entitled to receive a base salary of $250,000 per year plus
incentive compensation equal to 5% of the annual pretax income of
Multi-Arc. The Agreement further provides for a signing bonus of
$250,000 which has been paid. In addition, pursuant to the
Agreement, Mr. Flood was awarded 7,500 shares of the Company's
common stock.
Mr. Kreil is employed by the Company as Senior Vice
President and Chief Financial Officer under an employment
agreement effective as of August 31, 1996 and expiring on
September 30, 2001 under which he is entitled to receive an
initial base salary of $149,350 per year plus participation in
the Multi-Arc Corporate Incentive Compensation Plan. The
Agreement further provides for a signing bonus of $50,000, which
has been paid. The Multi-Arc Corporate Management Incentive Plan
provides for a bonus pool to be divided proportionally, based on
normal compensation, among three of Multi-Arc's senior executives
(other than Mr. Flood). The pool is calculated at 1 1/2% of
earnings before interest and taxes up to $1.0 million, plus 2% of
such earnings between $1.0 and 2.0 million, plus 2 1/2% of such
earnings over $2.0 million. In 1996 Mr. Kreil received a bonus
of $35,000 in accordance with the Plan.
Additional Information with Respect to Compensation Committee
Interlocks and Insider Participation in Compensation Decisions
The Company's Compensation Committee is comprised of Messrs.
Frankel and Cohen. See "Security Ownership of Certain Beneficial
Owners and Management" and "Certain Relationships and Related
Transactions" for information with respect to transactions
between these individuals and the Company and the percentage
ownership of the Company by them.
<PAGE>
<PAGE> 15
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
_____________________________________________________________
Messrs. Frankel and Cohen comprise the Compensation
Committee. They have submitted the following report:
Messrs. Frankel and Cohen were also, respectively,
the Chief Executive Officer and President of the
Company until August 31, 1996. They were compensated
for 11 months at $157,000, significantly less than in
the prior year. Such salaries were not, they believe,
reflective of their true worth to the Company, but were
the most the Company could afford to pay them in its
strained financial circumstances. There was not
intended to be any relationship between their
compensation and their performance as both are major
shareholders of the Company who already had incentive
to advance the best interests of the shareholders.
Pursuant to an employment agreement, the salary of
Mr. Flood, the Chief Executive Officer of Multi-Arc,
was not changed in 1996. The salary of Mr. Kreil, vice
President and Chief Financial Officer of Multi-Arc, was
increased 2% for 1996. In view of the limited
resources of the Company, substantial increases which
might have been warranted could not be considered.
A bonus of $150,000 was awarded to Mr. Flood
pursuant to his employment agreement. A bonus of
$35,000 was awarded to Mr. Kreil in accordance with
Multi-Arc's Corporate Management Incentive Plan which
provides for a bonus pool to be divided proportionally
based on normal compensation, among three of Multi-Arc's
senior executives (other than Mr. Flood). The
pool is calculated at 1 1/2% of earnings before
interest and taxes up to $1 million, plus 2% of such
earnings between $1 to $2 million, plus 2 1/2% of such
earnings of $2 million.
Upon effect of the retirement of Messrs. Frankel
and Cohen on August 31, 1997, the Compensation
Committee approved the employment of Peter D. Flood as
Chairman of the Board, Chief Executive Officer, and
President of Andal and Walter N. Kreil, Jr. as Senior
Vice President and Chief Financial Officer, in
accordance with their respective Employment Agreements
effective August 31, 1996. See "Employment Agreements"
for a description of the Employment Agreements entered
into with Messrs. Flood and Kreil.
The base compensation levels in these Agreements
are the same as these officers were receiving as
President and Senior Vice President of the Company's
Multi-Arc subsidiary. Under the employment agreements,
each has been granted substantial stock options to
better align their interests to the long-run interests
of
<PAGE>
<PAGE> 16
the Company as a whole. They also participate in
bonus plans which more directly relate their
compensation to immediate performance.
This level of compensation and mix of base
compensation with long and short-term incentives was
determined both with a view to what these executives
have been paid in the past and published reports
concerning executive compensation of businesses of this
size.
Respectfully submitted,
ANDREW J. FRANKEL
ALAN N. COHEN
<PAGE>
<PAGE> 17
PERFORMANCE GRAPH
The following line graph compares the cumulative total
return of the Company's common stock to the American Stock
Exchange Market Value and Industrial Service Company Indices for
the period October 1, 1991 to September 30, 1996.
[Three-line graph with the following data points:
CUMULATIVE TOTAL RETURN
Andal Shares vs. Amex Indices
Measurement Period Andal Invested AMEX MV Invested AMEX Ind. Invested
9/30/91 $100.00 $100.00 $100.00
9/30/92 5.68 124.89 96.72
9/30/93 0.00 152.63 138.39
9/30/94 1.82 152.11 127.39
9/30/95 2.05 180.59 156.55
9/30/96 0.00 189.49 141.34]
Assumes $100 invested on September 30, 1991 in Andal Corp.
Common Stock, the Amex Market Value Index and the Amex Industrial
Service Company Index.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Purchase and Sale of the UBC Property
For many years, the Company, directly or through a wholly-owned subsidiary,
UBC Virginia Corp. ("UBC Corp.") had owned an
option (the "Option") to purchase a parcel of real estate (the
"Property") located on 61st Street and First Avenue in New York
City. The original cost of the Option was $1.5 million. The
Company contracted to sell this Option and received $3.0 million
on this contract. Thereafter the Option had been carried on the
books of the Company at nil value for many years. UBC Corp. was
merged into the Company in March 1996, after which time the
Option became directly owned by the Company.
In 1990, the Option was pledged as security for a $5 million
loan, hereafter referred to as the "Option Loan," made to the
Company by Alan N. Cohen, who was then President and a Director
of the Company, Paul Milstein, who was then a Director of the
Company, and Frankhill Associates, a limited partnership of which
Andrew J. Frankel, who was then Chairman of the Board and a
Director of the Company, is a general partner (collectively, in
such capacity, the
<PAGE>
<PAGE> 18
"Option Lenders"). In the opinion of management, the terms of
this transaction were no less favorable to the Company than the
terms that could have been obtained from unaffiliated parties.
The year 1990 was a period of substantial financial distress for
the Company and no unaffiliated lender would have provided
financing. The proceeds of this loan were used to repay demand
bank indebtedness.
The Option granted the Company the right to purchase the
Property for approximately $3 million in cash and was exercisable
only after the death of the later to die of two of the principals
of the corporation that granted the Option. The second such
death occurred in early 1995.
Until January 1995, the Company had been under contract to
sell the Option to an unrelated real estate developer, who had
contracted to purchase the Option in 1984. The developer was
unable to obtain financing to consummate the purchase; and, as a
result, the Company terminated the contract. Upon termination of
the contract, the Company attempted to sell the Option to various
other parties. In addition, after the Company received notice
that the 90-day period for exercise of the Option had commenced,
the Company made contact with several brokers who were not able
to identify a buyer. The Company's attempts to sell the Option
did not result in any bona fide offer from a third party to
purchase the Option.
The Company's failure to exercise the Option and pay the
purchase price for the Property would have resulted in an event
of default under the Option Loan, which would have given the
Option Lenders the right to exercise the Option on the Company's
behalf and to declare the Option Loan immediately due and
payable, including all sums advanced by the Option Lenders in
exercising the Option. In addition, the Option Lenders would
have had all of the remedies available to them under applicable
law as secured lenders, including, without limitation, the public
or private sale of the Property acquired by exercise of the
Option.
The Company did not have the cash required to exercise the
Option, and it could not raise it through borrowing from
unrelated parties or through the sale of assets other than the
Option. However, under the terms of the Option Loan, the Company
was obligated to exercise the Option. Accordingly, the Option
was exercised in October 1995, and the Company purchased the
property on May 8, 1996. In order to make the purchase, on May
7, 1996, the Company borrowed $3.3 million (the "Demand Loan")
from the Option Lenders evidenced by a demand note and secured by
a mortgage on the Property. The Demand Loan bore interest at 10%
per annum. In the opinion of management, the terms of the Demand
Loan were no less favorable to the Company than terms that could
have been obtained from unaffiliated parties as the Demand Loan
exceeded the purchase price for the property and the interest
rate was commercially reasonable.
Once it was learned that the Option had become exercisable,
the Option Lenders expressed an interest in acquiring the
Property in satisfaction of the amount outstanding on the Option
Loan. In that event, the Company would no longer have been
obligated with respect to the $3 million purchase price
obligation due on the Option exercise or the $5.6 million due on
the Option Loan.
<PAGE>
<PAGE> 19
The Board of Directors of the Company met on October 5, 1995
to discuss the difficulties entailed in the Company's exercise of
the Option, including the Company's lack of cash flow, diminished
borrowing power, debt structure, and difficulties in raising
funds through a private placement of Multi-Arc's common stock and
subordinated debentures. In particular, the Company would have
been required to not only pay the Option Price ($3.0 million) but
also repay the Option Loan ($5.6 million). And at this time,
Multi-Arc was being separately financed and was unable to assist
in any financing. After discussion, an ad hoc special committee
of the Board of Directors, whose members who were not Option
Lenders (Messrs. Flood and Glickman), authorized the officers of
the Company to engage an independent appraiser to conduct an
appraisal of the Property, following which such Board members
would seek to negotiate a transaction with the Option Lenders
taking into account, in addition to the appraisal, all material
circumstances relating to the Property, including, without
limitation, the inability of the Company to raise sufficient
funds required to exercise the Option, the time constraints
within which the Company must exercise the Option, and the
consequent probability that, without a sale to a related party,
the Option would expire worthless.
On November 21, 1995, the Company received a report from the
independent appraiser it had retained which concluded that the
range for the market value of the Property was between $9.9
million and $11.9 million (before deducting the $3 million that
would have to be paid to exercise the Option), depending on the
ultimate cost of complying with zoning restrictions and other
costs that would be incurred in the development of the Property.
The appraiser's conclusion was based on a number of assumptions,
including the assumption that a sale would occur after a
reasonable exposure in a competitive market under all conditions
requisite for a fair sale, with the buyer and seller acting
prudently, knowledgeably, for self-interest, and not under undue
duress.
On March 4, 1996, at a special meeting of the Board of
Directors of the Company, appropriate officers of the Company
were authorized and empowered to engage in negotiations with the
Option Lenders to reach a definite agreement to sell the Option
to them under terms and conditions that were outlined by the
Board. Although the parties were unable to reach a definitive
agreement prior to May 8, 1996, the Company continued to
negotiate with affiliates of the Option Lenders for the sale of
the Property to them; and, on July 10, 1996, the Company entered
into a contract to sell the Property to FAM, LLC ("FAM"), a
Delaware limited liability company owned by Frankhill Associates,
the Alan N. Cohen Family Company, LLC, a Delaware limited
liability company, of which Alan N. Cohen is manager, and
Builtland Associates, a New York general partnership, of which
Paul Milstein is a general partner. Builtland Associates is the
managing director of FAM and, as such, controls its activities.
On August 1, 1996, FAM purchased the Property for $9.1
million, paid for as follows:
a) Cancellation of the principal balance of the
Option Loan in the amount of $5,571,285 (after
adjustment for a restructuring which occurred in
1992) due to Frankhill Associates, the Alan N.
Cohen Family Company, LLC, and Paul Milstein, and
at closing held by FAM.
<PAGE>
<PAGE> 20
b) Cancellation of the Demand Loan of $3.3 million
due Frankhill Associates, the Alan N. Cohen
Family Company, LLC, and Paul Milstein, and at
closing held by FAM.
c) Cash payment to the Company of $228,715.
In addition to the consideration outlined above, the Company
was not required to pay unpaid interest of $283,000 on the Option
Loan and Demand Loan. Also, the Company would have been entitled
to additional consideration if, within one year from the date of
sale to FAM, all or any portion of the Property had been further
transferred to a bona fide third party or if FAM entered into an
agreement to transfer all or any portion of the Property to a
bona fide third party and such transfer ultimately occurs. In
either of such events, the Company would have been entitled to
50% of the amount by which the "Net Proceeds" of the sale of all
or any portion of the Property exceeded $10 million. In no event
could such additional consideration have exceeded $3 million. No
such resale event occurred during this one-year period.
The Company reported a gain of approximately $6 million from
the sale.
Management Changes and Relocation of Executive Office
On August 31, 1996, the following management changes
occurred:
a) Andrew J. Frankel and Alan N. Cohen retired as
officers of the Company. They continue to serve
as members of the Board of Directors.
b) Peter D. Flood, the President of Multi-Arc Inc.,
was elected Chairman of the Board, Chief
Executive Officer, and President of Andal. (See
"Executive Compensation - Employment Agreements,"
for a description of the Employment Agreement
entered into with Mr. Flood.)
c) Walter N. Kreil, Jr., Vice President and Chief
Financial Officer of Multi-Arc Inc., was elected
Senior Vice President and Chief Financial Officer
of Andal and a member of the Board of Directors.
(See "Executive Compensation - Employment
Agreements," included elsewhere herein for a
description of the Employment Agreement entered
into with Mr. Kreil.)
On August 31, 1996, Messrs. Andrew J. Frankel, then Chairman
of the Board of Directors, and Alan N. Cohen, then President of
the Company, retired pursuant to an agreement which provides
that, in exchange for the issuance of 32,500 common shares of the
Company to each of them, they jointly agreed to reimburse Andal
for the lease obligation of Andal's former executive headquarters
office in New York City and certain other costs of operation of
that office, including the salary of Andal employees located
there. The Company agreed to maintain, at its own expense,
health and life insurance benefits on Andal's New York employees
and to continue to pay
<PAGE>
<PAGE> 21
the costs of letter of credit guarantees by Mr. Frankel and Mr.
Cohen until September 29, 1998, at which time Andal will use its
best efforts to replace the letters of credit with other
security. The Company recorded a charge of $441,000 in
connection with this Agreement. In September 1996, Andal's
executive office records were moved to Multi-Arc's facilities in
Rockaway, New Jersey, and that facility now serves as executive
headquarters of the Company.
Retirement of Fleet Indebtedness
On August 27, 1996, as a condition of a lender of Multi-Arc's
agreeing to increase its banking line, Andal Corp. retired
$1,404,000 of indebtedness owing to Frankhill Associates, Alan N.
Cohen, and Paul Milstein in exchange for 45,000 shares of the
Common Stock. Frankhill Associates and Messrs. Cohen and
Milstein had purchased the indebtedness from the Fleet Bank in
1994. During the year, the Company had repaid $543,000 of the
Fleet Debt in cash; and, at September 30, 1996, the balance of
$96,000 was still owing to Peter D. Flood.
As of September 30, 1996, Peter D. Flood owned $96,000
principal amount of the Fleet Indebtedness. Pursuant to the
employment agreement between the Company and Mr. Flood, the
Company has agreed to repay the indebtedness, plus interest at 8%
per annum, as soon as the cash flow of the Company, in the
reasonable discretion of the Board of Directors, permits. (See
"Executive Compensation - Employment Agreements," included
elsewhere herein for a description of the Employment Agreement
entered into with Mr. Flood.)
Sale of Multi-Arc Stock and Multi-Arc Debentures to Management
In December 1994, Andal sold, for $500,000, approximately
2-1/2% of the common stock of Multi-Arc to Multi-Arc's
management, and Multi-Arc issued $500,000 of convertible
subordinated debentures (convertible into 2% of Multi-Arc common
stock) to such management. Both the sale of the common stock and
the issuance of the debentures were funded through non-recourse
loans made to its management by Multi-Arc using Multi-Arc's
revolving credit facility with First Union National Bank. The
management loans included $500,000 and $100,000, respectively, to
Peter D. Flood and Walter N. Kreil, Jr. These loans bear
interest at 8.35% and are repayable on December 15, 2004, or upon
termination of employment. The loans are secured by common stock
and debentures of Multi-Arc. The Notes evidencing these loans
are pledged by Multi-Arc to First Union National Bank.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Based solely upon a review of Forms 3 and 4 furnished to the
Company pursuant to Rule 16a-3(e) and written statements from
directors and executive officers that no report on Form 5 is due,
no reporting person failed to file reports required under Section
16(a) of the Securities and Exchange Act of 1934 with respect to
the Company's securities.
<PAGE>
<PAGE> 22
PROPOSAL NO. 2
APPROVAL OF MULTI-ARC VOTE
General
The Company owns shares of the common stock of Multi-Arc
Inc., a Delaware corporation ("Multi-Arc"), constituting
approximately 82% (after the expected exercise of outstanding
options and conversion of Multi-Arc Debentures) of the
outstanding common stock of Multi-Arc (the "Multi-Arc Shares").
These shares constitute the principal asset of the Company.
The Company has by written consent voted the Multi-Arc
Shares in favor of the merger of Multi-Arc with a subsidiary of
Bernex Inc. ("Bernex") more fully described below (the "Merger")
contingent upon approval of the shareholders of Andal. In
substance, the transaction will constitute a sale of
substantially all of the assets of the Company.
The Merger
As of June 9, 1997, Andal entered into an Agreement and Plan
of Merger by and among Bernex Inc., M-A Acquisition Corp. (a
wholly-owned subsidiary of Bernex), Andal and Multi-Arc. The
Agreement and Plan of Merger provides that, subject to approval
of shareholders of Andal and to the satisfaction or waiver or
certain other conditions (described in more detail below), M-A
Acquisition Corp. shall merge with and into Multi-Arc. As a
result of the Merger, Multi-Arc shall continue its existence as
the surviving corporation under the name Multi-Arc Inc. and as a
wholly-owned subsidiary of Bernex Inc., a Delaware corporation.
At the Effective Time of the Merger (as defined below), each
outstanding share of Multi-Arc shall be converted into the right
to receive in cash an amount equal to the Merger Consideration
(as defined below).
