<PAGE>
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
Amendment No. 2
Check the appropriate box:
[x] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14A-6(e)(2))
[ ] Definitive Information Statement
Andal Corp.
(Name of Registrant as Specified In Its Charter)
N.A.
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, par value $20.00 per share
2) Aggregate number of securities to which transaction applies:
70,565 shares
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): $37.00
4) Proposed maximum aggregate value of transaction: $2,610,905
5) Total fee paid: $522.18
[x] 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>
Andal Corp.
630 Fifth Avenue
New York, New York 10111
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
November 17, 1998
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Shareholders
(the "Annual Meeting") of Andal Corp., a New York corporation (the "Company"),
will be held at the offices of Esanu Katsky Korins & Siger, LLP, 605 Third
Avenue, New York, New York 10158, on November 17, 1998, at 10:00 A.M. local
time, for the purpose of considering and acting upon the following matters:
(1) The election of two (2) directors to serve until the 1999 Annual
Meeting of Shareholders and until their successors shall be
elected and qualified.
(2) The approval of the merger (the "Merger") of Cafco Holding
Corporation ("Cafco") into the Company pursuant to a merger
agreement (the "Merger Agreement") dated July 15, 1998, between
the Company and Cafco, pursuant to which each share of Common
Stock of the Company, other than shares owned by Cafco or by
shareholders who perfected their appraisal rights, will be
converted into the right to receive $37 per share. As a result
of the Merger, all of the issued and outstanding stock of the
Company will be owned by the shareholders of Cafco.
(3) The transaction of such other and further business as may
properly come before the meeting.
The Board of Directors of the Company has fixed the close of business
on October 13, 1998 as the record date (the "Record Date") for the
determination of shareholders entitled to notice of and to vote at the 1998
Annual Meeting. The enclosed Information Statement contains information
pertaining to the matters to be voted on at the Annual Meeting.
WE ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED NOT TO SEND US A
PROXY
On July 15, 1998, the Board of Directors determined that the Merger
is fair to and in the best interest of the shareholders and approved the
Merger Agreement and the transactions contemplated thereby.
Cafco owns 75.3% of the issued and outstanding Common Stock as of the
Record Date. Accordingly, Cafco has the ability to approve the Merger without
the affirmative vote of any other shareholders. The Merger Agreement provides
that Cafco will vote its shares in favor of the Merger.
New York law gives shareholders who do not vote in favor of the
Merger and who otherwise strictly comply with the provisions of Section 623 of
the New York Business Corporation Law, the right to demand payment from the
Company of the fair value of their shares. Shareholders who wish to assert
their rights of appraisal should strictly comply with the provisions of said
Section 623, a copy of which is included as Appendix D to this Information
Statement. Appraisal rights are also discussed in the Information Statement
under the heading "Rights of Dissenting Shareholders."
By order of the Board of Directors
Mary Lou Holcombe
Secretary
New York, New York
October , 1998
<PAGE>
ANDAL CORP.
INFORMATION STATEMENT
1998 Annual Meeting of Shareholders
GENERAL INFORMATION
We Are Not Asking You for a Proxy, and You Are Requested Not To Send Us a Proxy
This Information Statement is furnished in connection with the 1998
Annual Meeting of Shareholders (the "Annual Meeting") of Andal Corp., a New
York corporation (the "Company") to be held at the offices of Esanu Katsky
Korins & Siger, LLP, 605 Third Avenue, New York, New York 10158 on November
17, 1998 at 10:00 A.M. or at any adjournment thereof. This Information
Statement, which includes the Company's Form 10-K Annual Report for the fiscal
year ended September 30, 1997 and the Form 10-Q for the quarter ended June 30,
1998, is being mailed to shareholders of the Company on or about October ,
1998.
At the Annual Meeting, shareholders will vote on (a) the election of
two (2) directors to serve until the 1999 Annual Meeting of Shareholders and
until their successors shall be elected and qualified, (b) the approval of the
merger (the "Merger") of Cafco Holding Corporation ("Cafco") into the Company
pursuant to a merger agreement (the "Merger Agreement") dated July 15, 1998,
between the Company and Cafco, pursuant to which each share of Common Stock of
the Company, other than shares owned by Cafco or by shareholders who perfected
their appraisal rights, will be converted into the right to receive $37 per
share, and (c) the transaction of such other and further business as may
properly come before the meeting. As a result of the Merger, all of the issued
and outstanding stock of the Company will be owned by the shareholders of
Cafco. The Board of Directors does not know of any other matters which will be
voted upon at the Annual Meeting.
The cost of the preparation and mailing of this Information
Statement, which is estimated at $150,000, will be paid by the Company.
Record Date; Outstanding Shares; Voting Rights
Shareholders of record at the close of business on October 13, 1998
(the "Record Date"), are entitled to notice and to vote at the Annual Meeting.
As of the close of business on the Record Date there were outstanding 286,094
shares of common stock of the Company ("Common Stock"). The holders of the
Common Stock are entitled to one vote for each share owned of record on the
Record Date.
The presence of holders of a majority of the shares of Common Stock
entitled to vote will constitute a quorum for the transaction of business at
the Annual Meeting. If a shareholder attends the Annual Meeting, his or her
shares are counted as being present at the Annual Meeting for purposes of
determining whether there is a quorum, even if the shareholder abstains from
voting on all matters. The vote required for the election of directors and
approval of the Merger is set forth in the discussion of each proposal.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY ....................................................................................................... 3
BENEFICIAL OWNERSHIP OF SECURITIES; SECURITY OWNERSHIP OF MANAGEMENT........................................... 7
ELECTION OF DIRECTORS ......................................................................................... 7
EXECUTIVE OFFICERS............................................................................................. 8
EXECUTIVE COMPENSATION......................................................................................... 9
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................................................................ 11
PERFORMANCE GRAPH.............................................................................................. 14
THE MERGER .................................................................................................... 15
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER......................................................... 23
FINANCIAL STATEMENTS........................................................................................... 24
RIGHTS OF DISSENTING SHAREHOLDERS.............................................................................. 24
PROCEDURE FOR PAYMENT.......................................................................................... 25
OTHER MATTERS ................................................................................................. 26
APPENDICES
Form 10-K for the fiscal year ended September 30, 1997 ........................................................ A
Form 10-Q for the six months ended June 30, 1998 .............................................................. B
The Merger Agreement........................................................................................... C
Sections 910 and 623 of the New York Business Corporation Law.................................................. D
</TABLE>
- 2 -
<PAGE>
SUMMARY
The following discussion summarizes certain information contained in
this Information Statement. It does not purport to be complete and is
qualified in its entirety by reference to more detailed information appearing
elsewhere in this Information Statement, including the financial statements
and the notes thereto, which are included in the Company's Form 10-K for the
fiscal year ended September 30, 1997 and Form 10-Q for the quarter ended June
30, 1998, which are included as Appendices A and B, respectively, to this
Information Statement, and the other Appendices to this Information Statement.
THE COMPANIES
Andal Corp. (the "Company") is not presently engaged in any active
business activities. Prior to September 30, 1997, the Company, through its
majority-owned subsidiary, Multi-Arc, Inc. ("Multi-Arc"), had been engaged in
surface enhancement which 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. On September 30, 1997, Multi-Arc was merged into a
wholly-owned subsidiary of Bernex, Inc. The Company received approximately
$17.8 million from this transaction and may be entitled to receive up to
approximately $3.0 million in additional cash from certain escrows that were
established at the closing.
The Company's principal executive offices are located at 630 Fifth
Avenue, New York, New York 10111, telephone (212) 218-2811.
Cafco Holding Corporation ("Cafco") was organized in July 1998 for
the purpose of acquiring Common Stock of the Company owned by Messrs. Andrew
J. Frankel and Alan N. Cohen and other shareholders who are related to or
otherwise affiliated with Mr. Frankel or Mr. Cohen, entering into the Merger
Agreement and consummating the Merger. In this connection, in July 1998, the
present Cafco shareholders transferred 215,529 shares of Common Stock,
representing all of the Common Stock owned by them, to Cafco in exchange for
an equal number of shares of common stock of Cafco.
Cafco's principal executive offices are located at 630 Fifth Avenue,
New York, New York 10111, telephone (212) 218-2811.
THE ANNUAL MEETING
Purpose: The election of two directors and the
approval of the Merger of Cafco into the
Company.
Record Date: October 13, 1998.
Meeting Date: November 17, 1998.
Shares outstanding: 286,094 as of the Record Date.
Share ownership of Cafco: Cafco owns 215,529 shares of Common Stock,
constituting 75.3% of the outstanding shares
of Common Stock on the Record Date.
Interest of Directors in
the Merger: Mr. Andrew J. Frankel, chairman of the board,
chief executive officer and a director of the
Company, is chairman of the board, chief
executive officer and a director of Cafco.
Mr. Alan N. Cohen, president and a director
of the Company, is president and a director
of Cafco. Messrs. Frankel and Cohen are the
only directors of the
- 3 -
<PAGE>
Company and Cafco. All of the shareholders of
Cafco are either related to or
affiliated with either Mr. Frankel or Mr.
Cohen.
The Company has certain contingent assets and
obligations, the extent of which cannot be
determined as of the date of this Information
Statement. Depending on the amount of such
assets and liabilities, it is possible that
the Cafco shareholders would receive
approximately $6.96, or 18.8%, more per share
than the other shareholders of the Company.
See "The Merger -- Funds Held in Escrow;
Reserves" and "The Merger -- Potential
Premium to Cafco Shareholders."
Required Vote for Merger: The approval of the Merger requires the
affirmative vote of the holders of at least
two-thirds of the shares of Common Stock
outstanding on the Record Date. Since Cafco
owns more than two-thirds of the outstanding
shares of Common Stock on the Record Date,
the votes of the other shareholders are not
required for the approval of the Merger.
Market for Common Stock: There is no active market for the Company's
Common Stock. The Common Stock is not
included in the Nasdaq OTC Bulletin Board,
although there has been infrequent trading in
the Common Stock on the over-the-counter
market.
Available Funds: At June 30, 1998, the Company had cash or
cash equivalents of approximately $12.3
million. Such funds represent cash received
from the sale of Multi-Arc in September 1997
and cash received from the sale of certain
securities owned by the Company, net of cash
used for operations and payments made to
purchase shares of the Company's Common Stock
from certain shareholders.
THE MERGER AND MERGER AGREEMENT
Terms of the Merger: At the effective time of the Merger (the
"Effective Time"), each share of Common Stock
of the Company, other than shares held by
Cafco and shares held by shareholders
exercising their rights of appraisal, shall,
without any action on the part of the holders
thereof, become and be converted into the
right to receive $37 per share, and each
share of common stock of Cafco shall become
and be converted into one share of Common
Stock of the Company. The payment of $37 per
share is referred to as the "Merger Payment."
As a result, upon the effectiveness of the
Merger, the only shareholders of the Company
will be the present shareholders of Cafco.
The date on which the Effective Time occurs
is referred to as the "Effective Date."
Approval by Directors: On July 15, 1998, the Board of Directors
approved (a) the transfer by the present
Cafco shareholders of their shares of the
Company's Common Stock to Cafco and (b) the
Merger Agreement pursuant to which, subject
to shareholder approval, Cafco is to be
merged into the Company. The Board of
Directors, which is comprised of Messrs.
Frankel and Cohen, who are also the sole
directors of Cafco, determined that the
Merger is fair and in the best interest of
the shareholders. Because the directors are
the directors of both the Company and Cafco
and they, together with their affiliates and
related parties, are the stockholders of
Cafco, they have a conflict of interest. See
"Interest of Directors in the Merger" and
"Certain Relationships and Related
Transactions."
Reasons for the Merger: On September 30, 1997, as a result of the
sale of Multi-Arc, the Company ceased to be
engaged in any active business. Its assets at
June 30, 1998, consisted principally
- 4 -
<PAGE>
of approximately $12.3 million in cash and
cash equivalents, representing the proceeds
received by the Company from the sale of
Multi-Arc and the sale of certain other
securities owned by the Company, net of
payments paid to purchase shares of Common
Stock from shareholders and operating
expenses. The Board of Directors has approved
the Merger because the Merger will enable the
shareholders (other than Cafco and its
shareholders) to realize a fair value for
their shares of Common Stock and to permit
the Company to operate as a private company,
owned by the present Cafco shareholders,
without the burdens of being a reporting
company under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). See
"The Merger" for information concerning
factors considered by the board in approving
the Merger.
No Fairness Opinion: Neither the Company nor Cafco has obtained
any report, opinion or appraisal from any
outside party relating directly or indirectly
to the Merger. The Board of Directors of the
Company, which is comprised of the same
individuals as the Board of Directors of
Cafco, did not believe that a fairness
opinion was necessary because, the Company's
principal assets are cash and cash
equivalents and the Merger Payment
approximates both the liquidation value of
the Common Stock and the price paid by the
Company to purchase shares of Common Stock
from other shareholders in recent negotiated
transactions. The board of directors believes
that, notwithstanding the absence of a
fairness opinion and the potential premium to
the Cafco shareholders, the terms of the
Merger are fair to the nonaffiliated
shareholders. See "The Merger -- Fairness of
the Consideration," "The Merger -- Potential
Premium to Cafco Shareholders" and "The
Merger -- No Fairness Opinion."
Potential Premium for Cafco
Shareholders: The Company has certain contingent assets and
obligations, the extent of which cannot be
determined as of the date of this Information
Statement. Depending on the amount of such
assets and liabilities, it is possible that
the Cafco shareholders would receive
approximately $6.96, or 18.8%, more per share
than the other shareholders of the Company.
If such money were paid pro rata to all
shareholders of the Company, including the
Cafco shareholders, the unaffiliated
shareholders would receive approximately
$5.24, or approximately 15.8%, per share
more, which would result in a total payment
of $42.24. See "The Merger -- Funds Held in
Escrow; Reserves" and "The Merger --
Potential Premium to Cafco Shareholders."
Procedure for Payment: Following the effectiveness of the Merger,
the Company will send the shareholders notice
that the Merger has become effective and
setting forth the procedure for receiving
payment for their shares. At the Effective
Time, the Company's shareholders other than
Cafco will have no rights as shareholders,
and their only right will be the right to
receive the Merger Payment upon delivery of
their stock certificate to the Registrar and
Transfer Company, which will act as paying
agent (the "Paying Agent"). A Letter of
Transmittal will be sent to all shareholders
of the Company after the Effective Date. The
Letter of Transmittal will advise such holder
of the terms of the Merger and the procedures
for surrendering to the Paying Agent
certificates evidencing shares in exchange
for the Merger Consideration. See "Procedure
for Payment." Shareholders who exercise their
dissenters' rights will have the rights with
respect to their shares as described under
"Rights of Dissenting Shareholders."
Tax Consequences: The receipt of the Merger Payment pursuant to
the Merger (including any cash payment
received by dissenting shareholders upon the
exercise of their rights of appraisal) will
be a taxable transaction for federal income
tax purposes. Provided that the Common Stock
is a capital asset in the hands of a
shareholder, in general, the
- 5 -
<PAGE>
payment of the Merger Payment will result in
capital gain or loss to such shareholder as
of the Effective Date. Whether the gain or
loss will be long-term or short-term will
depend on the holding period of the shares of
Common Stock in the hands of such shareholder
as of the Effective Date. See "Material
Federal Income Tax Consequences of the
Merger."
Dissenters Rights: Sections 623 and 910 of the New York Business
Corporation Law ("NYBCL") give to any
shareholder who wishes to object to the
Merger the right to receive from the Company
in cash, the fair value of his or her shares,
provided that the Merger is not abandoned or
fails to be approved and authorized, and
provided, further, that the statutory
procedure is carefully followed. See "Rights
of Dissenting Shareholders" and Appendix D to
this Information Statement.
SUMMARY FINANCIAL INFORMATION
ANDAL CORP.
(In thousands, except per share amounts)
Statement of Operations Data(1):
<TABLE>
<CAPTION>
Nine Months Ended
June 30, Fiscal Year Ended September 30,
-------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenue $ -- $ -- $ -- $ -- $ -- $ -- $ --
Operating income (loss) (484) (200) (417) (1,953) (1,333) (1,768) (1,375)
Income (loss) from continuing
operations 1,047 (462) (423) 3,390 (2,129) (2,435) (1,708)
Income from discontinued
operations(1) 730 1,839 10,081 4,995 4,015 3,556 748
Net income (loss) 1,777 1,277 9,658 6,385 1,886 (1,121) (960)
Income (loss) per share from
continuing operations 2.83 (1.03) (.95) 9.98 (6.45) (7.38) (5.18)
Net income (loss) per share 4.81 3.08 21.59 24.69 5.72 (3.40) (2.91)
Weighted average number of shares
of Common Stock outstanding 370 447 447 340 330 330 330
Dividends paid -- -- -- -- -- -- --
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
September 30,
---------------------------------------------------
June 30, 1998 1997 1996 1995 1994 1993
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Working capital (deficiency) $10,968 $14,247 $(3,594) $(1,034) $(2,815) $(1,923)
Total assets 16,036 21,775 9,488 6,420 6,521 7,441
Long-term liabilities (net of current
maturities) -- -- -- 6,364 7,364 14,720
Shareholders' equity 11,175 14,513 4,855 (5,098) (6,984) (5,863)
Book value per share of Common
Stock 34.17 32.44 10.85 (15.46) (21.17) (17.77)
</TABLE>
- - -------------
(1) See Notes 2 and 6 of Notes to Consolidated Financial Statements, which
are included in the Company's Form 10-K Annual Report for the fiscal year
ended September 30, 1997, which is included as Appendix A to this
Information Statement, for a description of the income (loss) from
discontinued operations in fiscal 1997, 1996 and 1995. Income from
discontinued operations in fiscal 1994 and 1993 resulted from the
Multi-Arc operations, after deduction of $419,000 and $527,000
respectively, of legal expenses and settlements of litigation arising
from the Company's discontinued construction subcontracting operations.
The income
- 6 -
<PAGE>
from discontinued operations in 1994 also includes a $69,000 gain
relating to the divestiture of Olsher Metals Corporation.
CAFCO HOLDING CORPORATION
No financial information is included with respect to Cafco, since
Cafco was formed in July 1998, has no assets other than the shares of the
Company's Common Stock which were transferred by the present Cafco
shareholders, and Cafco has no liabilities.