Bernex is a wholly-owned United States subsidiary of Berna AG
Olten, which in turn is a wholly-owned Swiss subsidiary of Saurer
AG, a publicly held Swiss corporation. Saurer AG is a multi-national
conglomerate consisting of three core manufacturing
groups: the Saurer Textile Group, the Transmissions Systems
Division and the Surface Metallurgy Division. Bernex Inc. is a
member of the Surface Metallurgy Division which is also known in
the market as the Berna Group. The companies of the Berna Group
primarily manufacture bimetallic barrels and feed screws for
injection molding and extrusion machines and CVD coating
equipment under the brand names Bernex and Xaloy.
<PAGE>
<PAGE> 23
Effective Time of the Merger
As soon as practicable after the Merger Agreement is approved
and adopted by the requisite votes of the shareholders of Andal
and all other conditions to the Agreement and Plan of Merger have
been satisfied or waived, a certificate of Merger will be
executed by M-A Acquisition Corp. and Multi-Arc and filed with
the Secretary of State of Delaware in accordance with the law of
Delaware. The Merger will become effective as of the time of the
filing of such certificate of merger and such time and date are
referred to herein as the "Effective Time of the Merger."
Merger Consideration
At the Effective Time of the Merger, the holders of Multi-Arc
Common Stock will receive (i) a cash payment equal to $292 for
each share of Multi-Arc common stock less the amounts to be held
in escrow as described below (the "Escrows") and (ii) the right
to receive distributions from the Escrows upon termination of the
Escrows (the "Merger Consideration"). All shares and rights in
connection therewith, by virtue of the Merger and without any
action on the part of the holders hereof, shall no longer be
outstanding and shall be cancelled and retired and shall cease to
exist, and each holder of a certificate representing such shares
or rights shall thereafter cease to have any rights with respect
to such shares and rights, except the right to receive the Merger
Consideration. The Company expects to receive gross proceeds at
closing of approximately $24,500,000 from this transaction
together with $1,000,000 from the exercise of Multi-Arc employee
stock options.
Expense Escrow
Pursuant to the Agreement and Plan of Merger, Multi-Arc has
agreed that all of the expenses incurred by it or by Andal in
carrying forward this transaction would be paid out of the Merger
Consideration. Both Multi-Arc and Andal have, in fact, incurred
substantial legal and accounting expenses and will incur other
expenses in connection with the transaction, including the costs
of this solicitation. To date only limited amounts of these
expenses have been paid. To provide for payment of these
expenses, an escrow will be established at closing in the amount
of $750,000. All claims against this escrow amount must be filed
within 90 days of the date of Closing of the Merger. Any amounts
remaining in this escrow for which no claims have been made will
be disbursed to shareholders of Multi-Arc (including Andal) pro
rata as soon thereafter as practical. Any amounts paid from the
expense escrows will be deducted in calculating the net gain on
this transaction.
The Main Escrow
An Escrow in the amount of 10% of the Purchase Price, that
is to say $2,920,000 of which Andal's share is approximately
$2,400,000, will be established at the Closing to secure the
buyer
<PAGE>
<PAGE> 24
against breaches of representations and warranties and the
covenants made by Multi-Arc in connection with the Merger
Agreement. The escrow may also be a source for payment of
certain indemnifications for environmental and tax obligations.
The Agreement provides for the indemnification of
environmental, health and safety liabilities arising out of, or
relating to, the ownership, operation or condition at any time
prior to closing of the Company's facilities and liabilities
arising from any hazardous materials or contaminates were ever
present on the facilities or properties prior to Closing, as well
as any hazardous materials or other contaminates that were
generated, transported, stored, treated or released or otherwise
handled by the Company. The indemnification covers bodily
injury, property damage or other damage to any person arising or
allegedly arising from any hazardous activity that was allegedly
conducted with respect to the facilities of the Company prior to
the closing or any release of hazardous materials or contaminants
arising prior to the closing.
The Agreement provides for the indemnification of all taxes
payable by Multi-Arc or its subsidiaries arising from activities
prior to the closing and all interest and penalties arising from
such nonpayment. Tax indemnifications are to be reduced by any
tax benefits and do not include any taxes which may become
payable arising from the Buyer's determination to make a Section
338(h)(10) election.
Andal believes that the representations and warranties made
to the buyer are accurate. However, should they prove in some
form to be inaccurate, and such an inaccuracy causes damage to
the buyer, the buyer may have a claim over against the amounts
held in escrow. Andal believes that all covenants will be
complied with and that adequate reserves have been established
for environmental and tax indemnification. Nevertheless, should
the aggregate amounts of claims made by the buyer fail to exceed
$700,000, then the buyer shall have no claim against the Main
Escrow. The Troy Michigan Environmental Escrow Amount and the
Andal Tax Escrow Account are not subject to this $700,000 of
aggregate claim threshold (see below). Should the total amount of
claims exceed $700,000, then only any such amount over $700,000
may become payable from the Escrow. By its terms, the Escrow
terminates on March 31, 1999; however, it is possible that on
such date there will be unresolved claims. A longer period of
time may be required to fully resolve all disputes. That portion
of the Escrow about which there is no dispute will be disbursed
to shareholders of Multi-Arc (including Andal) as promptly as
possible after March 31, 1999. The Company expects that the
entire Main Escrow will become available to shareholders.
A second function of the Main Escrow is to provide for a
source for the payment of any Multi-Arc shareholders who exercise
their appraisal rights and obtain an award in excess of the
Merger Consideration. (These appraisal rights should be
distinguished from the appraisal rights of Andal shareholders as
described in this Proxy Statement.)
<PAGE>
<PAGE> 25
Troy Michigan Environmental Escrow Amount
During the course of the buyer's due diligence, certain
distressed vegetation was encountered along the property line of
the Company's Troy Michigan facility. Multi-Arc is presently
conducting an environmental survey to determine the cause of this
distressed vegetation. The likely cause is contamination coming
from an exhaust fan on the Company's premises. One of the gases
exhausted is Titanium Tetrachloride, a substance recently added
to a variety of lists of hazardous materials. An environmental
survey reported titanium tetrachloride contaminants in the
ground, but this survey now appears to be flawed and is being
redone. The Company believes that the total cost of
investigation and remediation of this problem will be less than
$50,000; however, it is conceivable that it could be
substantially more. The Company has determined that it is not
reasonably possible for this environmental contingency to be
material in future periods. Multi-Arc and Andal have agreed with
the buyer that if, as of the time of Closing, this problem has
not been completely remediated, an amount will be added to the
Expense Escrow equal to the cost of remediation as estimated by
the environment consultant for the buyer prior to closing. This
amount will be a source for the payment of any further
investigation and remediation expense as may prove necessary. If
that amount should prove to be insufficient, then the buyer will
be entitled to make a claim against the Main Escrow (without
consideration of the minimum $700,000 amount) for full
reimbursement. Should the Main Escrow prove insufficient, Andal
has agreed to add such amount as may prove necessary to cure this
insufficiency.
Regardless, the amount initially escrowed for this purpose,
the Company does not intend to re-solicit shareholder approval of
this transaction.
Andal Tax Escrow Amount
An escrow is established under the Merger Agreement in the
amount of $955,000 which is to be funded entirely from the
proceeds of sale payable to Andal. This is to indemnify the
buyer against certain tax obligations to a taxing authority which
have been assessed and which were contested by the Company and
not paid. Some portion of the collection obligation may now be
beyond the applicable statute of limitation. If prior to July
31, 2002 these tax claims have not been resolved entirely, Andal
has agreed to pay $300,000 to the buyer. Under certain
circumstances Andal is entitled to use monies escrowed in this
account for payment of certain taxes. The Company has
established reserves in its financial statements for this tax
obligation and the Company has determined that it is not
reasonably possible that the resolution of this contingency will
have a material adverse impact upon income in future periods.
The Interest of Affiliates in the Merger Consideration
All shareholders of Multi-Arc will receive the same
consideration per share. Mr. Cohen and Mr. Frankel's interest in
the merger consideration is entirely as major shareholders of
Andal
<PAGE>
<PAGE> 26
Corp. Mr. Flood presently holds 1,316.25 shares of Multi-Arc
common stock, holds $270,000 principal amount of Multi-Arc
Debentures which he will convert at closing into 1,012.5
additional shares of Multi-Arc common stock and holds options to
buy Incentive Stock Options to purchase 2,500 shares of Multi-Arc
common stock, which he will exercise at closing. Mr. Kreil holds
243.75 shares of Multi-Arc common stock and $50,000 principal
amount of the Multi-Arc Debentures which he will convert at
closing into 187.5 shares of Multi-Arc common stock. He also
holds options to purchase 500 shares of Multi-Arc common stock.
The Multi-Arc Debentures are convertible at $266.67 per share and
all of these stock options are exercisable at $205.13 per share.
Mr. Flood and Mr. Kreil hold options to purchase 5,000 and 750
shares of Andal Common Stock convertible at $2.25 per share. As
a result, Mr. Flood and Mr. Kreil will derive benefits from this
transaction not enjoyed by other Andal shareholders.
Tax Consequences
There will be no immediate tax consequences to Andal
shareholders arising from this transaction.
Andal will recognize a substantial gain as a result of this
transaction; however, tax loss carryforwards are expected to
substantially cover the amount of any gains so recognized. The
buyer has reserved the right to make a Section 338(h)(10)
Election which, in effect, permits the taxation of this
transaction as if it had been a sale of assets by Multi-Arc. In
such event, Andal may incur alternative minimum tax ("AMT") which
will become payable notwithstanding the tax loss carryforwards.
The buyer has agreed to indemnify and hold harmless Andal from
any taxes payable arising from the Section 338(h)(10) Election.
Any shareholder electing appraisal rights will, however, be
subject to federal income taxation on gain realized in connection
with the transaction.
In the event that the shares have been held for more than 18
months, the gain will be taxed at a maximum rate of 20%. Any
shares with a holding period of more than a year, but 18 months
or less, will be taxed at the 28% rate. Generally, shareholders
should be able to offset capital losses realized on the sale of
the shares against capital gains realized during the taxable
period. Deductibility of capital losses in excess of capital
gains may be subject to limitation.
The Registrant has not sought the opinion of counsel in
connection with this transaction to evaluate the tax consequences
to shareholders.
In the event that the Company subsequently were to liquidate
or its shareholders were to exchange their interest in the
Company in a going private transaction, the tax consequences to
shareholders would depend upon the tax laws in effect at that
time, and the nature of the transaction. If such transactions
took the form solely of a distribution of cash and the present
tax
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<PAGE> 27
laws were in effect, then the tax consequences to a shareholder
would be similar to the effect upon shareholders electing
appraisal rights (see above).
Regulatory Requirements and the Conditions of Closing
Prior to the closing, the Company was required to obtain a
No-Action Letter from the New Jersey Department of Environmental
Protection pursuant to the Industrial Site Recovery Act ("ISRA"),
which letter has been obtained. In addition, the parties to the
Agreement and Plan of Merger had to obtain clearance from the
United States Justice Department pursuant to the Hart-Scott-Rodino
Anti-Trust Improvements Act ("HSR"), which clearance has
been obtained. Mr. Flood and Mr. Kreil are required to execute
new Employment Agreements at closing and such agreements have
been negotiated and initialed. Certain landlord consents are
required as well as the consent of Multi-Arc's principal
financial lender. Also, the closing of the Merger is subject to
the condition that 90% of Multi-Arc's outstanding 6% Convertible
Subordinated Debentures due 2004 are converted and the remainder
redeemed. At present it does not appear that this conversion
condition will be met. The Company is negotiating with the buyer
for waiver of this condition. Approval of the Merger by Andal's
shareholders at the Annual Meeting and compliance with the proxy
rules of the Securities and Exchange Commission ("SEC") is also
required. Andal is currently unaware of any other federal or
state regulatory requirements, consents, or approvals required to
be obtained in order to consummate the Merger.
Effect of the Merger on Officers and Directors of the Company
At the conclusion of the Merger, Peter D. Flood and Walter N.
Kreil, Jr. shall continue as Chief Executive Officer and as Vice
President and Chief Financial Officer of Multi-Arc respectively.
Messrs. Flood and Kreil will resign as directors, officers or
employees of Andal, but Andal anticipates that Messrs. Flood and
Kreil may provide consulting services to Andal from time to time.
Mr. Flood will hold after the conversion of Multi-Arc Debentures
2,328.75 shares of Multi-Arc common stock and Mr. Kreil will hold
after the conversion of Multi-Arc Debentures 431.25 shares of
Multi-Arc common stock. In addition, each holds options
exercisable at $205.13 to buy respectively 2,500 and 500 shares
of Multi-Arc common stock. Mr. Flood and Mr. Kreil will receive
cash severance and termination benefits from Andal in the amounts
of $1,120,000 and $465,000 respectively. Mr. Flood and Mr. Kreil
hold options to purchase 5,000 and 750 shares of Andal Common
Stock convertible at $2.25 per share. As a result, Mr. Flood and
Mr. Kreil will derive benefits from this transaction not enjoyed
by other Andal shareholders.
Effect of the Merger on Andal
Upon the consummation of the Merger, Andal will receive gross
proceeds of approximately $24,500,000. Approximately $4,000,000
will be placed into the Escrows. In addition, Andal will
<PAGE>
<PAGE> 28
receive approximately $1,000,000 upon the exercise of employee
stock options. From the remainder, Andal will repay an
intercompany loan in the approximate amount of $1,300,000 and
make payments to officers and employees for severance and
termination of approximately $2,300,000. Thus, Andal will derive
net cash immediately from the transaction of approximately
$17,500,000. Andal expects to receive from the various escrows
approximately $3,100,000 in the future, assuming full receipt of
the Main Escrow, full exhaustion of the Expense Escrow and full
receipt less $300,000 of the Andal Tax Escrow. Andal anticipates
a gain on this transaction of approximately $9.1 million before
possible future receipt of escrowed amounts. The gain on the
transfer, reflecting transfer proceeds of $24.5 million, plus
proceeds of $1.0 million from the exercise of Multi-Arc stock
options, less related expenses of $2.4 million, escrows of $4.1
million less accumulation of Alternate Minimum Tax of $170,000
and recognition of deferred income of $540,000 and less the
Company's basis of $10.4 million.
Notwithstanding the fact that Mr. Flood and Mr. Kreil are
expected to continue as employees of Multi-Arc after this
transaction, their status will have substantially changed. They
will become subordinate employees in a much larger organization.
To provide an incentive to them and other officers of Multi-Arc
to complete this transaction, the Board of Directors has adopted
a severance plan. The total amount payable as severance to Mr.
Flood is $1,120,000. The total amount payable to Mr. Kreil is
$465,000, the total payable to all other officers of the Company
is $552,000.
Tax and securities laws make it impractical and
prohibitively expensive for Andal to hold such cash and continue
as a public company indefinitely. Andal has not determined what
action it will take after the Merger. Among the future actions
Andal may consider are: (i) investing in another business or
businesses; (ii) ceasing to be a company reporting under the
Securities Exchange Act of 1934, as amended though a partial
cash-out merger transaction (i.e., a "going private"
transaction"); or (iii) a liquidation of Andal. It is
anticipated that any such "going private" transaction would
require the dissemination of a disclosure document pursuant to
Rule 13d-4 and a liquidation would require the approval of
shareholders under the New York law. Andal has made no decisions
to date with respect to its future plans.
Recommendation by Special Negotiating Committee
The Merger was negotiated by a Special Negotiating Committee
consisting of Mr. Frankel and Mr. Cohen, two of the four
directors of the Company, who own collectively with their
associates approximately 46.5% of the Company's outstanding
shares. The Board of Directors took this step as it recognized
that Mr. Flood and Mr. Kreil would likely continue in the employ
of Multi-Arc after any sale. The Special Negotiating Committee
obtained special counsel to assist it in negotiating this
transaction on behalf of all shareholders. As this is a cash
transaction, the focus of the negotiations was on the price and
the various escrows to be established to protect the buyer. The
terms agreed to were substantially what had been initially
proposed by the buyer, but the Committee through negotiation
obtained a substantial threshold before claims can be made
<PAGE>
<PAGE> 29
upon the Main Escrow (except for claims concerning the Troy
Michigan Escrow Amount). The buyer conducted substantial due
diligence. Both the Troy Michigan and Andal Tax Escrow Amounts
are a result of this due diligence. The Special Negotiating
Committee reached a conclusion that this transaction is fair and
in the best interests of all shareholders because of the price
offered and the opportunity for greater liquidity for
shareholders which may exist in the future. No fairness opinion
was sought as the Committee members lead two groups of
shareholders of Andal who hold almost half of the Common Stock
and the cost of the opinion would reduce the net purchase of the
transaction. Based upon the recommendation of the Special
Committee, the entire Board of Directors has recommended this
transaction to shareholders for their approval.
Reasons for the Merger
Until recently Andal has had a negative book value. The
negative book value arose out of the Company's unsuccessful real
estate activities undertaken in the late 1970's. Andal did,
however, have two assets. The first, and most important, was the
business of Multi-Arc. This business was growing and expanding
and required additional capital. Andal was not in a financial
position to provide Multi-Arc with additional financial
resources. This led to shareholder approval in 1994 of the
transfer of the business of Multi-Arc to a then wholly-owned
subsidiary. This subsidiary, Multi-Arc Inc., was able to raise
equity capital and borrow upon its own financial resources and
prospects.
Andal's second major asset was an option to purchase real
estate, of uncertain value for many years, and uncertain as to
when it would become exercisable. This option was recently
exercised and the underlying real estate was sold. (See "Certain
Relationships and Related Transactions.") As a result of this
transaction, the Company was able to repay most of its own
indebtedness. Some time after this transaction had been
completed, Mr. Frankel and Mr. Cohen retired from their positions
as officers with Andal and turned day-to-day management over to
Mr. Flood and Mr. Kreil, the principal officers of Multi-Arc.
Since 1994, Multi-Arc's business has continued to grow and
prosper, but it also has continued to require additional capital.
Andal's Common Stock has not been trading and thus has not been a
source of capital. The Common Stock has also not been a source
of liquidity for shareholders. The Board of Directors has sought
means to find liquidity for shareholders.
The principal business of Multi-Arc is the application of
thin-film coatings to metal working tools of its customers using
physical vapor deposition techniques ("PVD") and, to a limited
extent, chemical vapor deposition technologies ("CVD"). Multi-Arc
also manufactures and sells a limited number of PVD coating
machines to third parties. Berna AG Olten's business includes
the manufacture and sale of bimetallic barrels and feed screws
and CVD coating equipment. Andal believes that Multi-Arc's
customers will be better served if the operations of <PAGE>
<PAGE> 30
the two companies are combined, and that Berna AG Olten is one of
only a handful of companies for which the acquisition of Multi-Arc Inc.
would create synergistic value.
Andal believes that the resulting value of this combination
has led Saurer AG to make an offer to buy Multi-Arc for cash
which the Board of Directors of Andal believes is very
attractive.
Effect of Failure to Approve the Multi-Arc Vote
Were the holders of Andal Common Stock to fail to approve the
Multi-Arc Vote by a two-thirds majority, Andal would not vote its
Multi-Arc Shares for approval of the Merger and the Merger would
not be consummated. However, three groups respectively led by
Mr. Frankel, Mr. Cohen and Mr. Milstein (see "Certain Beneficial
Owners") who collectively hold over 69% of the Common Stock, a
sufficient number of shares to approve this transaction. These
shareholders have already agreed to vote their shares for the
approval of this transaction.
Rights of Dissenting Shareholders
Section 910 of the NYBCL provides that shareholders who
comply with the requirements of Section 623 of the NYBCL are
entitled to certain dissenters' rights in connection with any
merger or share exchange, sale, exchange or other disposition of
all or substantially all of the assets of a New York corporation
and in connection with certain reclassifications and other
transactions which may adversely affect the rights or preferences
of shareholders. Because the Multi-Arc Shares constitute the
principal asset of Andal, these procedures are applicable to
holders of the Company's Common Stock in connection with the
Multi-Arc Vote.
The following is a summary of the statutory procedure to be
followed by a holder of Andal Common Stock in order to dissent
from the Multi-Arc Vote and enforce his right to receive payment
for his shares of Andal Common Stock (known as "appraisal
rights") if the Merger is approved and consummated. Section 623
in its entirety is appended as an exhibit.
Any Andal shareholder electing to exercise dissenters' rights
with respect to the Multi-Arc Vote must deliver to Andal before
the Annual Meeting, or at such Annual Meeting but before the vote
on the Multi-Arc Vote is taken, a written objection to the Multi-Arc
Vote which shall include (i) a notice of such shareholder's
election to dissent, (ii) such shareholder's name and residence
address, (iii) the number of shares as to which such shareholder
dissents, and (iv) a demand for payment of the fair value of such
shareholder's Andal Common Stock if the Merger is consummated.
This written objection must be in addition to and separate from
any proxy or vote against the Multi-Arc Vote. ANY SHAREHOLDER
WHO ELECTS TO EXERCISE DISSENTERS' RIGHTS MUST NOT VOTE IN FAVOR
OF THE MULTI-ARC VOTE. Because a proxy card left blank will,
unless revoked, be voted FOR the Multi-Arc Vote, in order to be
assured that such shareholder's Andal Common Stock is not voted
in favor of the Multi-Arc
<PAGE>
<PAGE> 31
Vote, a shareholder electing to exercise dissenters' rights who
votes by proxy must not leave the proxy card blank but must (i)
vote AGAINST the Multi-Arc Vote or (ii) ABSTAIN from voting for
or against the Multi-Arc Vote. Neither a vote against the Multi-Arc
Vote nor a proxy card directing such vote nor an abstention
will satisfy the additional requirement that a written objection
to the transaction be delivered to Andal before the vote upon the
Multi-Arc Vote.
Within ten days after date on which the shareholders' vote
authorizing such action is taken, Andal will give written notice
of such authorization by registered mail to each shareholder who
filed written objection, except any shareholder who voted for the
Multi-Arc Vote.
A shareholder may not dissent as to less than all of the
shares as to which the shareholder has a right to dissent. Only
a holder of record of Andal Common Stock is entitled to assert
appraisal rights for Andal Common Stock registered in that
holder's name. A nominee or fiduciary may not dissent on behalf
of any beneficial owner as to less than all of the shares of such
beneficial owner. If the shares are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian,
the fiduciary should execute the demand and should state his
fiduciary title by his signature. If the shares are owned of
record by two or more persons, the demand should be executed in a
manner consistent with the voting or non-voting of such shares.
An authorized agent, including one of two or more joint owners,
may execute the demand for appraisal for a holder of record;
however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, the
agent is acting as agent for the record owner. A record holder,
such as a broker, who holds Andal Common Stock as nominee for the
beneficial owner may exercise his appraisal rights with respect
to the shares held for one or more beneficial owners while not
exercising such rights for other beneficial owners. In such
case, the written demand should set forth the number of shares
covered by it. Where no number of shares is expressly mentioned,
the demand will be presumed to cover all shares outstanding in
the name of the record owner on the books of Andal.
Upon consummation of the Merger, each dissenting shareholder
shall cease to have any of the rights of a shareholder and will
not have any interest in Andal. Such shareholder would have the
right to be paid the fair value of the shares and any other
rights provided by Section 623 of the NYBCL. A notice of
election to dissent may be withdrawn by the shareholder at any
time prior to his written acceptance of an offer by Andal to pay
the shareholder a specified price which Andal considers to be the
fair value of Andal Common Stock owned by such shareholder. In
no case can the shareholder revoke his election to dissent later
than sixty days after the consummation of the Merger. If a
notice of election to dissent is withdrawn, or if a court shall
determine that the shareholder is not entitled to receive payment
for the shares, the shareholder shall be reinstated to all his
rights as a shareholder as of the consummation of the Merger.
At the time of filing the notice of election to dissent or
within one month thereafter, the dissenting shareholder
represented by certificates shall submit the certificates
representing his shares to Andal or to its transfer agent, which
shall forthwith note conspicuously thereon that a notice of
election to dissent has been filed and shall return the
certificates to the shareholder or
<PAGE>
<PAGE> 32
other person who submitted them on his behalf. Any dissenting
shareholder represented by certificates who fails to submit his
certificates for such notation as herein specified shall, at the
option of Andal exercised by written notice within forty-five
days from the date of filing of such notice of election to
dissent, lose the dissenters' rights unless a court, for good
cause shown, shall otherwise direct.
Upon transfer of a certificate bearing such notation, each
new certificate issued therefor shall bear a similar notation
together with the name of the original dissenting shareholder of
the shares and a transferee shall acquire no rights in Andal
except those which the original dissenting shareholder had at the
time of the transfer.
Within fifteen days after the expiration of the period within
which shareholders may file their notices of election to dissent,
or within fifteen days after the Merger is consummated, whichever
is later (but in no case later than ninety days from the meeting
date), Andal shall make a written offer by registered mail to
each shareholder who has filed such notice of election to pay for
his shares at a specified price which Andal considers to be their
fair value. Such offer shall be accompanied by a statement
setting forth the aggregate number of shares with respect to
which notices of election to dissent have been received and the
aggregate number of holders of such shares. If the Merger has
been consummated, such offer shall also be accompanied by (i)
advance payment to each such shareholder who has submitted his
share certificates to Andal, as provided above, of an amount
equal to eighty percent of the amount of such offer, or (ii) as
to each shareholder who has not yet submitted his share
certificates a statement that advance payment to him of an amount
equal to eighty percent of the amount of such offer will be made
by Andal promptly upon submission of his share certificates. If
the Merger has not yet been consummated at the time of making of
the offer, such advance payment or statement as to advance
payment shall be sent to each shareholder entitled thereto upon
consummation of the Merger. Every advance payment or statement
as to advance payment shall include advice to the shareholder to
the effect that acceptance of such payment does not constitute a
waiver of any dissenters' rights. If the Merger has not been
consummated upon the expiration of the ninety-day period after
the shareholders' meeting, the offer will be conditioned upon the
consummation of the Merger. Such offer will be made at the same
price per share to all dissenting shareholders. If within thirty
days after the making of such offer, Andal and any shareholder
agree upon the price to be paid for his shares, payment therefor
shall be made within sixty days after the making of such offer or
the consummation of the Merger, whichever is later, upon the
surrender of the share certificates.
If Andal fails to make such offer within such period of
fifteen days, or if it makes the offer and any dissenting
shareholder or shareholders fail to agree with it within the
period of thirty days thereafter upon the price to be paid for
such shares, Andal is required to and intends to, within twenty
days after the expiration of the latter of the two aforementioned
periods, institute a special proceeding in New York State Supreme
Court to determine the rights of dissenting shareholders who have
perfected their rights and to fix the fair value of their shares.
All such dissenting shareholders will receive notice of the
institution of this proceeding. If Andal fails to institute such
a proceeding within such period of twenty days, any dissenting
shareholder may institute such
<PAGE>
<PAGE> 33
a proceeding for the same purpose not later than thirty days
after the expiration of such twenty-day period. If such
proceeding is not instituted within such thirty-day period, all
dissenters' rights shall be lost unless the Court, for good cause
shown, shall otherwise direct. The Court shall fix the value of
the shares at fair value as of the close of business on the day
prior to the shareholders' approval of the Multi-Arc Vote. Such
fair value may exceed or be less than what Andal shareholders
would receive in the transaction. In fixing the fair value, the
Court shall consider the nature of the Merger and its effects on
Andal and its shareholders, the concepts and methods then
customary in the relevant securities and financial markets for
determining the fair value of shares of a corporation engaging in
a similar transaction under comparable circumstances and all
other relevant factors. The Court shall determine the fair value
of the shares without a jury and without referral to an appraiser
or referee. The final order in the proceeding shall be entered
against Andal in favor of each dissenting shareholder who is a
party to the proceeding and is entitled thereto for the value of
his shares so determined. Within sixty days after final
determination of the proceeding, Andal shall pay to each
dissenting shareholder the amount found to be due him, upon
surrender of the share certificates.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR APPROVAL OF THE MULTI-ARC VOTE.
<PAGE>
<PAGE> 34
INFORMATION CONCERNING THE COMPANY
BUSINESS
Andal Corp. (the "Company" or "Andal"), through its
Multi-Arc Inc. subsidiary ("Multi-Arc"), is engaged in surface
enhancement. This is the utilization of advanced technologies to
apply thin-film coatings of various metals, metal compounds, and
other materials to base materials to enhance their hardness, wear
and corrosion resistance, lubricity, and appearance. Multi-Arc
owns and operates nine coating centers in the United States, one
in Canada, and one in England, and has royalty or equity
interests in or to which it licenses technology through the ION
BOND Network, in 25 coating centers in Europe, Japan, India,
Korea, Taiwan, Singapore, and Argentina. These centers offer
coating services on a fee basis to manufacturers and end-users of
industrial tools, components, and other products. Multi-Arc also
engages in the design, manufacture, assembly, and sale of
proprietary coating equipment systems to manufacturers and large
volume end-users of tools, consumer products, and other products
that benefit from surface enhancement, as well as to its own
joint venture coating centers. See Note 20 of the Notes to
Consolidated Financial Statements included elsewhere in this
Proxy Statement for certain information regarding revenues,
operating profit and identifiable assets, and other information
about foreign operations of the Company for each of the three
years in the period ended September 30, 1996.
In October 1995, Multi-Arc (UK) Ltd., a wholly-owned
subsidiary of Multi-Arc, acquired a 33% interest in Multi-Arc
Eifeler Beschichtungs Gmbh ("Austria") in exchange for $49,000 in
cash and guarantees of certain of Austria's bank debt of
$360,000. In July 1996, Multi-Arc opened a wholly-owned coating
center in Columbus, Ohio. In October 1996, Multi-Arc (UK) Ltd.
acquired a 33% interest in Preci-Coat S. A., a Switzerland joint
venture, for $420,000 in cash and bank guarantees of $1.6
million.
SURFACE ENHANCEMENT
Surface enhancement is the exploitation of a variety of
technological processes to produce new or changed surface
properties of materials by the deposition of thin films only
microns thick (a micron is one millionth of a meter).
The electric arc technology utilized by Multi-Arc in its
Physical Vapor Deposition ("PVD") process (ION BOND) was
originally developed in the Soviet Union, and Multi-Arc acquired
a patent and know-how license from the U.S.S.R. in 1979.
Multi-Arc also employs a Chemical Vapor Deposition ("CVD")
process.
Multi-Arc first introduced the ION BOND process on a
commercial basis in the United States in 1981 and has continually
improved and enhanced the original technology. Initially, the
principal application of the ION BOND process was the coating of
metal cutting tools, such as
<PAGE>
<PAGE> 35
drills, used in metal- working industries to increase the useful
life and productivity of such tools. Subsequently, Multi-Arc has
been successful in developing additional commercial applications
for its processes, including the coating of metal forming tools,
such as dies, molds and punches, jewelry, carbide inserts,
plastic injection molds and screws, and medical instruments and
implants. Multi-Arc has also effected improvements in CVD
technology which it employs for the coating of steel and carbide
materials.
In 1995, Multi-Arc formed the TETRABOND division to
commercialize its amorphous diamond films for use in cutting
tools, computer hardware, medical instruments, and decorative and
industrial wear component applications.
Multi-Arc derives revenues from (i) the 11 coating centers
owned and operated by Multi-Arc located in the United States,
Canada, and England, and the 25 coating centers in which it has
varying royalty or equity interests or to which it licenses
technology located in Europe, Japan, India, Korea, Taiwan,
Singapore, and Argentina, all of which coating centers perform
coating services on a fee basis; (ii) the design, manufacture,
assembly, and sale of proprietary coating equipment systems to
coating centers and to manufacturers of, and large volume
end-users of, tools and other industrial products, such as
component parts requiring a high degree of wear resistance; (iii)
royalties paid by system purchasers for licenses to use the
coating technology which the systems employ; and (iv) research
and development contracts.
Sales and Marketing
Multi-Arc's coating systems and services are marketed
throughout the United States by its own sales personnel, through
independent sales representatives, through the use of direct
marketing catalogues, and the display of its products at trade
shows. Sales personnel at each of the coating centers are
involved in marketing the services performed at such centers.
Competition
There are several manufacturers in the United States,
Europe, and Japan which produce coating equipment utilizing a PVD
process, and Multi-Arc anticipates that additional PVD
technologies will be developed as the surface enhancement
industry develops. Moreover, there are numerous manufacturers of
CVD equipment which compete with the CVD systems manufactured by
Multi-Arc, as well as with its PVD systems in certain
applications. There are also several technologies other than the
PVD and CVD processes, some of which involve surface enhancement,
which are currently being used by numerous other firms to extend
the useful lives and productivity of metal-cutting tools and
other items.
Although there are several companies which operate coating
centers in the United States that utilize PVD or CVD technology,
only one is a significant national and international competitor
of the Company. The Company also competes with numerous coating
centers in the United States that employ technologies other than
PVD and CVD.
<PAGE>
<PAGE> 36
Multi-Arc competes in the manufacture of coating systems
primarily on the basis of quality and technical innovation, as
well as price. In the operating of coating centers, quality,
price, and service are the principal competitive factors.
Backlog
The approximate dollar amount of Multi-Arc's backlog of
coating systems, ancillary equipment, and coating services orders
at September 30, 1996 and 1995 was $896,000 and $390,000,
respectively. The Company believes that all of its backlog
orders at September 30, 1996 will be shipped within the Company's
current fiscal year.
Patents and Trademarks
Multi-Arc has been issued a number of patents. Although the
Company considers these patent rights to be significant, it
believes that Multi-Arc's competitive position and its continued
operations are more dependent on its technical knowledge, its
processes, and its research and development programs than on
patent protection. The Company intends to continue to apply for
patent protection with respect to new inventions in order to
protect its competitive position. Multi-Arc has registered
several trademarks, the principal ones being "Multi-Arc,"
"TETRABOND," and "ION BOND." Although these trademarks afford
Multi-Arc a degree of recognition in the industry and are
valuable assets, the Company does not regard them as material to
its overall business.
Research and Development
Multi-Arc is engaged in ongoing research and development in
connection with new and existing products. Research and
development expenditures have been expensed as incurred and
amounted to $1,426,000, $1,628,000, and $1,400,000 for fiscal
1996, 1995, and 1994, respectively. In addition, the Company has
research and development agreements with several licensees
pursuant to which each company makes known to the others the
results of research undertaken by it in the field of surface
enhancement.
Environmental Considerations
Compliance with federal, state, and local provisions which
have been enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to the
protection of the environment, is not expected to have a material
effect on the Company's capital expenditures, earnings, or
competitive position.
Employees
<PAGE>
<PAGE> 36
As of September 30, 1996, Multi-Arc employed approximately
360 persons, none of whom are covered by collective bargaining
agreements. Multi-Arc believes that its relationship with its
employees is good.
MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock was delisted from the American Stock
Exchange in October 1992. During the period from November 1992
until September 1995, the Common Stock was quoted on the NASD
Electronic Bulletin Board by a market maker. Subsequent to
September 1995, the Common Stock has not been quoted on the NASD
Bulletin Board or on any other established public market. During
the period that the Common Stock was quoted on the NASD Bulletin
Board, transactions in and quotations of the stock were limited
and sporadic and, in the Company's opinion, did not constitute an
established public trading market. There has been no listing of
or quotations for the Common Stock during the fiscal year ended
September 30, 1996 and through to the date of this Proxy
Statement. The following table sets forth the range of high and
low bid prices per share of the Common Stock as reported by the
NASD Bulletin Board during fiscal 1995. Such quotations reflect
inter-dealer prices without retail mark-up, mark-down, or
commission and may not necessarily represent actual prices.
BID PRICES
FISCAL 1995 High Low
First Quarter $2.50 $2.00
Second Quarter $2.25 $2.25
Third Quarter $2.25 $2.25
Fourth Quarter $2.25 $2.25
As of June 13, 1997, the number of registered holders of the
Company's Common Stock was 1,350.
The Company has never paid a cash dividend on its Common
Stock.