BENEFICIAL OWNERSHIP OF SECURITIES; SECURITY HOLDINGS OF MANAGEMENT
Set forth below is information as of July 15, 1998, as to each person
owning of record or known by the Company, based on information provided to the
Company by the persons named below, to own beneficially at least 5% of the
Company's Common Stock and all officers and directors as a group.
Percent of Outstanding
Name and Address(1) Shares Common Stock
- - ---------------- ------ ----------------------
Andrew J. Frankel(2) 215,529 75.3%
Alan N. Cohen2 215,529 75.3%
Cafco Holding Corporation(2) 215,529 75.3%
All directors and officers as a group
(three individuals)(3) 216,129 75.4%
- - ------------
(1) Unless otherwise indicated, each person has the sole voting and sole
investment power and direct beneficial ownership of the shares. The
address of each person is c/o Andal Corp., 630 Fifth Avenue, New York,
New York 10111.
(2) The shares of Common Stock owned by Cafco are attributable to Messrs.
Andrew J. Frankel and Alan N. Cohen, who have shared power to vote and
dispose of the shares owned by Cafco. Mr. Frankel, chairman of the board,
chief executive officer and a director of the Company is chairman of the
board, chief executive officer and a director of Cafco. Mr. Cohen,
president and a director of the Company, is president and a director of
Cafco.
(3) Includes 100 shares of Common Stock and options to purchase 500 shares of
Common Stock held by one other officer.
ELECTION OF DIRECTORS
Directors of the Company are elected annually by the shareholders to
serve until the next annual meeting of shareholders and until their respective
successors are duly elected. The bylaws of the Company provide that the number
of directors comprising the whole board shall be determined from time to time
by the Board of Directors. The Board of Directors has established the size of
the board for the ensuing year at two directors and is recommending that the
two incumbent directors of the Company be re-elected. If any nominee becomes
unavailable for any reason, a situation which is not anticipated, a substitute
nominee may be proposed by the Board of Directors, and any shares represented
by proxy will be voted for any substitute nominee, unless the Board reduces
the number of directors.
The Board of Directors is presently comprised of Messrs. Andrew J.
Frankel and Alan N. Cohen, who were elected at the 1997 annual meeting of
shareholders, for which proxies were solicited. Two other individuals who were
also elected as directors at the 1997 annual meeting, Messrs. Peter D. Flood
and Walter N. Kreil, Jr., resigned on September 30, 1997.
- 7 -
<PAGE>
The following table sets forth certain information concerning the
nominees for director:
<TABLE>
<CAPTION>
Name Age Position with the Company Director Since
---- --- ------------------------- --------------
<S> <C> <C> <C>
Andrew J. Frankel 65 Chairman of the board, chief executive officer and director 1971
Alan N. Cohen 67 President and director 1979
</TABLE>
Andrew J. Frankel has been chairman of the board, chief executive
officer and a director of the Company since 1971 except for the period from
September 1, 1996 through September 30, 1997, when he served only as a
director. He has been chairman of the board and chief executive officer of
Cafco since its organization in July 1998.
Alan N. Cohen has been a director of the Company since 1979 and
president of the Company since 1981 except for the period from September 1,
1996 through September 30, 1997, when he served only as a director. He has
been president and a director of Cafco since its organization in July 1998.
Approval Required
Provided that a quorum is present at the Annual Meeting, the two
directors receiving the most votes are elected as directors for a term of one
year and until their successors are elected and qualified.
Meetings of the Board of Directors and Directors Compensation
The Board of Directors has one committee, the Compensation Committee,
which is comprised of Messrs. Andrew J. Frankel and Alan N. Cohen, who are the
only directors of the Company. During the fiscal year ended September 30,
1997, the Board of Directors held three meetings, all of which were attended
by the present directors. The Company's compensation policies applicable to
its executive officers are administered by the Compensation Committee, which
held one meeting during 1997.
On October 1, 1997, the Compensation Committee submitted a report
which said that the base salaries of the executive officers during fiscal 1997
were determined pursuant to their employment agreements which were executed in
1995. Effective October 1, 1997, following the resignation of Messrs. Flood
and Kreil contemporaneously with the sale of Multi-Arc, Messrs. Frankel and
Cohen were elected chairman of the board and chief executive officer and
president, respectively, at an annual salary of $100,000, which was less than
they earned in prior years. The Compensation Committee also approved the bonus
plan for the Multi-Arc officers, including Messrs. Flood and Kreil, for their
efforts in connection with the Multi-Arc sale.
Since both directors are also employed by the Company, they receive
no compensation for service as directors.
EXECUTIVE OFFICERS
Set forth below are the executive officers of the Company and
information concerning those officers who are not also directors of the
Company.
Name Position
- - ---- ---------
Andrew J. Frankel Chairman of the Board and Chief Executive Officer
Alan N. Cohen President
Mary Lou Holcombe Vice President and Secretary
Ms. Mary Lou Holcombe, 53, has been employed by the Company since
1970. She has been vice president and secretary since October 1997. From
September 1, 1996 through September 30, 1997, she was employed in a
non-
- 8 -
<PAGE>
executive administrative capacity. From January 1988 until August 1994 she was
assistant vice president, and from August 1994 until September 1996, she was
secretary, of the Company.
EXECUTIVE COMPENSATION
Set forth below is information with respect to compensation paid or
accrued by the Company for 1997, 1996 and 1995 to its chief executive officer
and to each other officer whose compensation exceeded $100,000 for 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation All Other
Annual Compensation (Awards) Compensation
----------------------------- -------- ---------------
Fiscal Other Annual Options, SARs (401(k) Plan
Name and Principal Position Year Salary Bonus Compensation (2) (Number) Contributions)
- - --------------------------- ---- ---------- --------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter D. Flood, Chief executive 1997 $250,000 $1,510,000 (3) -- $4,750
officer from September 1996 to 1996 250,000 138,000 (3) -- 4,750
September 30, 1997, and chief 1995 250,000 151,000 (3) 2,500(4) 4,620
executive officer of Multi-Arc (1)
Walter N. Kreil, Jr., Senior vice 1997 149,350 580,000 (3) -- 4,750
president and chief financial 1996 142,000 35,000 (3) -- 4,750
officer from September 1996 to 1995 135,200 50,000 (3) 500(4) 4,620
September 30, 1997 and chief
financial officer of Multi-Arc(1)
Andrew J. Frankel, Chief 1997 -- -- -- -- --
executive officer through August 1996 157,000 -- 42,739 -- --
1996 1995 244,000 -- 33,333 -- --
Alan N. Cohen, President through 1997 -- -- -- -- --
August 1996 1996 157,000 -- 16,000 -- --
1995 244,000 -- 16,000 -- --
</TABLE>
- - -------------
(1) Messrs. Flood and Kreil resigned on September 30, 1997, at the time of
the Multi-Arc sale.
(2) Other Annual Compensation includes professional services and supplemental
life and accrued medical insurance as follows:
Andrew J. Frankel Alan N. Cohen
Professional Supplemental Professional
Fiscal Year Services Insurance Services
- - ----------- ------------ ------------ ------------
1996 $10,000 $10,494 $10,000
1995 10,000 5,194 10,000
(3) The Other Annual Compensation for Messrs. Flood and Kreil did not exceed
10% of salary for any fiscal year.
(4) Represents options to purchase common stock of Multi-Arc at $205.13 per
share.
The bonus paid to Mr. Flood in 1997 represents a bonus of $1,150,000
as a result of the sale of Multi-Arc, a $250,000 bonus paid in connection with
the 1996 execution of an employment agreement and a $110,000 bonus paid
pursuant to the terms of his employment agreement.
- 9 -
<PAGE>
The bonus paid to Mr. Kreil represents a bonus of $500,000 as a
result of the sale of Multi-Arc, a $50,000 bonus paid in connection with the
1996 execution of an employment agreement and a $30,000 bonus paid pursuant to
an incentive compensation plan.
On September 30, 1997, contemporaneously with the sale of Multi-Arc,
Messrs. Flood and Kreil exercised their options to acquire common stock of
Multi-Arc. As a result of the Multi-Arc sale, they received net cash payments
of $220,000 and $35,000, respectively, from the sale of their interest in
Multi-Arc resulting from the exercise of the options and from the sale of
Multi-Arc stock and debentures they had acquired in 1995. Such payments were
net of the exercise price of the stock options and repayment of loans made to
them by Multi-Arc in 1995 for the purpose of enabling them to acquire the
stock and debentures.
Messrs. Frankel and Cohen were members of a noncontributory pension
plan which was terminated effective January 1, 1985. Upon termination of the
plan, the Company purchased straight life annuity policies sufficient to pay
each of the participants upon their retirement at normal retirement age the
benefits which had accrued under the plan up to January 1, 1985. The amounts
payable at normal retirement to Messrs. Frankel and Cohen are $61,402 and
$36,988, respectively.
Employment Contracts
The Company does not have any employment agreements with any of its
officers. Pursuant to a retirement agreement dated August 31, 1996, the
Company is obligated to provide life and health insurance benefits to Messrs.
Frankel and Cohen for the remainder of their lives and to provide health
insurance benefits to Ms. Holcombe until age 65. See "Certain Relationships
and Related Transactions."