<PAGE>
<PAGE> 38
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
1996 vs. 1995
A summary of information relating to certain foreign
operations for the three fiscal years ended September 30, 1996 is
provided in Note 20. All note references in this discussion and
analysis are to the Notes to Consolidated Financial Statements
included elsewhere in this Proxy Statement.
Andal's consolidated operating revenues, entirely
attributable to Multi-Arc, for the year ended September 30, 1996
were $31.6 million compared with $30.4 million in 1995. The
increase was the result of higher coating services revenues of
approximately $2.7 million or 10%, but was partially offset by a
decrease in equipment sales of $1.6 million. Coating services
revenues benefitted particularly from an increase of $580,000, or
16%, in the United Kingdom, which reflected better economic
conditions and significantly improved market penetration. The
increase in coating service revenues in the United States was a
result of moderately better economic conditions. Equipment sales
revenues were down because of decreased demand. Royalty and
commission income increased $131,000 from the prior year, which
reflects higher commissions on equipment sales in Japan. Equity
in foreign joint ventures provided income of $104,000 in 1996
compared with $53,000 in 1995. The 1996 amount includes income
from Multi-Arc India Ltd. ("India") of $147,000, offset by a loss
from Multi-Arc's Singapore joint venture of $43,000.
Income from continuing operations was $8.2 million in 1996
compared with $879,000 in 1995. The principal reason for the
improvement was a $6.0 million gain on the sale of the 61st
Street property (see Note 2) and a tax benefit of $2.2 million
(see Note 17).
Operating profits of Multi-Arc increased $744,000 in 1996.
The improved operating income in the coating service business of
$1.1 million was due to gross profits from the higher revenue
offset in part by start-up costs of a new service center in
Columbus, Ohio. The lower operating profits from equipment sales
of approximately $492,000 was due to lower demand for equipment.
Operating profits were adversely affected by higher depreciation
expense of $193,000 from recent capital spending which was offset
by lower research and development costs of $202,000. Equity in
earnings of foreign joint ventures rose $51,000 over prior year.
Operating profit was favorably affected by $131,000 of higher
royalty and commission income.
Selling, general, and administrative expenses rose $1.6
million from the prior year. Approximately $1.0 million of the
increase related to both higher personnel and travel costs at
<PAGE>
<PAGE> 39
Multi-Arc due to continued expansion of its selling and marketing
efforts and international activities. Andal's general corporate
expenses increased $621,000 due primarily to retirement costs of
$441,000 (see Note 3) representing the estimated present value of
the future costs associated with the Retirement Agreement,
including health and life insurance and letter of credit fees and
accruals for management signing bonuses of $300,000, offset by
lower New York office expenses.
Investment income for 1996 includes recognition of $232,000
of deferred income on the collection of notes related to the sale
of a minority interest in Multi-Arc (see Note 4) and $42,000 of
interest income on said notes, offset by a writedown of $143,000
of the Company's investment in Integrated Brands Inc.
("Integrated") (see Note 7).
Interest expense for 1996 was $1.7 million compared with
$1.8 million in 1995. The decrease was a function primarily of
lower debt levels.
Operating revenues and operating income attributable to
foreign operations rose $831,000 and $438,000, respectively, over
1995, principally as a result of a continued substantial
improvement in operations in the United Kingdom.
For information concerning the provision for income taxes,
as well as information regarding differences between effective
tax rates and statutory rates, see Note 17 of the Notes to
Consolidated Financial Statements.
1995 vs. 1994
Andal's consolidated revenues, entirely attributable to
Multi-Arc, for the year ended September 30, 1995 were $30.4
million compared with $27.1 million in 1994. The increase was
the result of both higher coating services revenues of
approximately $1.9 million or 8% and higher revenues from
equipment sales of $1.4 million. Coating services revenues
benefitted particularly from an increase of $830,000 or 29% in
the United Kingdom which reflected better economic conditions and
significantly improved market penetration. Coating service
revenues in the United States rose as a result of moderately
better economic conditions. Equipment sales revenues were up
because of increased system deliveries with sales in the United
States, Taiwan, and India. Royalty and commission income
decreased $106,000 from the prior year which reflects the final
effects of Multi-Arc's restructuring of its European licensee
arrangements. Equity in foreign joint ventures provided income
of $53,000 in 1995 compared with a loss of $16,000 in 1994. The
1995 amount includes income from Multi-Arc India Ltd. ("India")
of $163,000 offset by a loss from Multi-Arc's Singapore joint
venture of $110,000. Earnings in India are up as a result of
increased demand for decorative products.
Income (loss) from continuing operations was $879,000 in
1995 compared with $(771,000) in 1994.
<PAGE>
<PAGE> 40
Operating profits of Multi-Arc increased $1.4 million in
1995 which is attributable to an increase in coating services
operating revenues which contributed $1.1 million in additional
operating profits, principally from Multi-Arc (UK) Ltd. The
improved operating income in the coating services business is the
direct result of higher volume, slightly improved margins, and
lower depreciation expense. Operating profits from equipment
sales rose approximately $570,000 due to higher sales and
consistent margins with the prior year. Equity in earnings of
foreign affiliates rose $69,000 over the prior year entirely due
to improved results in India. Operating profit was adversely
effected by the lower royalty and commission income and increased
spending of $228,000 on research and development.
Selling, general, and administrative expenses rose $767,000
from the prior year. Approximately $582,000 of the increase
related to higher personnel costs at Multi-Arc due to expansion
of its selling and marketing efforts. Multi-Arc's administrative
costs also increased $421,000 due to additional personnel, higher
volume, and higher incentive compensation expense related to
higher profitability. Andal's general corporate expenses
declined $436,000 as the result of lower rent, depreciation,
insurance, and legal costs, principally related to the prior
year's financial restructuring.
During 1995, the Company sold approximately 7.4% of its
interest in Multi-Arc to management, foreign licensees, and other
investors for cash and notes and recognized a gain of $348,000 on
the transaction (see Note 4). In addition to this gain, a gain
of $396,000 related to the portion of this sale to management has
been deferred as the sales were financed by non-recourse loans.
Another $452,0000 of gain has been deferred relating to sales
made to foreign investors with deferred payment arrangements.
The minority interest in net income of Multi-Arc resulted in a
first-time charge of $152,000 for 1995.
In November 1994, Multi-Arc India Ltd. completed an initial
public offering on the Bombay stock exchange which reduced
Multi-Arc's interest in Multi-Arc India Ltd. from 40% to 21%; and
the Company recorded a pretax gain of $85,000 on this transaction
(see Note 5). Investment and other income increased to $37,000
from a loss of $756,000 in 1994. The 1994 amount was adversely
impacted by the loss of $766,000 on the sale of a substantial
portion of the Company's interest in Integrated's stock (see Note
7).
Interest expense for 1995 was $1.8 million compared with
$1.6 million in 1994. The increase was a function primarily of
higher interest rates. Although debt levels have increased from
the prior year, such increase principally occurred in the fourth
quarter.
Operating revenues and operating income attributable to
foreign operations rose $1.0 million and $494,000, respectively,
over 1994 principally as a result of a substantial improvement in
operations in the United Kingdom.
<PAGE>
<PAGE> 41
For the Three and Nine Months Ended June 30, 1997
Consolidated operating revenues of $9.1 million and $26.2
million, respectively, for the three months and nine months ended
June 30, 1997 were $1.2 million and $3.0 million, or 15% and 13%
higher than the revenue for the comparable periods of the prior
year. Revenues from the Company's coating services business rose
$1.6 million, or 7% in the nine month period over the prior year,
due to continued penetration of the Company's served markets,
with particular strength in the industrial tool sector.
Equipment sales increased $1.4 million due to the delivery of
three coating systems in the current year, compared with one
small system in the prior year, and increased spare parts sales.
Income from continuing operations before income taxes was
$416,000 and $1.4 million, respectively, for the three months and
nine months ended June 30, 1997, compared with $203,000 and
$408,000 in the comparable periods of the prior year. Income from
operations for the nine months ended June 30, 1997 increased
$614,000 over the prior year, due to increased gross profits from
the higher revenues, offset in part by costs from having opened a
coating service center in Columbus, Ohio in July 1996. This
latter factor, together with relatively higher equipment sales in
the current year, account for lower gross margin percentages.
Depreciation expense increased from the prior year which reflects
the recent increased levels of capital spending. Selling,
general and administrative expenses have increased slightly from
the prior year, as the final effects of Multi-Arc's field sales
force and sales management augmentation were substantially offset
by savings from having ceased the Company's New York office
operations.
Interest expense for the three months and nine months ended
June 30, 1997 declined from the prior year which reflects
significantly lower debt levels as a result of the cancellations
of UBC Lender debt in connection with the Company's sale of a
parcel of real estate in New York City and the retirement of
Fleet Assignee debt in exchange for common stock in August 1996.
EFFECTS OF INFLATION
Inflation has a minimal effect on Andal's operations.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended September 30, 1996.
Cash decreased $298,000 during 1996 as cash provided by
operating activities of $2.4 million and financing activities of
$277,000 was offset by cash used in investing activities of $2.9
million. Operating cash flows resulted primarily from the
Company's income from continuing operations before income taxes
for the year ($5.9 million), net depreciation and amortization
($2.0 million), a write-down of the Company's investment in
Integrated Brands, Inc. ($143,000), and
<PAGE>
<PAGE> 42
the gain on the sale of the 61st Street Property ($6.0 million).
The cash flow from operations and the net cash flow from
financing activities which resulted primarily from the
refinancing of and additional borrowings under the Company's debt
agreements with First Union National Bank (see Note 12), were
used principally to fund the Company's continued capital
expenditure program and its investments in foreign joint
ventures. Such expenditures and investments were approximately
$3.6 million in 1996 and $3.2 million in 1995 and are expected to
continue at a comparable level in 1997.
The Company had a working capital deficit of $2.3 million at
September 30, 1996 as compared with a working capital deficit of
$1.0 million at September 30, 1995. The increase in the working
capital deficit is due principally to the reclassification of the
outstanding obligation of the 5 1/2% convertible debentures to
current liabilities, as the debentures mature in September 1997.
Pursuant to the loan agreement with First Union National
Bank, the amount of dividends and loans that may be made from
Multi-Arc to Andal in 1997 is restricted to $300,000. In
addition, the Company anticipates collections on notes receivable
of $300,000 and possible construction claims collections. Due to
the corporate restructuring associated with the Retirement
Agreement described in Note 3, the resulting reduction in costs
associated with maintenance of the Company's former New York
office, and the reduction in interest costs related to the
retirement of shareholder debt, the cash requirements of Andal
for 1997 are not expected to exceed $425,000.
At September 30, 1996, the Company had $4.0 million in
additional borrowing capacity under Multi-Arc's Revolving Credit
Facility. Based on eligible receivables and inventories at that
date, $2.1 million was available to fund working capital
requirements. Additionally, the Company had an unused line of
credit of $1.5 million which may be used for the purchase of new
or used equipment.
For the Three and Nine Months Ended June 30, 1997
Cash increased $126,000 during the nine months ended June
30, 1997 as cash provided by operating activities of $2.1 million
and cash provided by financing activities of $2.2 million were
offset by cash used by investing activities of $4.2 million.
Cash flow provided by operating activities of $2,105,000
compared with cash provided of $1,647,000 in the comparable
period for the prior year. The increase was principally due to
higher income from continuing operations offset in part by
increased receivables related directly to machine deliveries in
June 1997. Increased levels of accounts payable financed growth
in inventory which is also due to a higher level of activity in
the Equipment Division. The Company's operating results continue
to reflect a very high level of depreciation expense.
<PAGE>
<PAGE> 43
Cash provided by financing activities additional borrowings
of $2.0 million from Multi-Arc's revolving credit facility and
$1.2 million from an equipment line of credit, each with First
Union National Bank, principally to finance capital expenditures,
offset by scheduled repayments of $1.0 million of long term debt,
also to First Union.
Cash used by investing activities includes $3.9 million for
capital expenditures of the Multi-Arc business, principally for
capacity expansion. In addition, in October 1996, Multi-Arc (UK)
Ltd. acquired a 33% interest in Preci-Coat S.A., a joint venture
in Switzerland, for $399,000 in cash and bank guarantees of $1.6
million.
On July 31, 1997, Multi-Arc redeemed the 5 1/2% convertible
subordinated debentures due September 15, 1997. Funding for this
redemption was provided by a time loan received from First Union
National Bank. This time loan is repayable in full on the
earlier of October 30, 1997 or the date of the consummation of
the acquisition of Multi-Arc Inc. by Saurer AG. The time loan
bears interest at the prime rate plus 1/4 of 1%.
The Company believes that current financial resources,
including the available borrowing capacity under Multi-Arc's
various loan agreements, will be adequate to meet cash
requirements for capital spending and debt repayments in the near
term. Multi-Arc plans to continue to use its revolving credit
arrangement to finance interim working capital needs.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings per Share," which is required
to be adopted in the Company's first quarter in fiscal 1998. At
that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all
prior periods. The impact of Statement No. 128 on the
calculation of primary and fully diluted earnings per share is
not expected to be material.
<PAGE>
<PAGE> 44
FINANCIAL INFORMATION
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Andal Corp.
We have audited the accompanying consolidated balance sheets of
Andal Corp. and subsidiaries as of September 30, 1996 and 1995,
and the related consolidated statements of operations,
shareholders' equity (deficit) and cash flows or each of the
three years in the period ended September 30, 1996. Our audits
also included the financial statement schedule listed in the
Index at Item 14 (a) (2). These financial statements and schedule
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits. We did not audit the
financial statements of certain consolidated subsidiaries, which
statements reflect total revenues constituting 16% in 1994 of the
related consolidated totals. Those statements were audited by
other auditors whose reports have been furnished to us and our
opinion, insofar as it relates to the amounts included for such
subsidiaries, is based solely on the reports of other auditors.
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 and the reports of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the reports of other
auditors, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Andal Corp. and subsidiaries at September
30, 1996 and 1995, and the consolidated results of their
operations and their cash flows for each of the three years in
the period ended September 30, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
As described in Note 17, in 1994 the Company changed its method
of accounting for income taxes.
ERNST & YOUNG LLP
Ernst & Young LLP
New York, New York
January 29, 1997
<PAGE>
<PAGE> 45
Kelley Graham Myska & Partners
Chartered Accountants
Auditors' Report
TO THE SHAREHOLDER OF
S.C.I. COATINGS LIMITED
WE HAVE AUDITED THE FINANCIAL POSITION OF S.C.I. COATINGS
LIMITED AS AT SEPTEMBER 30, 1994 AND THE STATEMENTS OF
OPERATIONS, RETAINED EARNINGS AND CHANGES IN CASH POSITION FOR
THE YEAR THEN ENDED. THESE FINANCIAL STATEMENTS ARE THE
RESPONSIBILITY OF THE COMPANY'S MANAGEMENT. OUR RESPONSIBILITY
IS TO EXPRESS AN OPINION ON THESE FINANCIAL STATEMENTS BASED ON
OUR AUDIT.
WE CONDUCTED OUR AUDIT IN ACCORDANCE WITH GENERALLY ACCEPTED
AUDITING STANDARDS. THOSE STANDARDS REQUIRE THAT WE PLAN AND
PERFORM AN AUDIT TO OBTAIN REASONABLE ASSURANCE WHETHER THE
FINANCIAL STATEMENTS ARE FREE OF MATERIAL MISSTATEMENT. AN AUDIT
INCLUDES EXAMINING, ON A TEST BASIS, EVIDENCE SUPPORTING THE
AMOUNTS AND DISCLOSURES ASSESSING THE ACCOUNTING PRINCIPLES USED
AND SIGNIFICANT ESTIMATES MADE BY MANAGEMENT, AS WELL AS
EVALUATING THE OVERALL FINANCIAL STATEMENT PRESENTATION.
IN OUR OPINION, THESE FINANCIAL STATEMENTS PRESENT FAIRLY,
IN ALL MATERIAL RESPECTS, THE FINANCIAL POSITION OF THE COMPANY
AS AT SEPTEMBER 30, 1994 AND THE RESULTS OF ITS OPERATIONS AND
THE CHANGES IN ITS CASH POSITION FOR THE YEAR THEN ENDED IN
ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
KELLY GRAHAM MYSKA & PARTNERS
CAMBRIDGE, ONTARIO
OCTOBER 25, 1994 CHARTERED ACCOUNTANTS
<PAGE>
<PAGE> 46
KPMG Peat Marwick
Maybrook House
27 Grainger Street
Newcastle upon Tyne
NE1 5JT
Auditors' report to the members of Multi-Arc (UK) Limited
We have audited the financial statements on pages 6 to 23.
Respective responsibilities of directors and auditors
As described on page 3 the company's directors are responsible
for the preparation of financial statements. It is our
responsibility to form an independent opinion, based on our
audit, on those statements and to report our opinion to you.
Basis of opinion
We conducted our audit in accordance with Auditing Standards
issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts
and disclosures in the financial statements. It also includes an
assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and
of whether the accounting policies are appropriate to the
company's circumstances, consistently applied and adequately
disclosed.
We planned and performed our audit so as to obtain all the
information and explanations which we considered necessary in
order to provide us with sufficient evidence to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or other irregularity or
error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial
statements.
Opinion
In our opinion the financial statements give a true and fair view
of the state of the company's affairs as at 30 September 1994 and
of its profit for the year then ended and have been properly
prepared in accordance with the Companies Act 1985.