Option Exercises and Outstanding Options
The following table sets forth information concerning the exercise of
options and warrants during the fiscal year ended September 30, 1997 and the
year-end value of options held by the Company's officers named in the Summary
Compensation Table. No stock appreciation rights ("SARs") have been granted.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised In-
Unexercised the-Money
Options at Options at Fiscal
Fiscal Year Year End(1)
End(1)
Shares Acquired Value Exercisable/ Exercisable/
Name Upon Exercise Realized Unexercisable Unexercisable
---- ------------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Peter D. Flood 2,500(2) 212,500(3) 2,000/3,000 $45,500/68,250
Walter N. Kreil, Jr. 500(2) 42,500(3) 300/450 6,825/10,238
Andrew J. Frankel -- -- --/-- --/--
Alan N. Cohen -- -- --/-- --/--
</TABLE>
- - -------------
(1) The shares subject to outstanding options at fiscal year end are shares
of Common Stock. Such options are no longer outstanding.
(2) The shares acquired upon exercise of options represent shares of common
stock of Multi-Arc.
- 10 -
<PAGE>
(3) Based on the consideration paid per share of Multi-Arc common stock
pursuant to the sale of Multi-Arc on September 30, 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Interest of Directors, Officers in Cafco
Messrs. Andrew J. Frankel and Alan N. Cohen, who are the only
directors of the Company and are chairman of the board and chief executive
officer and president, respectively, of the Company, are also chairman of the
board and chief executive officer and president, respectively, of Cafco. Cafco
is the owner of 215,529 shares of Common Stock, representing 75.3% of the
Company's outstanding Common Stock. On July 15, 1998, the Company and Cafco
entered into the Merger Agreement. Pursuant to the Merger Agreement, at the
Effective Time, the shareholders of Cafco will become the only holders of
Common Stock of the Company and the shareholders of the Company, other than
Cafco and shareholders exercising rights of appraisal, will have only the
right to receive the Merger Payment. See "The Merger."
The Retirement Agreement
On August 31, 1996, the board of directors effected a change in
management, and elected the individuals who were the executive officers of
Multi-Arc, Inc., a majority-owned subsidiary of the Company, as officers of
the Company, and the Company moved its executive offices to New Jersey, where
Multi-Arc maintained its executive offices. At that time, the Company's
business was conducted almost exclusively through Multi-Arc, and neither Mr.
Frankel nor Mr. Cohen was actively involved in the management of Multi-Arc.
As part of this management change, Mr. Andrew J. Frankel resigned as
chairman and chief executive officer of the Company, and Mr. Alan N. Cohen
resigned as president of the Company. Messrs. Frankel and Cohen continued to
serve as directors. In connection with their resignation as officers of the
Company, Messrs. Frankel and Cohen entered into an agreement (the "Retirement
Agreement"), pursuant to which the Company agreed to maintain the Company's
New York office and pay the compensation due to the employees at such office,
and Messrs. Frankel and Cohen agreed to reimburse the Company for such
expenses. The agreement also provided for the issuance of 32,500 shares of
Common Stock to each of Messrs. Frankel and Cohen and the continuation of
health insurance benefits for Messrs. Frankel and Cohen and members of their
families at the Company's expense. The Company's obligation to pay such
insurance benefits is an ongoing obligation of the Company.
In September 1997, following the sale of Multi-Arc, the Company
relocated its offices from New Jersey to New York City, and Messrs. Frankel
and Cohen were reelected as chairman of the board and chief executive officer
and president, respectively.
Loan Transactions with Related Parties
On July 5, 1990, the Company borrowed an aggregate of $5 million from
Mr. Alan N. Cohen, president and a director of the Company, Mr. Paul Milstein,
who was then a director of the Company, and Frankhill Associates, a limited
partnership of which Mr. Andrew J. Frankel, chairman of the board and a
director of the Company, is a general partner and the holder of a significant
beneficial interest (collectively, in such capacity, the "Option Lenders").
The proceeds of the loan (the "Option Loan") were used by the Company to
reduce then-outstanding bank indebtedness and for general corporate and
working capital purposes.
The Option Loan was secured by a pledge of the capital stock of UBC
Virginia Corp. ("UBC Corp."), a subsidiary of the Company which held an option
(the "Option") to purchase certain real estate in New York City (the "UBC
Property") for approximately $3.0 million in cash. The Option did not become
exercisable until the death of the second to die of the two principals of the
corporation that owned the UBC Property. The Option was exercisable during the
90 days following such death, after which time it expired. If exercised, the
Company was required to pay
- 11-
<PAGE>
the purchase price for the UBC Property within 30 days of the date of
exercise. The Option became exercisable in September 1995. The closing date
was postponed until May 1996. The Option Loan required the Company to exercise
the Option when it became exercisable. The failure of the Company to exercise
the Option would be a default under the terms of the Option Loan, and the
Option Lenders would have the right to exercise the Option on behalf of the
Company and declare the Option Loan to be due and payable.
UBC Corp. was merged into the Company in March 1996, as a result of
which the Option became an asset of the Company.
In connection with the Option Loan, the Company paid the Option
Lenders a $50,000 commitment fee and issued to them warrants to purchase an
aggregate of 25,000 shares of Common Stock at $80.00 per share. The closing
market price of the Common Stock on July 5, 1990 was $65.00 per share. The
warrants were exercisable from December 31, 1990 until July 5, 1995, at which
time they expired unexercised. The Option Loan was due on the earlier of March
31, 1997 or the day after the Company's bank loans have been paid in full.
In May 1992, the Company restructured the Option Loan, as well as its
loans with Chemical Bank and Fleet Bank. Most of the Company's bank
obligations had been incurred prior to 1976. Under the terms of such
restructuring, (a) the interest rate on all such loans was reduced to the
prime rate, (b) accrued interest on the Option Loan from October 1, 1991
through March 31, 1993, in the amount of $571,285, was added to the principal,
thereby increasing the principal balance of the Option Loan to $5,571,285, and
(c) the Company was required to prepay the Option Loan (i) in the event of a
sale of the Company's interest in the UBC Property or (ii) in the event the
Company obtains cash recoveries on various claims relating to its discontinued
construction contracting operations, or (iii) if the Company's cash flow from
operations exceeds a specified amount.
In connection with the 1992 restructuring, the banks consented to the
Company's grant to the Option Lenders of a second lien on those assets of the
Company which served as collateral for the bank loans, and the Option Lenders
consented to the Company's grant to the banks of a second lien on the stock of
UBC Corp.
In 1994, Fleet Bank advised the Company that it desired to dispose of
its portion of the bank loan. In March 1994, after discussions initiated by
Fleet Bank, Frankhill Associates, Alan N. Cohen, and Paul Milstein
(collectively, in such capacity, the "Fleet Assignees") each purchased a
one-third interest in the Company's indebtedness to Fleet Bank (the "Fleet
Indebtedness"), which indebtedness totaled $3,042,000. The terms of such
indebtedness did not change as a result of this purchase. In November 1994,
Peter D. Flood, who was then a director of the Company and chief executive
officer of Multi-Arc, purchased 6.4% of the Fleet Indebtedness from the Fleet
Assignees.
In September 1994, in order to facilitate the restructuring and
refinancing of Multi-Arc, the Fleet Assignees agreed to subordinate their lien
on Multi-Arc's assets and to defer the approximately $1.6 million payment to
which they would have otherwise been entitled. In consideration for the
concessions agreed to by the Fleet Assignees, the Company's board of
directors, with Messrs. Frankel and Cohen not voting, approved a payment of
$255,000 by the Company to the Fleet Assignees. The 1992 restructuring
agreement was amended to provide for principal payments on the Fleet
Indebtedness at the rate of $250,000 per quarter beginning March 31, 1995,
with the remaining principal balance becoming due on March 31, 1997.
Furthermore, the Company was required to make prepayments to the extent that
it sells any of its capital assets or receives capital distributions from
Multi-Arc.
In September 1994, Chemical Bank agreed to accept a $255,000 discount
for payment of the Company's outstanding debt to it. After such repayment, the
Company's remaining obligation to Chemical Bank was $941,000, representing
obligations due under outstanding letters of credit issued by Chemical Bank in
connection with an appeal bond and in connection with the Company's
discontinued real estate development activities. Because of the Company's
inability to fund the liabilities represented by the letters of credit, in
order to secure the release of collateral held by Chemical Bank so that
Multi-Arc could obtain a term loan and revolving credit facility from another
bank, Messrs. Frankel, Milstein, and Cohen each personally guaranteed
one-third of the letter of credit liabilities, for which the Company agreed to
pay them an aggregate annual guarantee fee equal to 2% of the letters of
credit outstanding.
- 12 -
<PAGE>
At September 30, 1996, the Company owed approximately $1.6 million to
the Fleet Assignees. At that time, the Company and the Fleet Assignees entered
into an agreement (the "Debt Cancellation Agreement") pursuant to which the
Company paid approximately $91,500 to each of the three Fleet Assignees and
issued 15,000 shares of Common Stock to each of the three Fleet Assignees in
full satisfaction of the Fleet Indebtedness.
As discussed above, the Option became exercisable in September 1995
and the Company was obligated to exercise the Option. At the time the Option
became exercisable, the Company did not have the cash required to exercise the
Option, and it could not raise the necessary funds from unrelated parties or
from the sale of assets other than the Option. Since the Option Loan agreement
required the Company to exercise the Option, the Company exercised the Option
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 and issued its 10% demand note,
which was secured by a mortgage on the UBC Property.
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.