KPMG PEAT MARWICK
Chartered Accountants 14 December 1994
Registered Auditors
<PAGE>
<PAGE> 47
<TABLE>
ANDAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
September 30,
1996 1995
<S> <C> <C>
Current assets:
Cash $ 552,000 $ 850,000
Accounts receivable 5,252,000 4,998,000
Inventories 1,553,000 1,073,000
Prepaid expenses 341,000 307,000
Other current assets 516,000 906,000
------------- -------------
Total current assets 8,214,000 8,134,000
Investments in affiliates 1,621,000 1,661,000
Property and equipment 12,278,000 10,789,000
Loans due from Multi-Arc Inc. management 1,000,000 1,000,000
Deferred taxes 2,400,000 0
Other assets 1,683,000 2,041,000
------------- -------------
$ 27,196,000 $ 23,625,000
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short term borrowings, including
current portion of long term debt $ 1,338,000 $ 1,206,000
Current portion of convertible
debentures 1,825,000 0
Current portion of debt due
shareholders 96,000 1,250,000
Accounts payable 1,667,000 1,606,000
Other accrued expenses 5,619,000 5,106,000
------------- -------------
Total current liabilities 10,545,000 9,168,000
Long-term debt 8,671,000 7,886,000
Debt due shareholders 0 6,364,000
Other deferred income 925,000 1,430,000
Convertible subordinated debentures 1,510,000 3,335,000
Minority interest in Multi-Arc Inc. 690,000 540,000
Shareholders' equity (deficit):
Common shares, par value $20 per share,
1,500,000 authorized;
447,359 issued in 1996
and 370,496 issued in 1995 8,947,000 7,410,000
Paid-in-capital 25,995,000 31,625,000
Deficit (30,087,000) (38,472,000)
Less 40,637 common shares
held in treasury in 1995, at cost 0 (5,661,000)
------------- -------------
Total shareholders' equity
(deficit) 4,855,000 (5,098,000)
------------- -------------
$ 27,196,000 $ 23,625,000
See accompanying notes.
</TABLE>
<PAGE>
<PAGE> 48
<TABLE>
ANDAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended September 30,
1996 1995 1994
<S> <C> <C> <C>
Operating revenues: $31,065,000 $30,015,000 $26,672,000
Royalties and commissions 446,000 315,000 421,000
Equity in net income (loss) of
foreign joint ventures 104,000 53,000 (16,000)
------------ ------------ ------------
31,615,000 30,383,000 27,077,000
Operating costs and expenses:
Cost of revenues 15,740,000 15,545,000 13,466,000
Depreciation expense 2,099,000 1,907,000 2,234,000
Selling, general and
administrative expenses 12,141,000 10,517,000 9,750,000
------------ ------------ ------------
29,980,000 27,969,000 25,450,000
Income from operations 1,635,000 2,414,000 1,627,000
Other income (expense):
Gain on sale of 61st street
property 6,009,000 0 0
Gain on sale of minority interest
in Multi-Arc Inc. 0 348,000 0
Minority interest in net income
of Multi-Arc Inc. (151,000) (152,000) 0
Gain from initial public offering of
Multi-Arc India Ltd. 0 85,000 0
Investment and other income, net 150,000 37,000 (756,000)
Interest expense (1,734,000) (1,799,000) (1,625,000)
------------ ------------ ------------
4,274,000 (1,481,000) (2,381,000)
Income (loss) from continuing
operations before income taxes 5,909,000 933,000 (754,000)
Benefit (provision) for income taxes 2,242,000 (54,000) (17,000)
------------ ------------ ------------
Income (loss) from continuing
operations 8,151,000 879,000 (771,000)
Income (loss) from discontinued
operations 234,000 1,007,000 (350,000)
------------ ------------ ------------
Net income (loss) $ 8,385,000 $ 1,886,000 $(1,121,000)
Income (loss) per common share:
Income (loss) from continuing
operations $24.00 $2.67 $(2.34)
Income (loss) from discontinued
operations .69 3.05 (1.06)
------ ----- -------
Net income (loss) $24.69 $5.72 $(3.40)
See accompanying notes.
</TABLE>
<PAGE>
<PAGE> 49
<TABLE>
ANDAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Retained
Common Paid-in- Earnings Treasury
Stock Capital (Deficit) Stock Total
<S> <C> <C> <C> <C> <C>
Balance at
Sept. 30, 1993 $7,410,000 $31,625,000 $(39,237,000) $(5,661,000) $(5,863,000)
Net loss for
1994 0 0 (1,121,000) 0 (1,121,000)
Balance at
Sept. 30, 1994 7,410,000 31,625,000 (40,358,000) (5,661,000) (6,984,000)
Net income for
1995 0 0 1,886,000 0 1,886,000
Balance at
Sept. 30, 1995 7,410,000 31,625,000 (38,472,000) (5,661,000) (5,098,000)
Net income for
1996 0 0 8,385,000 0 8,385,000
Shares issued
pursuant to
retirement
agreement 1,300,000 (1,153,000) 0 0 147,000
Shares issued
pursuant to
retirement of debt 900,000 504,000 0 0 1,404,000
Shares issued
pursuant to
employment
agreement 150,000 (133,000) 0 0 17,000
Issuance of
Treasury Stock
in connection
with above
transactions (813,000) (4,848,000) 0 5,661,000 0
Balance at
Sept. 30, 1996 $8,947,000 $25,995,000 $(30,087,000) $0 $4,855,000
See accompanying notes.
</TABLE>
<PAGE>
<PAGE> 50
<TABLE>
ANDAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended September 30,
1996 1995 1994
<S> <C> <C> <C>
Cash provided (used) by operations:
Income (loss) from continuing
operations before income taxes $5,909,000 $ 933,000 $(754,000)
Adjustments to reconcile income
(loss) from continuing operations
to net cash provided by operations
Depreciation 2,099,000 1,907,000 2,234,000
Gain on sale of minority
interest in Multi-Arc Inc. 0 (348,000) 0
Minority interest in net
income of Multi-Arc Inc. 151,000 152,000 0
Amortization of patents,
trademarks, and license rights 224,000 192,000 186,000
Equity in net (income) loss
of foreign joint ventures (104,000) (53,000) 16,000
Write down of investment in
Integrated 143,000 0 0
Deferred income accrued 0 64,000 40,000
Amortization of deferred income (303,000) (149,000) (95,000)
Provision (credit) for bad debts (3,000) (16,000) 42,000
Gain on sale of 61st Street
property (6,009,000) 0 0
Losses on investment transactions 0 0 766,000
Gain from initial public offering of
Multi-Arc India Ltd. 0 (85,000) 0
Other, net 59,000 28,000 39,000
Change in operating assets and
liabilities:
Decrease (increase) in accounts
receivable 55,000 (954,000) 1,127,000
(Increase) decrease in inventories(542,000) 200,000 (459,000)
Decrease in other current assets 50,000 76,000 60,000
Increase in accounts payable
and accrued liabilities 546,000 369,000 634,000
Cash provided (used) by
discontinued operations 170,000 (168,000) (247,000)
Income taxes paid (78,000) (87,000) (34,000)
----------- ----------- -----------
Net cash provided by
operating activities 2,367,000 2,061,000 3,555,000
</TABLE>
<PAGE>
<PAGE> 51
<TABLE>
ANDAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
1996 1995 1994
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from long-term debt 8,000,000 3,870,000 6,162,000
Loans to Multi-Arc management 0 (1,000,000) 0
Proceeds from sale of common stock
and debentures of Multi-Arc Inc. 0 1,714,000 0
Deferred financing costs (97,000) (126,000) 0
Reductions of long-term debt (6,758,000) (3,024,000) (7,743,000)
Decrease in debt due within one year (868,000) (631,000) (398,000)
----------- ----------- -----------
Net cash provided (used) by
financing activities 277,000 803,000 (1,979,000)
Cash flows from investing activities:
Net proceeds from sale of
61st Street property 529,000 0 0
Reduction of (investment in)
affiliated companies 0 (211,000) 1,459,000
Gross additions to property
and equipment (3,649,000) (2,964,000) (1,999,000)
Other, net 178,000 18,000 (370,000)
----------- ----------- -----------
Net cash (used) by
investing activities (2,942,000) (3,157,000) (910,000)
(Decrease) increase in cash (298,000) (293,000) 666,000
Cash at beginning of year 850,000 1,143,000 477,000
----------- ----------- -----------
Cash at end of year $ 552,000 $ 850,000 $1,143,000
See accompanying notes.
</TABLE>
<PAGE>
<PAGE> 52
ANDAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Andal
Corp. and its subsidiaries. Andal's only operating business is Multi-Arc Inc.
("Multi-Arc") a majority-owned subsidiary engaged in the business of surface
enhancement. All significant intercompany transactions and accounts are
eliminated in consolidation. Foreign affiliates in which Multi-Arc owns 20%
to 50% are accounted for using the equity method.
Inventories
Inventories are stated at lower of cost (determined principally by the
first-in, first-out method) or market.
Property and Equipment
Property and equipment are recorded at cost and depreciated over
estimated useful lives on a straight-line basis.
Revenue and Deferred Income
Revenue is recognized when it is earned. In the case of Multi-Arc
system sales, the point for revenue recognition normally corresponds to the
date when the system is shipped to the customer. To the extent the Company
sells coating systems or license rights to its joint ventures, a proportionate
percentage of the profit on these is deferred and subsequently amortized into
revenue. Such amortization offsets the related depreciation or license rights
expense recorded by the corresponding joint venture company.
Stock Based Compensation
The Company accounts for its stock based compensation arrangements under
the provisions of APB 25, "Accounting for Stock Issued to Employees," and
intends to continue to do so.
Research and Development Expenses
Research and development expenditures ($1,426,000 in 1996, $1,628,000 in
1995, and $1,400,000 in 1994) are charged to cost of revenues as incurred.
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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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Income (Loss) per Share
Primary income (loss) per common share for all periods was computed
based on the average number of shares outstanding during each of the
respective periods. Fully diluted per share amounts are not shown for the
periods, as the effects would be anti-dilutive.
The average number of shares used in computing primary income (loss) per
share was 339,639 in 1996, and 329,859 in each of 1995 and 1994.
2. PURCHASE AND SALE OF THE UBC PROPERTY
Prior to May 8, 1996, the Company, directly or through a wholly-owned
subsidiary, UBC Virginia Corp. ("UBC Corp.) had owned an option (the "Option")
to purchase a parcel of real estate (the "Property") located on 61st Street
and First Avenue in New York City, which Option had been carried on the books
of the Company at nil value for many years. The original cost of the Option
was $1.5 million. UBC Corp. was merged into the Company in March 1996, after
which time the Option became directly owned by the Company.
In 1990, the Option was pledged as security for a $5 million loan,
hereafter referred to as the "Option Loan," made to the Company by Alan N.
Cohen, who was then President and a Director of the Company, Paul Milstein,
who was then a Director of the Company, and Frankhill Associates, a limited
partnership of which Andrew J. Frankel, who was then Chairman of the Board and
a Director of the Company, is a general partner (collectively, in such
capacity, the "Option Lenders").
The Option granted the Company the right to purchase the Property for
approximately $3 million in cash and was exercisable only after the death of
the later to die of two of the principals of the corporation that granted the
Option. Such death occurred in 1995. The Company did not have the cash
required to exercise the Option, and it could not raise it through borrowing
from unrelated parties or through the sale of assets other than the Option.
However, under the terms of the Option Loan, the Company was obligated to
exercise the Option. Accordingly, the Option was exercised in October 1995;
and the Company purchased the Property on May 8, 1996. In order to make the
purchase, on May 7, 1996, the Company borrowed $3.3 million (the "Demand
Loan")
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from the Option Lenders evidenced by a demand note and secured by a
mortgage on the Property. The Demand Loan bore interest at 10% per annum.
The Company's failure to exercise the Option and pay the purchase price
for the Property would have resulted in an event of default under the Option
Loan, which would have given the Option Lenders the right to exercise the
Option on the Company's behalf and to declare the Option Loan immediately due
and payable, including all sums advanced by the Option Lenders in exercising
the Option. In addition, the Option Lenders would have had all of the
remedies available to them under applicable law for secured lenders,
including, without limitation, the public or private sale of the Property
acquired by exercise of the Option.
Until January 1995, the Company had been under contract to sell the
Option to an unrelated real estate developer, who had contracted to purchase
the Option in 1984. The developer was unable to obtain financing to
consummate the purchase; and, as a result, the Company terminated the
contract. Upon termination of the contract, the Company attempted to sell the
Option to various other parties. In addition, after the Company received the
Option Notice from the Option or, the Company made contact with several brokers
who were not able to identify a buyer. The Company's attempts to sell the
Option did not result in any bona fide offer from a third party to purchase
the Option.
Once it was learned that the Option had become exercisable, the Option
Lenders expressed an interest in acquiring the Property in satisfaction of the
amount outstanding on the Option Loan. In that event, the Company would no
longer have been obligated with respect to the $3 million purchase price
obligation due on the Option exercise.
The Board of Directors of the Company met on October 5, 1995 to discuss
the difficulties entailed in the Company's exercise of the Option, including
the Company's lack of cash flow, diminished borrowing power, debt structure,
and difficulties in raising funds through a private placement of Multi-Arc's
common stock and subordinated debentures. After discussion, the Board members
who were not Option Lenders (Messrs. Flood and Glickman) authorized the
officers of the Company to engage an independent appraiser to conduct an
appraisal of the Property, following which such Board members would seek to
negotiate a transaction with the Option Lenders taking into account, in
addition to the appraisal, all material circumstances relating to the
Property, including, without limitation, the inability of the Company to raise
sufficient funds required to exercise the Option, the time constraints within
which the Company must exercise the Option, and the consequent probability
that, without a sale to a related party, the Option would expire worthless.
On November 21, 1995, the Company received a report from the independent
appraiser it had retained which concluded that the range for the market value
of the Property was between $9.9 million and $11.9 million (before deducting
the $3 million that would have to be paid to exercise the Option), depending
on the ultimate cost of complying
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with zoning restrictions and other costs that would be incurred in the
development of the Property. The appraiser's conclusion was based on a number
of assumptions, including the assumption that a sale would occur after a
reasonable exposure in a competitive market under all conditions requisite for
a fair sale, with the buyer and seller acting prudently, knowledgeably, for
self-interest, and not under undue duress.
On March 4, 1996, at a special meeting of the Board of Directors of the
Company, appropriate officers of the Company were authorized and empowered to
engage in negotiations with the Option Lenders to reach a definite agreement
to sell the Option to them under terms and conditions that were outlined by
the Board. Although the parties were unable to reach a definitive agreement
prior to May 8, 1996, the Company continued to negotiate with affiliates of
the Option Lenders for the sale of the Property to them; and, on July 10,
1996, the Company entered into a contract to sell the Property to FAM, LLC
("FAM"), a Delaware limited liability company owned by Frankhill Associates,
the Alan N. Cohen Family Company, LLC, a Delaware limited liability company,
of which Alan N. Cohen is manager, and Builtland Associates, a New York
general partnership, of which Paul Milstein is a general partner. Builtland
Associates is the managing director of FAM and, as such, controls its
activities.
On August 1, 1996, FAM purchased the Property for $9.1 million, paid for
as follows:
a) Cancellation of the principal balance of the Option Loan in
the amount of $5,571,285 (after adjustment for a
restructuring which occurred in 1992) due to Frankhill
Associates, the Alan N. Cohen Family Company, LLC, and Paul
Milstein, and at closing held by FAM.
b) Cancellation of the Demand Loan of $3.3 million due
Frankhill Associates, the Alan N. Cohen Family Company, LLC,
and Paul Milstein, and at closing held by FAM.
c) Cash payment to the Company of $228,715.
In addition to the consideration outlined above, the Company was not
required to pay unpaid interest of $283,000 on the Option Loan and Demand Loan
and will be entitled to additional consideration if, within one year from the
date of sale to FAM, all or any portion of the Property is further transferred
to a bona fide third party or if FAM enters into an agreement to transfer all
or any portion of the Property to a bona fide third party and such transfer
ultimately occurs. In either of such events, the Company will be entitled to
50% of the amount by which the "Net Proceeds" of the sale of all or any
portion of the Property exceeds $10 million. In no event can such additional
consideration exceed $3 million. "Net Proceeds" is defined to mean the gross
sales price attributable to the sale of all or any portion of the Property
plus the then fair market value of any of the Property
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retained by FAM in connection with a partial sale, less any and all transaction
costs, taxes, and all other expenses of FAM including, without limitation,
brokerage commissions, reasonable attorney's fees, and transfer taxes.
The Company reported a gain of approximately $6 million from the sale.
(See Note 13.)
3. RETIREMENT AGREEMENT
On August 31, 1996, Messrs. Andrew J. Frankel, then Chairman of the
Board of Directors, and Alan N. Cohen, then President of the Company, retired
pursuant to an agreement which provides that, in exchange for the issuance of
32,500 common shares of the Company to each of them, they agreed to reimburse
Andal for the lease obligation of Andal's former executive headquarters office
in New York City and certain other costs of operation of that office,
including the salary of Andal employees located there. The Company agreed to
maintain, at its own expense, health and life insurance benefits on Andal's
New York employees and to continue to pay the costs of letter of credit
guarantees by Mr. Frankel and Mr. Cohen until September 29, 1998, at which
time Andal will use its best efforts to replace the letters of credit with
other security. The Company recorded a charge of $441,000 in connection with
this Agreement. In September 1996, Andal's executive office records were
moved to Multi-Arc's facilities in Rockaway, New Jersey; and that facility now
serves as executive headquarters of the Company.
4. SALE OF MINORITY INTEREST IN MULTI-ARC INC.
In December 1994, Andal sold, for $500,000 approximately 2 1/2% of the
common stock of Multi-Arc to Multi-Arc's management; and Multi-Arc issued
$500,000 of convertible subordinated debentures (convertible into
approximately 2% of Multi-Arc common stock) to such management, the proceeds
of which were remitted to Andal as a return of capital. Both the sale of the
common stock and the issuance of the debentures were funded through
non-recourse loans of $1 million made to the management by Multi-Arc utilizing
Multi-Arc's revolving facility with First Fidelity Bank. Because of the non-
recourse nature of the loans, the gain on the sale of Multi-Arc common stock
of approximately $396,000 has been deferred until such time as the management
loans are repaid.
In June and September 1995, Andal sold, for $1,010,000, approximately
4.9% of the common stock of Multi-Arc to certain foreign licensees and other
investors; and Multi-Arc sold to such licensees and other investors $1,010,000
of convertible subordinated debentures (convertible into approximately 3.8% of
Multi-Arc common stock), the cash proceeds of which were remitted to Andal as
a return of capital. These debentures bear interest at 6% and are payable on
December 15, 2004. Approximately $450,000 of the common stock sold, and
$450,000 principal amount of the debentures sold
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are evidenced by a promissory note which require monthly principal payments
over three years plus interest at 6% per annum. The unpaid balance of this
note was $555,000 at September 30, 1996. An additional $153,000 of common
stock and $153,000 principal amount of the debentures were sold on open account
which was paid in October 1996. The gain on these sales of Multi-Arc common
stock was $800,000, of which $452,000 was deferred and will be recognized as
the amounts are collected. In 1996, $232,000 of the deferred gain was included
in investment income.
5. MULTI-ARC JOINT VENTURES
In 1993, Multi-Arc acquired a 29% interest in Multi-Arc Scientific
Coatings (S) Pte. Ltd. ("Singapore"), a joint venture which commenced
operations in August 1993. Multi-Arc's share of Singapore's net income
(loss), recorded on the equity method, for the years ended September 30, 1996,
1995, and 1994 was $(43,000), $(110,000), and $(111,000), respectively.
During fiscal 1995, the Company invested an additional $247,000 in cash and
converted a long term receivable of $77,000 into equity. At September 30,
1996, Investments in Affiliates include the Company's investment in Singapore
of $250,000 ($293,000 at September 30, 1995).
Multi-Arc had a 40% equity interest in Multi-Arc India Ltd. ("India")
which has a fiscal year end of March 31. In November 1994, India completed an
initial public offering and was listed on the Bombay Stock Exchange. As a
result of this transaction, Multi-Arc's interest in India was reduced to 21%
and the Company recorded a pretax gain of $85,000. Multi-Arc's share of
India's net income (loss), recorded on the equity method, for the years ended
September 30, 1996, 1995, and 1994 was $147,000, $163,000, and $95,000,
respectively. During fiscal 1996, the Company received $49,000 of dividends
in cash ($36,000 in 1995). During fiscal 1994, the Company made additional
equity investments in India of $218,000 in cash and received $30,000 of
dividends in cash. At September 30, 1996, Investments in Affiliates includes
Andal's investment in India of $1,073,000 ($975,000 at September 30, 1995).
In October 1995, Multi-Arc (UK) Ltd. acquired a 33% interest in Multi-Arc
Eifeler Beschichtungs Gmbh ("Austria") in exchange for $49,000 in cash and
guarantees of certain of Austria's bank debt of $360,000. This investment is
accounted for under the cost method, as the Company does not exercise
significant influence over the management and operations of Austria.
In October 1996, Multi-Arc (UK) Ltd. acquired a 33% interest in Preci-Coat
S. A., a Switzerland joint venture, for $420,000 in cash and bank guarantees
of $1.6 million.
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6. DISCONTINUED OPERATIONS
The income (loss) from discontinued operations in 1996, 1995, and 1994
is comprised of the following:
1996 1995 1994
Gain on divestiture of OMC $ 0 $ 0 $ 69,000
Reversal of reserve for income taxes 0 996,000 0
Income (loss) on discontinued
construction operations 234,000 11,000 (419,000)
-------- ---------- ----------
$234,000 $1,007,000 $(350,000)
On June 30, 1995, an appeals tribunal dismissed a claim against the
Company by a local taxing authority for income taxes relating to certain of
its discontinued operations. Income from discontinued operations for the year
ended September 30, 1995 includes the reversal of a reserve for income taxes,
plus accrued interest, in the aggregate amount of $996,000. The 1995 amount
also includes income of $141,000 related to settlement of a construction claim
and legal expenses of $130,000.
Construction operations consisted of construction subcontracting
businesses involved in wall, flooring, ceiling installation and plumbing,
heating, and electrical subcontracting. The Company commenced a program to
discontinue these businesses in 1981 which program was completed in 1983. The
income (loss) on discontinued construction operations for 1996, 1995, and 1994
is principally due to legal expenses incurred and settlements on litigation
related to those businesses.
7. INTEGRATED BRANDS, INC.
In December 1985, Andal purchased 46.5% of the common stock of
Integrated Brands, Inc. ("Integrated"), formerly Steve's Homemade Ice Cream,
Inc. Through a series of transactions, Andal's interest has been reduced to
3%. In the fourth quarter of 1996, based on current market conditions, the
Company recorded a writedown of $143,000 of its investment in Integrated. At
September 30, 1996, Investments in Affiliates includes Andal's investment in
Integrated of $250,000 ($393,000 at September 30, 1995).
During 1994, the Company disposed of 129,500 shares of Integrated in
various transactions for $161,000 in cash and recorded a net gain of $14,000.
In an additional transaction in August 1994, the Company sold 2,000,000 shares
of Integrated for $1,500,000 in cash and recorded a loss of $780,000. All
proceeds were used to repay debt.
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8. ACCOUNTS RECEIVABLE
Receivables consist of the following:
September 30,
1996 1995
Accounts receivable $5,347,000 $5,096,000
Allowance for doubtful accounts (95,000) (98,000)
----------- -----------
$5,252,000 $4,998,000
9. INVENTORIES
Inventories consist of the following:
September 30,
1996 1995
Raw materials and supplies $1,126,000 $ 820,000
Work in progress 427,000 253,000
---------- -----------
$1,553,000 $1,073,000
10. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
September 30,
1996 1995
Building and leasehold
improvements $ 2,668,000 $ 2,521,000
Furniture and equipment 27,299,000 24,098,000
------------- -------------
29,967,000 26,619,000
Less accumulated
depreciation and amortization (17,689,000) (15,830,000)
------------- -------------
$ 12,278,000 $ 10,789,000
Substantially all property and equipment at September 30, 1996 is
pledged as collateral pursuant to loan agreements.
In addition to property owned, the Company leases various operating
facilities and equipment. Rent expense under operating leases was $1,513,000,
$1,321,000, and $1,305,000, for the years ended September 30, 1996, 1995, and
1994, respectively.
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The aggregate minimum rental commitments under operating leases as of
September 30, 1996 for each of the fiscal years ended September 30 are as
follows: 1997, $1,385,000; 1998, $1,246,000; 1999, $949,000; 2000, $645,000;
2001, $369,000 and $715,000 thereafter.
11. 401K PLANS
The Company maintains several defined contribution 401K savings plans
for the benefit of its employees. Annual contributions to the plans are at
the discretion of management. Aggregate expense related to all plans amounted
to $328,000 in 1996, $294,000 in 1995, and $225,000 in 1994.
12. CREDIT FACILITIES AND LONG TERM DEBT
Long term debt consists of the following:
September 30,
1996 1995
First Union National Bank
U. S. -Term loan $ 7,000,000 $ 5,214,000
Revolving credit facility 1,000,000 1,500,000
U. K. - Term loan 2,009,000 2,370,000
Other 0 8,000
------------ ------------
10,009,000 9,092,000
Less current portion (1,338,000) (1,206,000)
------------ ------------
$ 8,671,000 $ 7,886,000
On August 27, 1996, Multi-Arc Inc. completed a refinancing of its
indebtedness to First Union National Bank and obtained a $7 million Term Loan,
a $1.5 million Equipment Term Line of Credit, and a $5 million Revolving
Credit Facility.
The Term Loan agreement requires repayment of principal in equal monthly
installments over 84 months. Interest, calculated at a floating rate of LIBOR
(5.40% at August 31, 1996) plus 1.35% per annum accrues and is also payable
monthly. The Term Loan agreement also requires that Multi-Arc hedge its
floating interest expense for the full term of the loan by utilizing interest
rate swap agreements. Accordingly, Multi-Arc has entered into such agreements
resulting in a fixed rate of approximately 8.15% per annum for the life of the
loan.
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The Equipment Term Line of Credit permits Multi-Arc to borrow up to $1.5
million to purchase new or used equipment (not to exceed 80% of the purchase
price of new equipment and 50% of the purchase price of used equipment).
Borrowings under this Term Line of Credit require monthly repayment of
principal in equal installments over 60 months. Interest accrues and is
payable under the same terms and conditions as the Term Loan discussed above.
As of September 30, 1996, Multi-Arc had not made any borrowings under this
credit line.
The Revolving Credit Facility, which expires on September 1, 1999,
allows Multi-Arc to borrow up to $5 million for working capital purposes.
Borrowings under this facility are limited based on specified percentages of
eligible receivables and inventories and bear interest at .25% per annum below
the prime rate. As of September 30, 1996, Multi-Arc had borrowed $1 million
under this facility and had an additional $2,100,000 available based on
eligible receivables and inventories at that date.
In September 1995, the Company refinanced the debt of its subsidiary,
Multi-Arc (UK) Ltd., with First Union National Bank. The new credit
facilities consist of a five-year term loan in the principal amount of
1,500,000 pounds sterling repayable in quarterly installments of 54,000 pounds
sterling commencing in December 1995 and a final installment of 474,000 pounds
sterling due in September 2000. Proceeds of the term loan were used to repay
outstanding indebtedness and to advance an inter-corporate loan to Multi-Arc
Inc., and for acquisition of new equipment. In addition to the term loan,
First Union has extended a 250,000 pounds sterling overdraft facility for
working capital purposes. At September 30, 1996, no borrowings had been made
under this facility.
See Note 5 for a discussion of certain guarantees of investee
indebtedness by Multi-Arc (UK) Ltd.
Andal remains obligated to Chemical Bank in the amount of $829,000 under
an outstanding letter of credit issued by Chemical Bank in connection with an
appeal bond. Because of Andal's inability to fund the liability represented
by the letter of credit, Messrs. Andrew J. Frankel, Paul A. Milstein, and Alan
N. Cohen each have personally guaranteed one-third of the letter of credit
liability, for which Andal has agreed to pay to them an aggregate annual
guarantee fee equal to 2% of the letters of credit outstanding until September
29, 1998, at which time Andal will use its best efforts to replace the letters
of credit with other security (see Note 3).
Substantially all of the Company's and Multi-Arc's assets serve as
collateral for the various term loans and lines of credit with First Union
National Bank. The various loan agreements require Multi-Arc to maintain
compliance with certain financial ratios and other covenants. As of September
30, 1996, Multi-Arc was in compliance with all such covenants or has obtained
waivers of all such covenants for which it was not in compliance.
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The aggregate annual maturities of long term debt during the next five
fiscal years are: 1997, $1,338,000; 1998, $1,338,000; 1999, $2,338,000; 2000,
$1,995,000; and 2001, $1,000,000. Interest paid during the fiscal years ended
September 30, 1996, 1995, and 1994 amounted to $1,375,000, $1,631,000, and
$1,650,000, respectively.
13. DEBT DUE SHAREHOLDERS
Debt due shareholders consists of:
September 30,
1996 1995
UBC Lenders $ 0 $ 5,571,000
Fleet Assignees 96,000 2,043,000
--------- ------------
96,000 7,614,000
Less current portion (96,000) (1,250,000)
--------- ------------
$ 0 $ 6,364,000
See Note 2 for a discussion of the transaction which gave rise to the
cancellation of the UBC Lender debt in 1996.
On August 31, 1996, Andal Corp. retired $1,404,000 of indebtedness owing
to Frankhill Associates, Alan N. Cohen, and Paul Milstein in exchange for
45,000 shares of the Company's common stock which is reflected as a
contribution of capital in the accompanying financial statements. Frankhill
Associates and Messrs. Cohen and Milstein had purchased the indebtedness from
the Fleet Bank in 1994. Subsequently, Peter D. Flood purchased a portion of
such debt from Frankhill Associates and Messrs. Cohen and Milstein. During
the year, the Company had repaid $543,000 of the debt in cash. At September
30, 1996, $96,000 of the Fleet Assignee Debt is owing to Mr. Flood. Pursuant
to Mr. Flood's employment agreement with the Company, the debt is to be repaid
with interest at 8% per annum, as soon as the cash flow of the Company, in the
reasonable discretion of the Board of Directors, permits.
14. CONVERTIBLE SUBORDINATED DEBT
Convertible subordinated debt at September 30, 1996 and 1995 consists of
$1,825,000 of Andal's 5 1/2% convertible subordinated debentures due in
September 1997 and $1,510,000 of Multi-Arc's 6% convertible subordinated
debentures due in 2004 (see Note 4).
Andal's 5 1/2% convertible subordinated debentures are (i) at Andal's
election, redeemable (with accrued interest) at 100% of the principal amount;
and (ii) convertible into one common share for each $450.00 of principal
amount, subject to usual anti-dilution
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provisions, or a total of 4,056 common shares at September 30, 1996. All
sinking fund requirements have been met.
The Multi-Arc debentures are convertible into one share of common stock
of Multi-Arc Inc. for each $266.67 of principal at any time after September
30, 1996.
15. CAPITAL SHARES
At September 30, 1996, common shares reserved for future issuance were
as follows:
Issuable under stock option plans 15,000
Issuable upon conversion of convertible
subordinated debentures 4,056
Messrs. Frankel and Cohen retired on August 31, 1996 pursuant to an
agreement which provided for the issuance of 32,500 common shares of the
Company to each of them (see Note 3).
See Note 13 for a discussion of the 45,000 shares of common stock of the
Company issued in cancellation of the Fleet Assignee debt.
On August 31, 1996, the Company issued 7,500 common shares to Peter D.
Flood, pursuant to his Employment Agreement and recorded an expense of
$17,000.
16. STOCK OPTIONS
In 1987, Andal adopted a Stock Option Plan under which options covering
up to 15,000 shares of Andal common stock may be granted to eligible key
employees. Options granted under the plan may be either "incentive stock
options" or non-qualified options. Under the plan, the purchase price per
share for stock options granted must equal or exceed the market value of
Andal's common stock at the time of grant. All options granted under the plan
expire no later than five years from the date of grant. Options may not be
exercised for a period of 30 months after grant. After 30 months, 40% of the
option shares may be exercised; after 42 months, 60% of such shares may be
exercised; and, after 48 months, all of such shares may be exercised. The
options expire 60 months after grant. The Board of Directors or the
Compensation Committee thereof may accelerate, in whole or in part, the time
or times at which such options may be exercised. In the case of incentive
stock options, whether granted under this plan or any earlier plan of the
Company, no more than $100,000 in value of shares (determined on the date of
grant) may become exercisable by any single optionee during any calendar year.
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The plan also permits the granting of stock appreciation rights either
at the time that an option is granted or a later time under which an optionee
may, instead of paying the option price and receiving the full number of
shares covered by the exercised option, receive instead the then excess of the
value of the shares subject to the option over the option price. Payment
under a stock appreciation right may be in shares of stock (at current fair
market value), or cash, or any combination thereof.
No options were converted or exercised under this plan in 1996, 1995,
and 1994.
At September 30, 1996, there were 6,125 shares (6,050 at September 30,
1995) reserved for future grant of options. At September 30, 1995 and 1994,
none of the outstanding options were exercisable. A summary of stock option
transactions follows:
1987 Stock Option Plan
Average Price per
Number of Shares Share
Options outstanding at
September 30, 1992 11,630 $ 41.80
Cancelled during 1993 (2,700) $143.52
Options outstanding at
September 30, 1993 8,930 $ 11.15
Canceled during 1994 (100) $112.50
Options outstanding at
September 30, 1994 8,830 $ 10.00
Canceled during 1995 (8,830) $ 10.00
Granted during 1995 8,950 $ 2.25
Options outstanding at
September 30, 1995 8,950 $ 2.25
Cancelled during 1996 (75) $ 2.25
Options outstanding at
September 30, 1996 8,875 $ 2.25
In December, 1994, Multi-Arc adopted the Multi-Arc Inc. 1994 Incentive
and Non-Statutory Stock Option Plan (the "Multi-Arc Plan") under which options
covering up to 5,000 shares of Multi-Arc common stock may be granted to
employees. Under the Plan, the purchase price per share for stock options
granted must equal or exceed the market value of Multi-Arc's stock at time of
grant. Options may be exercised at the rate of 20% per annum. The options
expire ten years after date of grant.
During 1995, Multi-Arc Inc. granted options for 5,000 shares to eligible
employees at $205.13 per share. No further shares are available for grant
under the Multi-Arc Plan.
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17. INCOME TAXES
Andal and its subsidiaries file a consolidated federal income tax
return, and state and local tax returns are generally filed on a combined
basis.
The Company has adopted the provisions of the Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes," effective
October 1, 1993. There was no cumulative effect on the Company's financial
statements as of October 1, 1993 for adopting Statement No. 109.
Under Statement No. 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax basis of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
At September 30, 1996, the Company had net operating loss carryforwards
("NOL's") for federal income tax purposes of approximately $30.3 million which
expire in varying amounts through 2010. In addition, the Company's subsidiary
in the United Kingdom had unrelieved corporation tax losses of approximately
$1.8 million.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities as
of September 30, 1996 and 1995 are as follows:
1996 1995
Deferred Tax Assets:
Accruals and Reserves $ 1,285,000 $ 3,074,000
Installment Note 0 258,000
Deferred Gain on Sale of Subsidiary Stock 229,000 181,000
Future Tax Benefit of NOL Carryforwards 12,739,000 13,329,000
Future Tax Benefit of Credit Carryforwards 822,000 564,000
------------ ------------
Gross Deferred Tax Assets 15,075,000 17,406,000
Deferred Tax Liabilities:
Fixed Assets and Intangibles 1,345,000 1,053,000
Foreign Income 76,000 498,000
Investment in Foreign Joint Ventures 97,000 124,000
------------ ------------
Deferred Tax Liabilities 1,518,000 1,675,000
Net Deferred Tax Assets 13,557,000 15,731,000
Valuation Allowance (11,157,000) (15,731,000)
------------ ------------
Net Deferred Taxes $ 2,400,000 $ 0
<PAGE>
<PAGE> 66
The Company has provided a valuation allowance because it is more likely
than not that a substantial portion of the net deferred tax assets will not be
realized.