In 1984, the Company had entered into an agreement with a
nonaffiliated real estate developer pursuant to which such real estate
developer agreed to purchase the Option. The developer was unable to obtain
financing to consummate the purchase. As a result, the contract was
terminated. Upon termination of the agreement, the Company attempted to sell
the Option to other nonaffiliated parties. In addition, after the Company
received notice that the Option had become exercisable and the Company had 90
days to exercise the Option, 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 the Option became exercisable, the Option Lenders expressed an
interest in acquiring the UBC Property in satisfaction of the amount
outstanding on the Option Loan. The board of directors (with the Option
Lenders not participating), after considering 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 securities, authorized the officers
of the Company to engage an independent appraiser to conduct an appraisal of
the Property and seek to negotiate a transaction with the Option Lenders.
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 UBC Property was between $9.9 million and $11.9 million
(before deducting the $3 million exercise price), 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, the Company's board of directors, with the Option
Lenders not participating, authorized the officers of the Company to engage in
negotiations with the Option Lenders to reach an agreement to sell the Option
to them. On July 10, 1996, the Company entered into a contract to sell the UBC
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,
controlled its activities.
On August 1, 1996, FAM purchased the Property for approximately $9.4
million, paid for as follows:
(a) Cancellation of the principal balance of the Option Loan in the
amount of $5,571,285, which has been acquired by FAM from the Option Lenders.
- 13 -
<PAGE>
(b) Cancellation of the Demand Loan of $3.3 million due Frankhill
Associates, the Alan N. Cohen Family Company, LLC, and Paul Milstein, which
loan has also been acquired by FAM.
(c) Forgiveness of interest in the amount of $283,000 due on the
Option Loan and the Demand Loan.
(d) Cash payment to the Company of $228,715.
FAM also assumed the cost of terminating then existing occupancy
arrangements at the UBC Property, the cost of which was estimated at
approximately $500,000. As a result the effective cost of the UBC Property was
approximately $9.9 million.
In addition, the Company was entitled to a contingent additional
payment 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 would have been entitled to 50% of the amount by which the
net proceeds of the sale, as defined, of all or any portion of the Property
exceeds $10 million. In no event can such additional consideration exceed $3
million.
The Company reported a gain of approximately $6 million from the sale
of the UBC Property to FAM.
PERFORMANCE GRAPH
The following graph shows changes in the value of $100 invested on
September 30, 1992 of: (a) shares of the Company's Common Stock; (b) the
American Stock Exchange Market Value Index and (c) the S&P 500 Index. The
year-end values of each investment are based on compounded daily returns that
include all dividends. Total shareholder returns from each investment can be
calculated from the year-end investment values shown beneath the graph
provided below. Since there is no significant market for the Company's Common
Stock, the closing market price at September 30, 1997 was assumed to be $25.00
for purposes of computing cumulative return. Since there was no active market
for the Common Stock on September 30, 1997, the Company used the price at
which it purchased stock from shareholders in negotiated transactions during
the quarter ending December 31, 1997, which was $25.00. See "Recent Purchases
of Common Stock by the Company" for additional information relating to the
selection of $25.00 as the closing market price on September 30, 1997.
- 14 -
<PAGE>
<TABLE>
<CAPTION>
9/30/92 9/30/93 9/30/94 9/30/95 9/30/96 9/30/97
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Andal Corp. 100.0 0.00 32.00 36.00 0.00 400.00
Amex Market Value Index 100.0 122.21 212.79 144.60 151.70 191.00
S&P 500 Index 100.0 109.84 110.75 139.88 164.51 226.73
</TABLE>
THE MERGER
Terms of the Merger
Pursuant to the Merger Agreement, at the Effective Time of the
Merger:
(a) Each share of Common Stock, other than shares of Common
Stock held by Cafco and shareholders who exercise their
rights of appraisal, would receive the right to receive the
Merger Consideration of $37.
(b) Each option to purchase one share of Common Stock shall
become a right to receive the difference between $37.00 and
the exercise price of the option.
(c) Each share of common stock of Cafco would become and be
converted into one share of Common Stock of the Company.
As a result of the Merger, at the Effective Time, the shareholders,
other than Cafco and shareholders exercising rights of appraisal, will have no
rights as shareholders, their only rights being the right to receive the
Merger Payment, and the present shareholders of Cafco will own all of the
issued and outstanding shares of Common Stock. Shareholders exercising their
rights of appraisal will, provided they strictly comply with the provisions of
Section 623 of the NYBCL, have the right to demand payment of the fair value
for their shares. See "Rights of Dissenting Shareholders" and Appendix D to
this Information Statement.
The purpose of the Merger is to pay such shareholders a fair value
for their shares and, following the effectiveness of the Merger, to operate
the Company as a privately-owned company, with the present shareholders of
Cafco as its only shareholders.
Required Vote
The Merger requires the approval of the holders of two-thirds of the
outstanding Common Stock, which is the only class or series of voting stock of
the Company. Since Cafco owns 75.3% of the outstanding Common Stock and is
required to vote in favor of the Merger by the Merger Agreement, the Merger
may be approved by Cafco without the affirmative votes of any other
shareholder.
Effectiveness of the Merger
The Merger will become effective upon the filing of a certificate of
merger with the Secretary of State of the State of New York. It is expected
that the Merger will become effective within two business days after the
Annual Meeting. Except for the approval by the shareholders, no other
approvals are required for the Merger to become effective.
Approval by the Board of Directors
On July 15, 1998, the Board of Directors approved (a) the transfer by
the present Cafco shareholders of their shares of the Company's Common Stock
to Cafco and (b) the Merger Agreement pursuant to which, subject to
shareholder approval, Cafco is to be merged into the Company. The Board of
Directors, which is comprised of
- 15 -
<PAGE>
Messrs. Frankel and Cohen, who are also the directors of Cafco, determined
that the Merger is fair and in the best interest of the shareholders. See
"Certain Relationships and Related Transactions" and "The Merger -- Potential
Premium to Cafco Shareholders."
Interest of Directors in the Merger
Cafco owns 215,529 shares of Common Stock, constituting 75.3% of the
outstanding shares of Common Stock on the Record Date. Mr. Andrew J. Frankel,
chairman of the board, chief executive officer and a director of the Company
is chairman of the board, chief executive officer and a director of Cafco. Mr.
Alan N. Cohen, president and a director of the Company, is president and a
director of Cafco. All of the shareholders of Cafco are either related to or
affiliated with either Mr. Frankel or Mr. Cohen.
The Company has certain contingent assets and obligations, the extent
of which cannot be determined as of the date of this Information Statement.
Depending on the amount of such assets and liabilities, it is possible that
the Cafco shareholders would receive approximately $6.96, or 18.8%, more per
share than the other shareholders of the Company. See "The Merger -- Funds
Held in Escrow; Reserves" and "The Merger -- Potential Premium to Cafco
Shareholders."
Filing of Schedule 13E-3
In connection with the Merger, the Company, Cafco and Messrs. Frankel
and Cohen jointly filed a Schedule 13E-3 with the Securities and Exchange
Commission (the "Commission"). This Information Statement contains all of the
information contained in the Schedule 13E-3. During the 60 days prior to the
filing of the Schedule 13E-3, neither Cafco nor Messrs. Frankel or Cohen
engaged in any transaction involving the Common Stock other than the transfer
in July 1998 of the Common Stock owned by the Cafco shareholders (including
Messrs. Frankel and Cohen) to Cafco in contemplation of the Merger.
Background
The Company is not presently engaged in any active business. Prior to
September 30, 1997, the Company, through Multi-Arc, its majority-owned
subsidiary, had been engaged in surface enhancement which 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. On September 30,
1997, Multi-Arc was merged into a wholly-owned subsidiary of Bernex, Inc. The
Company received approximately $17.8 million from this transaction and may be
entitled to receive up to $3 million in additional cash from certain escrows
that were established at the closing.
Following the Multi-Arc sale in September 1997, the Company's board
of directors adopted a resolution which provided that, within one year from
the completion of the Multi-Arc sale, it would engage in a transaction such
that the Company is not engaged in the business of an investment company, as
defined in Section 3 of the Investment Company Act of 1940 (the "Investment
Company Act").
As of June 30, 1998, the Company did not have any agreement with any
company or other entity pursuant to which the Company would acquire such
company or its business and assets, and no discussions were pending. Although
the Company had received an inquiry about the possibility of a merger or
similar corporate transaction, such discussions did not result in any formal
or informal agreement and no discussions are continuing.
As a result of the sale of Multi-Arc, the Company may have come
within the technical definition of an investment company as defined in Section
3 of the Investment Company Act. However, Rule 3a-2 of the Commission under
the Investment Company Act treats a so-called transient investment company as
a company which is not engaged in the business of an investment company. In
order for a corporation to be a transient investment company, it must have a
bona fide intent, during a period of time not to exceed one year, to be
engaged primarily,
- 16 -
<PAGE>
as soon as is possible, in a business other than that of investing,
reinvesting, owning, holding or trading in securities. Thus, the Company could
not be a transient investment company subsequent to September 30, 1998.
The board of directors does not believe that it is in the interests
of either the Company or its shareholders for the Company to become an
investment company. The operation of the Company as an investment company
would subject the Company to considerably greater expenses of operations as
well as increased regulation under the Investment Company Act. Considering the
Company's relatively modest cash position and the absence of an operating
business, the expenses of operating an investment company, including the
engagement of additional staff and the increased regulatory burden, could
result in losses from operations, which would not be in the interest of the
Company or its shareholders.
The Investment Company Act permits the Company to own government
securities and certain other classes of securities without being classified as
an investment company. Accordingly, the Company has not engaged in any
transaction which would cause it to come within the definition of an
investment company. Except for cash necessary to meet the Company's cash
requirements, all of the Company's cash is and, as long as it continues to be
a public corporation, will be invested in assets which will not make it an
investment company. However, the board of directors does not believe that it
would be in the interest of either the Company or its shareholders for the
Company's principal business to be a holder of such securities, including
government securities. The operation of the Company as a holder of such
securities would not solve the problems of an illiquid stock, which is
currently faced by the Company's shareholders since the public float is only
70,565 shares and there is no meaningful trading market in the Common Stock.
In order to provide the shareholders with liquidity in their stock
and to eliminate the problems raised by the need to structure the Company's
holdings in a manner such that it is not subject to the Investment Company
Act, in July 1998, the Company's board of directors approved the Merger
Agreement. The board of directors of the Company is comprised of the same
individuals as the board of directors of Cafco.
Available Cash
At September 30, 1997, following completion of the Multi-Arc sale,
the Company had cash of $17,875,000. At June 30, 1998, the Company's cash
position was $12,281,000. The following table shows the use of cash during the
nine months ended June 30, 1998. Reference is made to the Statement of Cash
Flows for the nine months ended June 30, 1998, which is included in the
Company's Form 10-Q for the quarter ended June 30, 1998.
(In Thousands)
Cash at September 30, 1998 $17,875
Net cash used by operating activities (1,577)
Proceeds from sale of Yogen Fruz stock(1) 1,247
Purchase of Common Stock from shareholders(2) (5,264)
---------
Cash at June 30, 1998 $12,281
=======
- - ------------
(1) Following the transfer of shares of Integrated Brands (which subsequently
merged into Yogen Fruz) in connection with the purchase of shares of
Common Stock, the Company owned 136,078 shares of Yogen Fruz, which were
sold in May 1998 for approximately $1.2 million.
(2) This amount reflects the cash consideration paid by the Company and the
value of the common stock of Integrated Brands that was transferred in
connection with the purchase by the Company of shares of Common Stock
during the nine months ended June 30, 1998.
- 17 -
<PAGE>
Absence of Active Market for Common Stock
There is no active market in the Common Stock and there has not been
an active market since September 1995. The Common Stock is not included in the
Nasdaq OTC Bulletin Board. Based on information provided by the National
Quotation Bureau, Inc. ("NQB"), there was no quoted bid price for the Common
Stock during the period from October 1, 1995 until November 3, 1997. During
the period from November 3, 1997 until June 30, 1998, there was minimal
trading, and there was no reported trading from July 1 through July 13, 1998.
Set forth below is information provided by NQB as to the trading volume and
the high and low closing bid prices for the Common Stock during such period
for the following calendar quarters.
<TABLE>
<CAPTION>
Period Volume Closing High Bid Closing Low Bid
- - ------ ------ ---------------- ---------------
<S> <C> <C> <C>
1997
Third quarter (from Nov. 3) 6,400 20.00 17.00
1998
First quarter 8,500 21.625 17.00
Second quarter 5,300 22.00 21.625
Third quarter (through July 13) -0- 22.00 22.00
</TABLE>
The above prices represent prices between dealers and do not include
retail markups, markdowns or commission and do not represent actual
transactions. Furthermore, the volume information may not reflect the actual
trading volume and may include both the purchase by a buyer and sale by a
seller as if there were two transactions.
Effect of Absence of Active Market
The public float for the Common Stock (i.e., the shares of Common
Stock not owned by Cafco) is 70,565 shares. Because there is no active market
for the Common Stock, shareholders are not generally able sell their shares of
Common Stock on the open market. For these reasons, the Company and Cafco do
not believe that it is in the interest of either the Company or its
shareholders for the Company to continue to be a reporting company under the
Exchange Act and for the approximately 1,100 shareholders to have no liquidity
for their stock. Furthermore, more than 1,050 shareholders of record hold 100
or fewer shares, including more than 940 shareholders of record who hold ten
or fewer shares.
Recent Purchases of Common Stock by the Company
Following the Multi-Arc sale, a number of shareholders, including a
principal shareholder, requested that the Company purchase their shares. As a
result, during the period from October 1, 1997 through February 6, 1998, the
Company purchased an aggregate of 15,581 shares of Common Stock at a purchase
price of $25 per share. From February 18, 1998 through April 20, 1998, in
three transactions, the Company purchased 147,858 shares of Common Stock for
$33 per share plus .8125 shares of common stock of Integrated Brands which
were owned by the Company. The shares purchased during the quarter ended March
31, 1998 included 100,232 shares of Common Stock purchased from Mr. Paul
Milstein and other shareholders who are affiliated with or otherwise related
to Mr. Milstein who together represented the second largest shareholder of the
Company at the time of the purchase.
Integrated Brands subsequently merged into Yogen Fruz World-Wide Inc.
("Yogen Fruz"), as a result of which the .8125 shares of Integrated Brands
became .4754 shares of Yogen Fruz. The first two purchases were completed
prior to such merger, and the third purchase was made after such merger. Based
on the average of the high and low closing bid prices per share of Integrated
Brands or Yogen Fruz on the applicable dates, the value of the noncash
consideration was approximately $2.23 per share of Common Stock with respect
to the first two purchases and $3.79 per share of Common Stock with respect to
the third purchase. The value of the Yogen Fruz stock reflects the price in
United States dollars of a stock quoted in Canadian dollars. Accordingly, the
total value of the consideration paid in connection with such purchases was
$35.23 with respect to the first two purchases and $36.79 for the third.
- 18 -
<PAGE>
Although the Company has received inquiries from other shareholders
who desire to sell their shares of Common Stock, the Company has discontinued
such purchases.
During the past three years, the Company has not made an underwritten
public offering of its Common Stock which was either registered with the
Commission pursuant to the Securities Act of 1933, as amended (the "Securities
Act") or was exempt from such registration pursuant to Regulation A of the
Commission under the Securities Act.
The Merger Payment
The Merger Payment reflects the value of the Company's net liquid
assets, net of reserves reflected on the Company's balance sheet. Since the
balance sheet reflects a reserve of $3.0 million, which is the amount of the
maximum potential payment from the escrow account set up in connection with
the sale of Multi-Arc (the "Multi-Arc Escrow"), in determining the Merger
Payment, the Multi-Arc Escrow was fully reserved against, and therefore, the
amount of the Merger Payment does not give any value to the contingent payment
from the Multi-Arc Escrow. As of the date of this Information Statement, to
the best of the Company's knowledge, no claims have been made against any of
the escrow accounts. The amount of the Merger Payment is greater than the
highest amount paid to shareholders in negotiated transactions with the
Company in 1998. Such purchase price, including the value of the non-cash
consideration, was $36.79. To the extent that the amount received from the
Multi-Arc Escrow exceeds the amount of any contingent liabilities or other
ongoing expenses incurred by the Company, the Cafco shareholders would receive
a premium over the Merger Payment. See "The Merger -- Fairness of the
Consideration," "The Merger -- Funds Held in Escrow; Reserves" and "The Merger
- - -- Potential Premium to Cafco Shareholders."
Relative Benefits and Detriments of the Merger
The following is a discussion of the benefits and detriments of the
consummation of the Merger to the Company, the Cafco shareholders and the
unaffiliated shareholders.
(a) The Company
The Merger will benefit the Company by eliminating the costs of
maintaining its status as a public company and complying with applicable
securities regulations. Such costs would be increased if the Company is
required to register under the Investment Company Act. Although the Company
can continue to operate as an owner of government securities and certain other
securities without registering under the Investment Company Act, the Company
does not believe that it is in the interest of the shareholders for its
principal business to be the ownership of such securities. The Company
believes that the legal and accounting costs of maintaining its status as a
public company is approximately $100,000 per year in addition to operating
expenses such as rent, compensation and other administrative expenses.
If the Merger is consummated, the Company will be a private company
and will not have any value as a so-called public shell. Although the board of
directors does not believe that it is in the best interest of the Company or
its shareholders for it to maintain its status as a public company, it is
possible that, if the Company continued in existence as a public company, it
would be able to acquire a company seeking to become a public company through
a merger with the Company. However, the Company believes that the absence of
any significant public float or market for the Common Stock would have a
material adverse effect upon the terms on which a merger could be affected.
Furthermore, the Company would incur significant cost negotiating such a
transaction with no assurance that a transaction beneficial to the Company
would be consummated. The Company engaged in preliminary discussions with one
unaffiliated party, and such discussions did not result in any proposal.
(b) The Cafco Shareholders
The Cafco shareholders would benefit from the Merger since, as a
result of the Merger, they would own all of the issued and outstanding Common
Stock of the Company. Furthermore, to the extent that the Company receives
money from the escrow fund in excess of the Company's contingent obligations,
the Cafco shareholders would
- 19 -
<PAGE>
receive all of such proceeds, and the unaffiliated shareholders would receive
no portion of such proceeds. If the amount received by the Company from the
escrow accounts, net of payments to be made with respect to contingent
obligations, is $1.5 million, the Cafco shareholders would receive
approximately $6.96, or 15.8%, more per share than the other shareholders of
the Company. However, the Cafco shareholders would bear the responsibility for
payment of the ongoing expenses of the operation of the Company. Furthermore,
as a result of the Merger, the Cafco shareholders would have 100% (rather than
75.3%) interest in the Company's net book value and net earnings.