The reconciliation of income taxes computed at the U. S. statutory rate
to income tax (expense) benefit for the year ended September 30, 1996, 1995,
and 1994 is:
1996 1995 1994
Tax (expense) benefit at U. S.
statutory rate $(2,532,000) $(317,000) $ 387,000
State taxes, net of federal benefit (320,000) (46,000) 0
Utilization of federal and state
net operating losses 353,000 300,000 (551,000)
Foreign earnings 164,000 16,000 145,000
Other items 3,000 (7,000) 2,000
Reduction in valuation allowance 4,574,000 0 0
------------ ---------- ----------
Income tax (expense) benefit $ 2,242,000 $ (54,000) $ (17,000)
18. LITIGATION
The Company is aware of various lawsuits, claims, and administrative
proceedings which are pending involving it or its subsidiaries. In the
opinion of the Company's management, these matters will not result in any
material adverse effect on the Company's consolidated financial condition.
<PAGE>
<PAGE> 67
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly results of operations for the fiscal years ended September 30,
1996 and 1995 are summarized in the following table:
First Second Third Fourth
Quarter Quarter Quarter Quarter
(Thousands of Dollars,
except per Share Amounts)
1996
Operating revenues $7,569 $7,701 $7,952 $8,393
Income (loss) from operations 503 615 671 (154)
Income (loss) from
continuing operations 42 154 164 7,791
Net income (loss) 42 392 164 7,787
Income (loss) per common share:
Income (loss) from
continuing operations .13 .47 .50 22.90
Net income (loss) .13 1.19 .50 22.87
1995
Operating revenues $6,507 $8,404 $7,753 $7,719
Income (loss) from operations 277 1,069 542 526
Income (loss) from
continuing operations (81) 595 241 124
Net income (loss) (192) 696 1,273 109
Income (loss) per common share:
Income (loss) from
continuing operations (.24) 1.80 .73 .38
Net income (loss) (.58) 2.11 3.86 .33
In the fourth quarter of 1996, the Company recorded a $6 million gain on
the sale of the 61st Street property (see Note 2); a charge of $441,000 in
connection with the Retirement Agreement with Messrs. Frankel and Cohen (see
Note 3); a write down of $143,000 of its investment in Integrated (see Note
7); and a deferred tax benefit of $2.4 million (see Note 17).
In the fourth quarter of 1995, the Company recorded additional gains of
$160,000 on the sale of minority interest in Multi-Arc Inc. and additional
minority interest in the net income of Multi-Arc Inc. of $93,000.
<PAGE>
<PAGE> 68
20. INDUSTRY SEGMENT INFORMATION
Andal, through its Multi-Arc Inc. subsidiary, is engaged in surface
enhancement, the business of coating materials, primarily metals. Multi-Arc
is also engaged in the design, manufacture, assembly, and sale of proprietary
coating equipment systems.
Operating profit (loss) is computed as total revenue less operating
expenses. The computation includes other income but excludes interest
expense, general corporate overhead, and income taxes. Identifiable assets
by industry are those assets that are used in Andal's operations in each
industry segment.
The following table sets forth information on the effects of foreign
operations (principally in the United Kingdom) as of and for the years ended
September 30, 1996, 1995, and 1994:
September 30,
1996 1995 1994
(Thousands of Dollars)
Revenues $6,086 $5,255 $4,268
Operating profits 1,801 1,363 869
Identifiable assets 6,326 6,463 5,352
Capital expenditures 755 1,411 340
Depreciation and amortization 467 547 622
21. SUBSEQUENT EVENT (UNAUDITED)
The Company is presently in discussion with a much larger company for
the sale of the Company's principal operating subsidiary, Multi-Arc Inc. No
agreement has been reached on either price or structure of any transaction.
Important factors which could interfere with the completion of this
transaction are the ability of the parties to reach an agreement as to price
and structure or other details of the transaction and satisfactory completion
of the purchaser's due diligence concerning Multi-Arc's business affairs.
There can be no assurance that these discussions will result in any
transaction.
<PAGE>
<PAGE> 69
ANDAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands of dollars,
except share and per share amounts)
June 30, September 30,
1997 1996
(Unaudited)
ASSETS
Current assets:
Cash $ 678 $ 552
Accounts receivable 5,824 5,252
Inventories 2,068 1,553
Other current assets 1,154 857
--------- ---------
Total current assets 9,724 8,214
Investments in affiliates 2,117 1,621
Property and equipment 14,457 12,278
Loans due from Multi-Arc Inc. management 1,000 1,000
Deferred taxes 2,400 2,400
Other assets 1,323 1,683
--------- ---------
$ 31,021 $ 27,196
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings, including
current portion of long-term debt $ 1,673 $ 1,434
Current portion of convertible debentures 1,825 1,825
Accounts payable 2,546 1,667
Other accrued expenses 5,046 5,619
--------- ---------
Total current liabilities 11,090 10,545
Long-term debt 10,742 8,671
Other deferred income 667 925
Convertible subordinated debentures 1,510 1,510
Minority interest in Multi-Arc Inc. 780 690
Shareholders' equity:
Common shares, par value $20 per share,
1,500,000 authorized and 447,359 issued 8,947 8,947
Paid-in-capital 25,995 25,995
Deficit (28,710) (30,087)
--------- ---------
Total shareholders' equity 6,232 4,855
--------- ---------
$ 31,021 $ 27,196
========= =========
<PAGE>
<PAGE> 70
ANDAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited and in thousands of dollars,
except per share amounts)
Three Months Nine Months
Ended Ended
June 30 June 30
1997 1996 1997 1996
Operating revenues:
Trade sales $8,993 $7,779 $25,777 $22,790
Royalties and commissions 88 137 357 336
Equity in net income of foreign joint
Ventures 35 36 106 96
------- ------- -------- --------
9,116 7,952 26,240 23,222
Operating costs and expenses:
Cost of revenues 4,798 3,881 13,593 11,374
Depreciation expense 573 546 1,694 1,586
Selling, general, and administrative
expenses 3,006 2,854 8,550 8,473
------- ------- -------- --------
8,377 7,281 23,837 21,433
------- ------- -------- --------
Income from operations 739 671 2,403 1,789
Other income (expense):
Minority interest in net income of
Multi-Arc Inc. (26) (51) (90) (139)
Investment and other income, net 54 60 107 152
Interest expense (351) (477) (988) (1,394)
------- ------- -------- --------
(323) (468) (971) (1,381)
------- ------- -------- --------
Income from continuing operations
before income taxes 416 203 1,432 408
Provision for income taxes (28) (39) (65) (48)
------- ------- -------- --------
Income from continuing operations 388 164 1,367 360
Income from discontinued operations 10 -- 10 238
------- ------- -------- --------
Net income $ 398 $ 164 $ 1,377 $ 598
======= ======= ======== ========
Income per common share:
Income from continuing operations $ .87 $ .50 $3.06 $1.09
Income from discontinued operations .02 .02 .72
----- ----- ----- -----
Net income $0.89 $ .50 $3.08 $1.81
===== ===== ===== =====
Average number of common shares
outstanding (000) 447 330 447 330
=== === === ===
<PAGE>
<PAGE> 71
ANDAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited and in thousands of dollars)
Nine Months Ended
June 30,
1997 1996
Cash provided by operating activities:
Income before income taxes $ 1,432 $ 408
Adjustments to reconcile income to net cash
provided by operating activities:
Depreciation 1,694 1,586
Minority interest in net income of
Multi-Arc Inc. 90 139
Amortization of patents, trademarks,
and license rights 117 132
Deferred income accrued 0 62
Amortization of deferred income (126) (156)
Equity in net income of
foreign joint ventures (106) (96)
Cash (used) provided by discontinued
operations (3) 170
Income taxes paid (80) (41)
Other, net 128 97
Change in operating assets and liabilities:
(Increase) in accounts receivable (547) (68)
(Increase) in inventories (550) (602)
(Increase) in other current assets (216) (77)
Increase in accounts payable
and accrued liabilities 313 93
-------- --------
Net cash provided by operating activities 2,146 1,647
Cash flows from financing activities:
Proceeds from long-term debt 3,240 4,800
Proceeds from sale of common stock in
and debentures of Multi-Arc Inc. 0 375
Reductions of long-term debt (1,005) (1,149)
Decrease in debt due within one year 0 (8)
-------- --------
Net cash provided by financing activities 2,235 4,018
-------- --------
Cash flows from investing activities:
Gross additions to property and equipment (3,904) (2,786)
Purchase of 61st Street Property - (3,227)
Reductions of (investment in) joint
ventures (390) 49
Other, net 39 (146)
-------- --------
Net cash (used) by investing activities (4,225) (6,110)
-------- --------
Increase (decrease) in cash 126 (445)
Cash at beginning of period 552 850
-------- --------
Cash at end of period $ 678 $ 405
======== ========
<PAGE>
<PAGE> 72
NOTES TO THREE AND NINE MONTH CONSOLIDATED FINANCIAL STATEMENTS
(1) The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and include all adjustments which, in the opinion
of management, are necessary to present fairly the results for such periods.
These interim financial statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the consolidated
financial statements and notes thereto included in Andal Corp.'s ("Andal" or
the "Company") annual report on Form 10-K for the year ended September 30,
1996.
(2) The Company has entered into an Agreement with a subsidiary of Saurer AG, a
Swiss company, for the purchase of the Company's principal operating
subsidiary, Multi-Arc Inc. The purchase price for all of the outstanding
shares of Multi-Arc is $29.2 million in cash. On a fully diluted basis, Andal
owns approximately 82% of Multi-Arc. Portions of the purchase price will be
used to pay the sellers' expenses for this transaction, as well as to establish
escrows required under the Agreement. The closing of the transaction is
subject to a number of conditions, including reaching an acceptable agreement
with Multi-Arc's principal financial lender. This transaction will be
submitted to shareholders of Andal Corp. for their approval. Shareholders
holding a sufficient number of shares to approve the transaction have already
agreed to vote their shares in favor of such approval.
(3) On July 31, 1997, Multi-Arc redeemed the 5 1/2% convertible subordinated
debentures due September 15, 1997. Funding for this redemption was provided by
a time loan received from First Union National Bank. This time loan is
repayable in full on the earliest of October 30, 1997 or the date of the
consummation of the acquisition of Multi-Arc Inc. by Saurer AG. The time loan
bears interest at the prime rate plus 1/4 of 1%.
(4) Inventories are summarized as follows:
June 30, September 30,
1997 1996
(In thousands of dollars)
Raw materials and supplies $2,050 $1,126
Work-in-process 18 427
------ ------
$2,068 $1,553
====== ======
(5) Andal and its subsidiaries file a consolidated federal income tax return,
and state and local tax returns are generally filed on a combined basis.
<PAGE>
<PAGE> 73
At September 30, 1996, the Company had net operating loss carry forwards
("NOL's") for federal income tax purposes of approximately $30.3 million which
expire in varying amounts through 2010. In addition, the Company's subsidiary
in the United Kingdom had unrelieved corporation tax losses of approximately
$1.8 million.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company has
provided a valuation allowance against net deferred tax assets because it is
more likely than not that a substantial portion of the net deferred tax assets
will not be realized.
(6) Income (loss) per common share for all periods was computed based on the
average number of shares outstanding during each of the respective periods.
The effects of stock options are not material and have not been included in the
computations. No fully diluted per share amounts are shown for any period as
the effects would be anti-dilutive.
(7) The Company is aware of certain lawsuits and claims which are pending
involving it and its subsidiaries. In the opinion of the Company's management,
these matters will not result in any material adverse effect on the Company's
consolidated financial position, results of operations, or liquidity.
PRO FORMA FINANCIAL INFORMATION
The accompanying unaudited Pro Forma Consolidated Balance Sheet of Andal
Corp. as of June 30, 1997 accompanying Pro Forma Consolidated Statements of
Operations for the fiscal year ended September 30, 1996 and for the nine months
ended June 30, 1997, give effect to the Merger which, among other effects,
results in the disposition of all of Andal Corp.'s shares in Multi-Arc Inc.,
previously a consolidated subsidiary, and results in the receipt of the Merger
Consideration. The Pro Forma Consolidated Financial Statements are presented
as if the Merger had occurred, with respect to the Consolidated Statement of
Operations on the first date of the periods presented, and with respect to the
Consolidated Balance Sheet as of June 30, 1997.
The unaudited Pro Forma Consolidated Financial Statements should be read
in conjunction with the Company's Consolidated Financial Statements appearing
elsewhere in this Proxy Statement. The pro forma information is not
necessarily indicative of the results that would have been reported had such
events actually occurred on the dates specified, nor is it indicative of the
Company's future results.
<PAGE>
<PAGE> 74
ANDAL CORP.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(Thousands of Dollars)
ASSETS
As Pro Forma
Reported Adjustments Pro Forma
________ ___________ _________
Current assets:
Cash $ 678 $16,875 (1) $17,553
Accounts receivable 5,824 (5,824)(2) --
Inventories 2,068 (2,068)(2) --
Other current assets 1,154 (1,045)(2) 109
______ ______ ______
Total current assets 9,724 7,938 17,662
Investment in affiliates 2,117 (1,867)(2) 250
Property and equipment 14,457 (14,457)(2) --
Loans due from Multi-Arc Inc.
management 1,000 (1,000)(2) --
Deferred taxes 2,400 (1,558)(2) 842
Other assets 1,323 1,873 (3) 3,196
______ ______ ______
$31,021 ($9,071) $21,950
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short term borrowings, including
current portion of long term
debt and debentures $3,498 ($3,498)(2) $ --
Accounts payable 2,546 (2,337)(2) 209
Other accrued expenses 5,046 (1,790)(2) 3,256
______ _______ _____
Total current liabilities 11,090 (7,532) 3,465
Long-term debt 10,742 (10,742)(2) --
Deferred income and other credits 667 2,436 (3) 3,103
Convertible subordinated debentures 1,510 (1,510)(2) --
Minority interest in Multi-Arc Inc. 780 (780)(2) --
Shareholders' equity 6,232 9,150 (4) 15,382
______ ______ ______
$31,021 ($9,071) $21,950
====== ====== ======
____________________________
<PAGE>
<PAGE> 75
(1) Reflects transaction proceeds of $24.5 million and proceeds of $1 million
from exercise of Multi-Arc stock options, less related expenses ($2.4 million),
escrows ($4.0 million), intercompany loan repayments to Multi-Arc ($1.3
million), and Multi-Arc's cash balance of $667,000.
(2) Reflects elimination of the balance sheet of Multi-Arc Inc.
(3) Includes approximately $3.1 million of possible escrow receivables net of
elimination of accounts related to Multi-Arc.
(4) Reflects the following:
($000)
____
Proceeds:
Sale of stock $ 24,485
Management stock options 1,026
______
Less:
Main Escrow (2,448)
Expense escrow ( 629)
Tax escrow ( 955)
Severance payments (2,271)
Estimated A.M.T. ( 170)
Recognition of deferred income 540
Book basis of investment in Multi-Arc (10,428)
______
Estimated gain $ 9,150
=====
The footnoted item reflects gain on transaction, net of expenses, of $2.4
million and deferrals of $3.1 million related to escrows. Receipt of this
deferred income from the Main Escrow ($3.0 million) and the Andal Tax Escrow
($655,000) can be expected, but such receipt remains uncertain. See "The Main
Escrow", the "Troy Michigan Environmental Escrow," the "Andal Tax Escrow" and
"Effect of the Merger on Andal."
<PAGE>
<PAGE> 76
ANDAL CORP.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
(Thousands of Dollars, except Per Share Amounts)
As Pro Forma
Reported Adjustments Pro Forma
________ ___________ _________
Operating revenues $31,615 ($31,615)(1) $0
Operating costs and expenses:
Cost of revenues 15,740 (15,740)(1) 0
Depreciation expense 2,099 (2,091)(1) 8
Selling, general, and
administrative expenses 12,141 (10,496)(2) 1,645
_______ ________ _______
29,980 (28,327) 1,653
_______ ________ _______
Income (loss) from operations 1,635 (3,288) (1,653)
Other income (expense):
Gain on sale of 61st Street property 6,009 (3) 6,009
Minority interest in net income
of Multi-Arc Inc. (151) 151 (1) 0
Investment and other income, net 150 150
Interest expense (1,734) 1,734 (4) 0
_______ ________ _______
4,274 1,885 6,159
_______ ________ _______
Income from continuing operations
before income taxes 5,909 (1,403) 4,506
Provision for income taxes 2,242 404 (5) 2,646
_______ ________ _______
Income from continuing operations 8,151 (999) 7,152
Income from discontinued operations 234 234
_______ ________ _______
Net income $8,385 ($999) $7,386
======= ======== =======
Income per common share:
Income from continuing operations $24.00 $21.06
Income from discontinued operations 0.69 0.69
______ ______
Net income $24.69 $21.75
====== ======
Average number of common shares
outstanding (000) 340 340
====== ======
_______________________
<PAGE>
<PAGE> 77
(1) Reflects elimination of Multi-Arc results of operations.
(2) Reflects elimination of Multi-Arc's results of operations and Management
signing bonuses.
(3) A nonrecurring gain realized upon the sale of real estate and without
which gain the Company would have reported a loss from continuing operations.
See "Pro Forma Consolidated Statement of Operations."
(4) Reflects elimination of Multi-Arc's interest expense of $1,147,000 and
Andal's interest expense assuming the proceeds of the transaction were used to
retire all of Andal's outstanding debt.
(5) Reflects elimination of Multi-Arc's provision for taxes of $746,000 net
of amounts paid to Andal in accordance with a tax sharing agreement.