The Cafco shareholders, as the holders of all of the outstanding
stock of the Company, would be adversely affected to the extent that the
Company's obligations, including its ultimate obligations with respect to
contingent liabilities, are greater than presently contemplated.
(c) Unaffiliated Shareholders
The shareholders other than the Cafco shareholders would benefit from
receiving a fair price in cash for an investment which is presently an
illiquid investment. As discussed above, there is no active market for the
Common Stock and there is no significant float. The Company has received
inquiries from shareholders who are interested in obtaining cash for their
shares but are unable to sell the shares in the market.
Because of the structure of the Merger, the unaffiliated shareholders
will receive a price per share which may be less than they would receive if
the Company liquidated. If the Company liquidates and distributes cash, net of
reasonable reserves, to the shareholders, it is possible that the price per
share would be increased by approximately $5.24, or 12.4%, per share, a
significant portion of which would not be distributed until October 2002 or
later. In addition, the unaffiliated shareholders will no longer hold an
equity interest in the Company.
Fairness of the Consideration
The Company believes that the Transaction is fair to the
nonaffiliated shareholders. In determining the fairness of the terms of the
Merger, the Company considered the following factors.
(a) The liquidation value per share of Common Stock was based on the
Company's most recent balance sheet at the time the Merger Agreement was
approved by the board of directors, which is the balance sheet as of March 31,
1998, net of appropriate reserves set by the board of directors for ongoing
expenses, including potential future litigation and retirement benefits for
employees other than Messrs. Frankel and Cohen and insurance benefits for
Messrs. Frankel and Cohen. However, in accordance with generally accepted
accounting principles, the March 31, 1998 balance sheet reflected the value of
the Company's stock ownership of Yogen Fruz at its cost. The board of
directors believed that, for purposes of determining the liquidation value,
the Yogen Fruz shares should be valued at their then current value. After
taking all such factors into consideration, the liquidation value per share of
Common Stock would be $37.00.
At June 30, 1998, the Company amount of the Multi-Arc Escrow was $3.0
million. At such date the Company also had a reserve in the same amount, which
is reflected as deferred income on the balance sheet. Accordingly, for
purposes of determining the Merger Payment, the $3.0 million Multi-Arc Escrow
was fully reserved against.
(b) The price at which the Company purchased shares of Common Stock
in recent transactions. Such purchases were made from knowledgeable investors,
including Mr. Paul Milstein and parties affiliated or otherwise related to
him, who were, in the aggregate, the second largest shareholder of the
Company. The purchase price paid resulted from negotiations with the sellers
and reflected an approximation at the time of the liquidation value of the
Common Stock.
(c) Although it is possible that the nonaffiliated shareholders may
receive less per share of Common Stock than the Cafco shareholders, to the
extent that there is a premium to the Cafco shareholders, a significant
portion of such premium would not be received until October 2002 or later, and
the Cafco shareholders bear all of
- 20 -
<PAGE>
the risk that (i) there will be claims against the escrow reserves and (ii)
the contingent liabilities will exceed the amount presently contemplated by
the Company.
The Company does not believe that the market price of the Common
Stock represents any indicia of value, since there is a very thin market for
the Common Stock. However, the Merger Payment exceeds the most recently
reported bid prices for the Common Stock prior to the execution of the Merger
Agreement.
The Company believes that, because the Company is not engaged in any
business activities, valuations based on a multiple of earnings are not
relevant. The Company's main asset is cash and cash equivalents. Furthermore,
since the Company is not engaged in any business activities, the Company does
not believe that it has any value as a going concern.
In considering the various factors to determine fair value, the
directors gave the greatest weight to the price at which the stock was
purchased by the Company from shareholders, which approximated the liquidation
value based on the then most current balance sheet. In February 1998, the
Company purchased an aggregate of 107,370 shares, or approximately 24.7% of
the Company's Common Stock, of which an aggregate of 100,232 shares of Common
Stock were owned by Messrs. Paul and Seymour Milstein and related parties
(collectively, the "Milstein Group"). The price per share was $33 in cash plus
.8125 shares of Integrated Brands. The price was the result of substantial
arms length negotiation between the Company and the representatives of
Milstein Group. Mr. Paul Milstein is a former director of the Company and was
one of the Fleet Assignees and Option Lenders. Messrs. Paul and Seymour
Milstein are experienced investors and were familiar with the Company and its
financial condition and the terms of the Multi-Arc sale, including the
Multi-Arc Escrow and the extent of the Company's contingent liabilities. In
April 1998, the Company purchased 40,488 shares of Common Stock from other
shareholders, including an investment banking firm, at the same price as had
been negotiated by the Milstein Group. No event has occurred subsequent to the
purchase of the stock from the Milstein Group and the other shareholders which
would affect the value of the Company's Common Stock either positively or
negatively.
Because the Company's assets are substantially all liquid assets and
the Company has no independent value as a going concern, the price paid to the
selling shareholders approximated the estimated liquidation value, with the
amount of the Multi-Arc Escrow being offset by a reserve in the amount of the
asset. The estimated liquidation value being paid to the unaffiliated
shareholders reflects a modest premium over the amount paid to the Milstein
Group and other selling shareholders. However, in the event that the Company's
obligations are less than the amount reflected as a reserve on the Company's
June 30, 1998 balance sheet, which is included in the Company's Form 10-Q for
the quarter ended June 30, 1998, the Cafco shareholders may realize a premium
of up to 15.8% above the Merger Payment being made to the nonaffiliated
shareholders. In approving the terms of the Merger, the directors of the
Company, who are also the directors of Cafco, recognized that the Cafco
shareholders may realize such premium. However, to the extent that there is a
premium to the Cafco shareholders, a significant portion of such premium would
not be received until October 2002 or later, and the Cafco shareholders bear
all of the risk that (a) there will be claims against the escrow reserves and
(b) the contingent liabilities will exceed the amount presently contemplated
by the Company. Accordingly, the board determined that the terms of the Merger
are fair to the nonaffiliated shareholders. See "The Merger -- Potential
Premium to Cafco Shareholders."
The fairness of the terms of the Merger were determined by the
Company's board of directors, which is comprised of the same individuals as
the board of directors of Cafco, without the engagement of any representative
of the nonaffiliated shareholders. In addition, as disclosed under "The Merger
- - -- No Fairness Opinion," the board did not engage any third party to evaluate
the terms of the Merger from a fairness point of view. Furthermore, since
Cafco owns 75.3% of the outstanding Common Stock, it will be able to approve
the Merger without the votes of any other shareholders. Notwithstanding the
foregoing, the board of directors believes that, for the reasons described
above, the terms of the Merger are fair to the nonaffiliated shareholders. The
directors believe that the arms-length negotiations with knowledgeable major
shareholders to determine a price at which the Company would purchase the
shares of such holders provided the Company with a basis for evaluating the
fairness of the transaction to the Company's shareholders. The New York
Business Corporation Law sets forth a procedure whereby shareholders
- 21 -
<PAGE>
who do not believe that the terms of the Merger are fair can exercise their
rights of appraisal. See "Rights of Dissenting Shareholders."
Funds Held in Escrow; Reserves
At June 30, 1998, the amount in the Multi-Arc Escrow was $3.0
million. At such date the Company also had a reserve in the same amount, which
is reflected as deferred income on the balance sheet. The Multi-Arc Escrow was
established to protect the purchaser of Multi-Arc from any loss, liability,
damage or expense, including legal expense, it may incur as a result of any
breaches by Multi-Arc of its representations and warranties and to provide for
payment for certain tax liabilities. It is anticipated that a substantial
portion of the Multi-Arc Escrow may be made available to the Company in March
1999 provided that there are no claims against the escrow at that time. The
Company does not know of any claims against the Multi-Arc Escrow as of the
date of this Information Statement.
The Merger Consideration reflects the value of the Company's net
liquid assets, net of a full reserve against the Multi-Arc Escrow. The Company
has obligations for expenses, including potential future litigation,
retirement benefits for employees other than Messrs. Frankel and Cohen, the
obligation to maintain health insurance for Messrs. Frankel and Cohen and
members of their families. After analyzing the cost of such obligations and
the ongoing cost of operations, as of the date of this Information Statement,
the Company anticipates that its contingent obligations will be in the range
of $1.5 million to $2 million.
Although a substantial portion of the Multi-Arc Escrow may be
released as early as March 1999, the balance of the Multi-Arc Escrow would not
be available until September 2002, and, accordingly, any distribution of such
funds to shareholders could not be made prior to October 2002.
Potential Premium to Cafco Shareholders
The amount of the Company's contingent obligations and the extent of
any claims which may be asserted against the escrow account cannot be
determined as of the date of this Information Statement. If the Company
receives the full $3.0 million from the Multi-Arc Escrow in March 1999 and
September 2002 and its contingent obligations and ongoing expenses are $1.5
million, which is in the lower range of the presently anticipated amount, the
Cafco shareholders would receive approximately $6.96, or 18.8%, more per share
than the other shareholders of the Company. If such money were paid pro rata
to all shareholders of the Company, including the Cafco shareholders, the
unaffiliated shareholders would receive approximately $5.24, or approximately
15.8%, per share more, which would result in a total payment of $42.24.