<PAGE>
<PAGE> 78
ANDAL CORP.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1997
(Thousands of Dollars, except Per Share Amounts)
As Pro Forma
Reported Adjustments Pro Forma
________ ___________ _________
Operating revenues $26,240 $(26,240)(1) $ --
Operating costs and expenses:
Cost of revenues 13,593 (13,593)(1) --
Depreciation expense 1,694 (1,694)(1) --
Selling, general, and
administrative expenses 8,550 (8,261)(1) 289
________ ___________ _________
$23,837 $(23,548) 289
________ ___________ _________
Income (loss) from operations 2,403 (2,692) (289)
Other income (expense):
Minority interest in net income
of Multi-Arc Inc. (90) 90 (1) --
Investment and other income, net 107 -- 107
Interest expense (988) 988 (1) --
________ ___________ _________
(988) 988 (1) 107
________ ___________ _________
Income (loss) from continuing operations
before income taxes 1,432 (1,614) (182)
Provision for income taxes (65) 16 (1) (49)
________ ___________ _________
Net income (loss) from continuing
operations $ 1,367 $(1,598) $ (231)
======== =========== =========
Net income (loss) from continuing
operations per common share: $2.19 $ (.51)
======== =========
Average number of common shares
outstanding (000) 447 447
======== =========
_______________________
(1) Reflects elimination of Multi-Arc accounts
<PAGE>
<PAGE> 79
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has selected Ernst & Young LLP as the
independent certified public accountants to the Company for the
fiscal year ending September 30, 1997. The Company has been
informed that neither Ernst & Young LLP, nor any of its partners,
has any direct financial interest or any material indirect
financial interest in the Company or any of its subsidiaries, nor
has any of its partners acted in the capacity of promoter,
underwriter, voting trustee, director, officer or employee of the
Company or its subsidiaries.
The Company has been advised by Ernst & Young LLP that
representatives of that firm are expected to be present at the
Annual Meeting of Stockholders. These representatives will have
the opportunity to make a statement, if they so desire, and will
also be available to respond to appropriate questions from
stockholders.
DEADLINE FOR FILING STOCKHOLDER PROPOSALS
FOR THE 1998 ANNUAL MEETING
The date by which proposals of Stockholders intended to be
presented at the Company's 1998 Annual Meeting (and in the Proxy
Statement and Proxy relating to that meeting) must be presented
to the Company is February 11, 1998.
OTHER MATTERS
The Board of Directors is not aware at present of any other
matters which will or may come before the Annual Meeting of
Stockholders and which will require a vote of the Stockholders.
However, if any additional matters are properly presented at the
meeting, it is the intention of the persons named in the
accompanying proxy to vote in accordance with their judgment on
such matters.
By Order of the Board of Directors
Walter N. Kreil, Jr., Secretary
September 10, 1997
<PAGE>
<PAGE> 80
EXHIBIT A
MCKINNEY'S CONSOLIDATED LAWS OF NEW YORK ANNOTATED
BUSINESS CORPORATION LAW
CHAPTER 4 OF THE CONSOLIDATED LAWS
ARTICLE 6--SHAREHOLDERS
Section 623. Procedure to enforce shareholder's right to receive
payment for shares
(a) A shareholder intending to enforce his right under a
section of this chapter to receive payment for his shares if the
proposed corporate action referred to therein is taken shall file
with the corporation, before the meeting of shareholders at which
the action is submitted to a vote, or at such meeting but before
the vote, written objection to the action. The objection shall
include a notice of his election to dissent, his name and
residence address, the number and classes of shares as to which
he dissents and a demand for payment of the fair value of his
shares if the action is taken. Such objection is not required
from any shareholder to whom the corporation did not give notice
of such meeting in accordance with this chapter or where the
proposed action is authorized by written consent of shareholders
without a meeting.
(b) Within ten days after the shareholders' authorization
date, which term as used in this section means the date on which
the shareholders' vote authorizing such action was taken, or the
date on which such consent without a meeting was obtained from
the requisite shareholders, the corporation shall give written
notice of such authorization or consent by registered mail to
each shareholder who filed written objection or from whom written
objection was not required, excepting any shareholder who voted
for or consented in writing to the proposed action and who
thereby is deemed to have elected not to enforce his right to
receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any
shareholder from whom written objection was not required and who
elects to dissent shall file with the corporation a written
notice of such election, stating his name and residence address,
the number and classes of shares as to which he dissents and a
demand for payment of the fair value of his shares. Any
shareholder who elects to dissent from a merger under section 905
(Merger of subsidiary corporation) or paragraph (c) of section
907 (Merger or consolidation of domestic and foreign
corporations) or from a share exchange under paragraph (g) of
section 913 (Share exchanges) shall file a written notice of such
election to dissent within twenty days after the giving to him of
a copy of the plan of merger or exchange or an outline of the
material features thereof under section 905 or 913.
(d) A shareholder may not dissent as to less than all of the
shares, as to which he has a right to dissent, held by him of
record, that he owns beneficially. A nominee or fiduciary may
not dissent on behalf of any beneficial owner as to less than all
of the shares of such owner, as to
<PAGE>
<PAGE> 81
which such nominee or fiduciary has a right to dissent, held of
record by such nominee or fiduciary.
(e) Upon consummation of the corporate action, the shareholder
shall cease to have any of the rights of a shareholder except the
right to be paid the fair value of his shares and any other
rights under this section. A notice of election may be withdrawn
by the shareholder at any time prior to his acceptance in writing
of an offer made by the corporation, as provided in paragraph
(g), but in no case later than sixty days from the date of
consummation of the corporate action except that if the
corporation fails to make a timely offer, as provided in
paragraph (g), the time for withdrawing a notice of election
shall be extended until sixty days from the date an offer is
made. Upon expiration of such time, withdrawal of a notice of
election shall require the written consent of the corporation.
In order to be effective, withdrawal of a notice of election must
be accompanied by the return to the corporation of any advance
payment made to the shareholder as provided in paragraph (g). If
a notice of election is withdrawn, or the corporate action is
rescinded, or a court shall determine that the shareholder is not
entitled to receive payment for his shares, or the shareholder
shall otherwise lose his dissenter's rights, he shall not have
the right to receive payment for his shares and he shall be
reinstated to all his rights as a shareholder as of the
consummation of the corporate action, including any intervening
preemptive rights and the right to payment of any intervening
dividend or other distribution or, if any such rights have
expired or any such dividend or distribution other than in cash
has been completed, in lieu thereof, at the election of the
corporation, the fair value thereof in cash as determined by the
board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may
have been taken in the interim.
(f) At the time of filing the notice of election to dissent or
within one month thereafter the shareholder of shares represented
by certificates shall submit the certificates representing his
shares to the corporation, or to its transfer agent, which shall
forthwith note conspicuously thereon that a notice of election
has been filed and shall return the certificates to the
shareholder or other person who submitted them on his behalf.
Any shareholder of shares represented by certificates who fails
to submit his certificates for such notation as herein specified
shall, at the option of the corporation exercised by written
notice to him within forty-five days from the date of filing of
such notice of election to dissent, lose his dissenter's rights
unless a court, for good cause shown, shall otherwise direct.
Upon transfer of a certificate bearing such notation, each new
certificate issued therefor shall bear a similar notation
together with the name of the original dissenting holder of the
shares and a transferee shall acquire no rights in the
corporation except those which the original dissenting
shareholder had at the time of transfer.
(g) Within fifteen days after the expiration of the period
within which shareholders may file their notices of election to
dissent, or within fifteen days after the proposed corporate
action is consummated, whichever is later (but in no case later
than ninety days from the shareholders' authorization date), the
corporation or, in the case of a merger or consolidation, the
surviving or new corporation, shall make a written offer by
registered mail to each shareholder who has filed such notice of
election to pay for his shares at a specified price which the
corporation considers
<PAGE>
<PAGE> 82
to be their fair value. Such offer shall be accompanied by a
statement setting forth the aggregate number of shares with
respect to which notices of election to dissent have been
received and the aggregate number of holders of such shares. If
the corporate action has been consummated, such offer shall also
be accompanied by (1) advance payment to each such shareholder
who has submitted the certificates representing his shares to the
corporation, as provided in paragraph (f), of an amount equal to
eighty percent of the amount of such offer, or (2) as to each
shareholder who has not yet submitted his certificates a
statement that advance payment to him of an amount equal to
eighty percent of the amount of such offer will be made by the
corporation promptly upon submission of his certificates. If the
corporate action has not been consummated at the time of the
making of the offer, such advance payment or statement as to
advance payment shall be sent to each shareholder entitled
thereto forthwith upon consummation of the corporate action.
Every advance payment or statement as to advance payment shall
include advice to the shareholder to the effect that acceptance
of such payment does not constitute a waiver of any dissenters'
rights. If the corporate action has not been consummated upon
the expiration of the ninety day period after the shareholders'
authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the
same price per share to all dissenting shareholders of the same
class, or if divided into series, of the same series and shall be
accompanied by a balance sheet of the corporation whose shares
the dissenting shareholder holds as of the latest available date,
which shall not be earlier than twelve months before the making
of such offer, and a profit and loss statement or statements for
not less than a twelve month period ended on the date of such
balance sheet or, if the corporation was not in existence
throughout such twelve month period, for the portion thereof
during which it was in existence. Notwithstanding the foregoing,
the corporation shall not be required to furnish a balance sheet
or profit and loss statement or statements to any shareholder to
whom such balance sheet or profit and loss statement or
statements were previously furnished, nor if in connection with
obtaining the shareholders' authorization for or consent to the
proposed corporate action the shareholders were furnished with a
proxy or information statement, which included financial
statements, pursuant to Regulation 14A or Regulation 14C of the
United States Securities and Exchange Commission. If within
thirty days after the making of such offer, the corporation
making the offer and any shareholder agree upon the price to be
paid for his shares, payment therefor shall be made within sixty
days after the making of such offer or the consummation of the
proposed corporate action, whichever is later, upon the surrender
of the certificates for any such shares represented by
certificates.
(h) The following procedure shall apply if the corporation
fails to make such offer within such period of fifteen days, or
if it makes the offer and any dissenting shareholder or
shareholders fail to agree with it within the period of thirty
days thereafter upon the price to be paid for their shares:
(1) The corporation shall, within twenty days after the
expiration of whichever is applicable of the two periods last
mentioned, institute a special proceeding in the supreme court in
the judicial district in which the office of the corporation is
located to determine the rights of dissenting shareholders and to
fix the fair value of their shares. If, in the case of merger or
consolidation, the surviving or new corporation is a foreign
corporation without an office in this
<PAGE>
<PAGE> 83
state, such proceeding shall be brought in the county where the
office of the domestic corporation, whose shares are to be
valued, was located.
(2) If the corporation fails to institute such proceeding
within such period of twenty days, any dissenting shareholder may
institute such proceeding for the same purpose not later than
thirty days after the expiration of such twenty day period. If
such proceeding is not instituted within such thirty day period,
all dissenter's rights shall be lost unless the supreme court,
for good cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as
provided in paragraph (g), have agreed with the corporation upon
the price to be paid for their shares, shall be made parties to
such proceeding, which shall have the effect of an action quasi
in rem against their shares. The corporation shall serve a copy
of the petition in such proceeding upon each dissenting
shareholder who is a resident of this state in the manner
provided by law for the service of a summons, and upon each
nonresident dissenting shareholder either by registered mail and
publication, or in such other manner as is permitted by law. The
jurisdiction of the court shall be plenary and exclusive.
(4) The court shall determine whether each dissenting
shareholder, as to whom the corporation requests the court to
make such determination, is entitled to receive payment for his
shares. If the corporation does not request any such
determination or if the court finds that any dissenting
shareholder is so entitled, it shall proceed to fix the value of
the shares, which, for the purposes of this section, shall be the
fair value as of the close of business on the day prior to the
shareholders' authorization date. In fixing the fair value of
the shares, the court shall consider the nature of the
transaction giving rise to the shareholder's right to receive
payment for shares and its effects on the corporation and its
shareholders, the concepts and methods then customary in the
relevant securities and financial markets for determining fair
value of shares of a corporation engaging in a similar
transaction under comparable circumstances and all other relevant
factors. The court shall determine the fair value of the shares
without a jury and without referral to an appraiser or referee.
Upon application by the corporation or by any shareholder who is
a party to the proceeding, the court may, in its discretion,
permit pretrial disclosure, including, but not limited to,
disclosure of any expert's reports relating to the fair value of
the shares whether or not intended for use at the trial in the
proceeding and notwithstanding subdivision (d) of section 3101 of
the civil practice law and rules.
(5) The final order in the proceeding shall be entered
against the corporation in favor of each dissenting shareholder
who is a party to the proceeding and is entitled thereto for the
value of his shares so determined.
(6) The final order shall include an allowance for interest
at such rate as the court finds to be equitable, from the date
the corporate action was consummated to the date of payment. In
determining the rate of interest, the court shall consider all
relevant factors, including the rate of interest which the
corporation would have had to pay to borrow money during the
pendency of
<PAGE>
<PAGE> 84
the proceeding. If the court finds that the refusal of any
shareholder to accept the corporate offer of payment for his
shares was arbitrary, vexatious or otherwise not in good faith,
no interest shall be allowed to him.
(7) Each party to such proceeding shall bear its own costs
and expenses, including the fees and expenses of its counsel and
of any experts employed by it. Notwithstanding the foregoing,
the court may, in its discretion, apportion and assess all or any
part of the costs, expenses and fees incurred by the corporation
against any or all of the dissenting shareholders who are parties
to the proceeding, including any who have withdrawn their notices
of election as provided in paragraph (e), if the court finds that
their refusal to accept the corporate offer was arbitrary,
vexatious or otherwise not in good faith. The court may, in its
discretion, apportion and assess all or any part of the costs,
expenses and fees incurred by any or all of the dissenting
shareholders who are parties to the proceeding against the
corporation if the court finds any of the following: (A) that
the fair value of the shares as determined materially exceeds the
amount which the corporation offered to pay; (B) that no offer
or required advance payment was made by the corporation; (C)
that the corporation failed to institute the special proceeding
within the period specified therefor; or (D) that the action of
the corporation in complying with its obligations as provided in
this section was arbitrary, vexatious or otherwise not in good
faith. In making any determination as provided in clause (A),
the court may consider the dollar amount or the percentage, or
both, by which the fair value of the shares as determined exceeds
the corporate offer.
(8) Within sixty days after final determination of the
proceeding, the corporation shall pay to each dissenting
shareholder the amount found to be due him, upon surrender of the
certificates for any such shares represented by certificates.
(i) Shares acquired by the corporation upon the payment of the
agreed value therefor or of the amount due under the final order,
as provided in this section, shall become treasury shares or be
cancelled as provided in section 515 (Reacquired shares), except
that, in the case of a merger or consolidation, they may be held
and disposed of as the plan of merger or consolidation may
otherwise provide.
(j) No payment shall be made to a dissenting shareholder under
this section at a time when the corporation is insolvent or when
such payment would make it insolvent. In such event, the
dissenting shareholder shall, at his option:
(1) Withdraw his notice of election, which shall in such
event be deemed withdrawn with the written consent of the
corporation; or
(2) Retain his status as a claimant against the corporation
and, if it is liquidated, be subordinated to the rights of
creditors of the corporation, but have rights superior to the
non-dissenting shareholders, and if it is not liquidated, retain
his right to be paid for his shares, <PAGE>
<PAGE> 85
which right the corporation shall be obliged to satisfy when the
restrictions of this paragraph do not apply.
(3) The dissenting shareholder shall exercise such option
under subparagraph (1) or (2) by written notice filed with the
corporation within thirty days after the corporation has given
him written notice that payment for his shares cannot be made
because of the restrictions of this paragraph. If the dissenting
shareholder fails to exercise such option as provided, the
corporation shall exercise the option by written notice given to
him within twenty days after the expiration of such period of
thirty days.
(k) The enforcement by a shareholder of his right to receive
payment for his shares in the manner provided herein shall
exclude the enforcement by such shareholder of any other right to
which he might otherwise be entitled by virtue of share
ownership, except as provided in paragraph (e), and except that
this section shall not exclude the right of such shareholder to
bring or maintain an appropriate action to obtain relief on the
ground that such corporate action will be or is unlawful or
fraudulent as to him.
(l) Except as otherwise expressly provided in this section,
any notice to be given by a corporation to a shareholder under
this section shall be given in the manner provided in section 605
(Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations
except as provided in subparagraph (e)(2) of section 907 (Merger
or consolidation of domestic and foreign corporations).
<PAGE>
ANDAL CORP.
200 Roundhill Drive, Rockaway, NJ 07866
PROXY SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS
The undersigned hereby appoints and constitutes Peter D. Flood
and Andrew J. Frankel, and each of them, attorneys and proxies
for the undersigned, with full power of substitution to vote as
if the undersigned were personally present at the Annual Meeting
of the Shareholders of Andal Corp. (the "Company") to be held at
the Company's corporate headquarters in the Algonquin Room #4 at
the Parsippany Hilton Hotel, One Hilton Court, Parsippany, New
Jersey, on Monday, September 22, 1997 at 10:00 a.m. and at all
adjournments thereof, the shares of stock of said Company
registered in the name of the undersigned. The undersigned
instructs all such proxies to vote such shares as follows upon
the following matters, which are described more fully in the
accompanying proxy statement:
I authorize and instruct my Proxy to:
1. ____ VOTE FOR all nominees for the Company's Board of
Directors listed below; except that I WITHHOLD AUTHORITY for the
following nominees (if any) crossed out
Peter D. Flood Walter N. Kreil, Jr.
Andrew J. Frankel Alan N. Cohen
____ VOTE WITHHELD from all nominees.
2. ____ VOTE FOR ____ AGAINST ____ ABSTAIN the approval
of an Agreement and Plan of Merger dated as of June 9, 1997 by
and between Bernex Inc., M-A Acquisition Corp., Multi-Arc Inc.
and Andal Corp. constituting in substance a sale of substantially
all the assets of Andal Corp.
(Continued, and to be signed, on the other side)<PAGE>
(See other side)
3. In their discretion, to vote upon such other business as may
properly come before the meeting and all adjournments thereof.
This proxy when properly executed will be voted in the manner
directed herein by the undersigned stockholder. If no direction
is made, this proxy will be voted FOR Proposals 1 and 2.
Please sign exactly as name appears below. When shares are held
by joint tenants, both should sign. When signing as attorney, as
executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate
name by the President or other authorized officer. If a
partnership, please sign in partnership name by authorized
person.
Signature
Signature if held jointly
Dated 1997
PLEASE MARK, SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