No Fairness Opinion
Neither the Company nor Cafco has obtained any report, opinion or
appraisal from any outside party relating directly or indirectly to the
Merger. The board of directors of the Company, which is comprised of the same
individuals as the board of directors of Cafco, did not believe that a
fairness opinion was necessary because, the Company's principal assets are
cash and cash equivalents and the Merger Payment approximates both the
liquidation value of the Common Stock, based on the June 30, 1998 balance
sheet, and the price paid by the Company to purchase shares of Common Stock
from other shareholders in recent negotiated transactions.
Because of the structure of Merger, it is possible that the amount
paid to the unaffiliated shareholders will be less, on a per share basis, than
they would receive if the Company liquidated. If the Company liquidates and
distributes cash, net of reasonable reserves, to the shareholders, it is
possible that the price per share would be increased by approximately $5.24,
or 12.4%, per share, a significant portion of which would not be distributed
until October 2002 or later. In addition, the unaffiliated shareholders will
no longer hold an equity interest in the Company.
Although it is possible that the nonaffiliated shareholders may
receive less per share of Common Stock than the Cafco shareholders, the board
of directors did not believe that a fairness opinion was necessary because (a)
the
- 22 -
<PAGE>
price reflects the amount paid by the Company to shareholders who are
sophisticated investors, including an investment banking firm, familiar with
the Company and the nature of its assets, including the Multi-Arc Escrow, (b)
the price paid to the shareholders is significantly greater than they would be
able to obtain on the open market, (c) to the extent that there is a premium
to the Cafco shareholders, a significant portion of such premium would not be
received until October 2002 or later, (d) the Cafco shareholders bear all of
the risk that (i) there will be claims against the escrow reserves and (ii)
the contingent liabilities will exceed the amount presently contemplated by
the Company.
Independent Auditors
The Company's independent auditors are Ernst & Young LLP, whose
report is included in the Company's Form 10-K for the fiscal year ended
September 30, 1997. Representatives of such firm will not be at the Annual
Meeting.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of certain United States federal income
tax consequences of the Merger to holders whose shares of Common Stock are
converted to cash in the Merger. The discussion is for general information
only and does not purport to consider all aspects of federal income taxation
that may be relevant to any shareholder. The discussion is based on current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
existing, proposed and temporary regulations promulgated thereunder and
administrative and judicial interpretations thereof, all of which are subject
to change. The discussion applies only to shareholders in whose hands the
shares are capital assets within the meaning of Section 1221 of the Code, and
may not apply to shares received pursuant to the exercise of employee stock
options or otherwise as compensation, or to certain types of holders of
shares, such as insurance companies, tax-exempt organizations and
broker-dealers, who may be subject to special rules. This discussion does not
discuss the federal income tax consequences to a holder of shares who, for
United States federal income tax purposes, is a non-resident alien individual,
a foreign corporation, a foreign partnership or a foreign estate or trust, nor
does it consider the effect of any foreign, state or local tax laws.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH SHAREHOLDER SHOULD
CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE APPLICABILITY OF THE RULES
DISCUSSED BELOW TO HIM OR HER AND THE PARTICULAR TAX EFFECTS TO SUCH HOLDER OF
THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND OTHER
INCOME TAX LAWS.
The receipt of the Merger Payment pursuant to the Merger (including
any cash payment received by dissenting shareholders upon the exercise of
their rights of appraisal) will be a taxable transaction for federal income
tax purposes. In general, for federal income tax purposes, a shareholder will
recognize gain or loss equal to the difference between the shareholder's
adjusted tax basis in the shares converted to cash in the Merger and the
amount of cash received therefor. Gain or loss must be determined separately
for each block of shares (i.e., shares acquired at the same cost in a single
transaction) converted to cash in the Merger. Such gain or loss will be a
capital gain or loss and will be a long-term capital gain or loss if the
holder held the shares for more than one year on the Effective Date. Long-term
capital gain of individuals and other noncorporate taxpayers currently is
taxed at a maximum rate of 20% for federal income tax purposes. Dissenting
shareholders who do not receive cash in the taxable year in which the
Effective Date occurs are urged to consult their own tax advisors regarding
the potential application of the "open transaction doctrine" pending the
determination of the amount of cash to which such shareholders are entitled.
Payments in connection with the Merger may be subject to "backup
withholding" at a rate of 31%, unless a holder of shares (a) is a corporation
or comes within certain exempt categories and, when required, demonstrates
this fact or (b) provides a correct tax identification number ("TIN") to the
payor, certifies as to no loss of exemption from backup withholding and
otherwise complies with applicable requirements of the backup withholding
rules. A holder who does not provide a correct TIN may be subject to penalties
imposed by the Internal Revenue Service.
- 23 -
<PAGE>
Any amount paid as backup withholding does not constitute an additional tax
and will be creditable against the holder's federal income tax liability. Each
shareholder should consult with his or her own tax advisor as to his or her
qualification for exemption from backup withholding and the procedure for
obtaining such exemption. Holders who receive the Merger Payment may prevent
backup withholding by completing a Substitute Form W-9 or, in the case of
foreign holders, a Form W-8 and submitting it to the Paying Agent along with
the Transmittal Letter.
FINANCIAL STATEMENTS
The Company's audited financial statements for the fiscal year ended
September 30, 1997 are included in the Company's Form 10-K, which is included
as Appendix A to this Information Statement, and is incorporated herein by
reference. The Company's unaudited financial statements for the six months
ended June 30, 1998 are included in the Company's Form 10-Q for the quarter
ended June 30, 1998, which is included as Appendix B to this Information
Statement, and is incorporated herein by reference.
RIGHTS OF DISSENTING SHAREHOLDERS
Sections 623 and 910 of the New York Business Corporation Law give to
any shareholder of the Company who wishes to object to the Merger (an
"Objecting Shareholder") the right to receive from the Company in cash, the
fair value of his or her shares, provided that the Merger is not abandoned or
fails to be approved and authorized, and provided, further, that the following
procedure is carefully followed.
(a) The Objecting Shareholder must not vote in favor of the
Merger and, before the proposal to approve the Merger is submitted to
a vote at the 1998 Annual Meeting of Shareholders, to be held on
November 17, 1998, he or she must file with the Company written
objection thereto stating his or her intention to demand payment for
his or her shares. The written objection should be sent to Andal
Corp., 630 Fifth Avenue, New York, New York 10111, Attention of Ms.
Mary Lou Holcombe, Secretary. Registered Mail, Return Receipt
Requested is recommended. The objection may also be submitted at the
meeting, but before a vote is taken on the Merger.
(b) The objection shall include (i) a notice of election to
dissent, (ii) the shareholder's name and residence address, (iii) the
number of shares as to which the shareholder dissents and (iv) a
demand for payment of the fair value of the shareholder's shares if
the Merger is consummated.
(c) A Negative Vote is Not Sufficient. 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 which
such nominee or fiduciary has a right to dissent, held of record by
such nominee or fiduciary.
(d) Within ten days after the date of the Annual Meeting,
the Company must give written notice to each Objecting Shareholder
that the Merger has been authorized by the vote of the Company's
shareholders.
(e) Together with the written demand or within one month
thereafter, the Objecting Shareholder must submit certificates
representing all of his shares of the Company's stock to the Company
or its transfer agent for the purpose of affixing a notation
indicating that a demand for payment has been made. Otherwise, at the
option of the Company, exercised by written notice given within 45
days from the date of filing of the notice to dissent, he or she will
lose his objector's rights, unless a court, for good cause shown,
otherwise directs.
(f) Within 15 days after the later of the Effective Date or
last day of the period during which written demand by the Objecting
Shareholder must be made (but in no case later than 90 days from the
date
- 24 -
<PAGE>
of meeting), the Company shall make a written offer by registered
mail to each Objecting Shareholder to pay for his or her shares at a
specified price which the Company 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 at the time of such
offer, the offer shall also be accompanied by (i) the advance
payment to each Objecting Shareholder who has submitted to the
Company his or her stock certificates as provided in paragraph (e),
of an amount equal to 80% of the amount of such offer, or (ii) as to
each Objecting Shareholder who has not yet submitted his or her
stock certificates, a statement that the Company will make an
advance payment to him or her of an amount equal to 80% of the
amount of such offer promptly upon submission of his or her stock
certificates. Every advance payment or statement as to advance
payment shall include advice to the Objecting Shareholder to the
effect that acceptance of such payment does not constitute a waiver
of any dissenters' rights. Any offer shall be made at the same price
per share to all Objecting Shareholders.
(g) If, within 30 days after making such offer, the
Objecting Shareholder and the Company agree upon the price to be paid
for his or her shares, payment must be made by the Company within 60
days of the date of the making of such offer upon the surrender of
the certificates representing his or her shares.
(h) If the Company fails to make such offer as provided in
paragraph (f) or if the Objecting Shareholder and the Company fail to
agree upon the price to be paid within 30 days of the date of the
Company's offer, the Company shall, within 20 days after the
expiration of the applicable time period, institute a special
proceeding in the Supreme Court of the State of New York, County of
New York to determine the rights of the Objecting Shareholder and to
fix the fair value of his or her shares.
(i) If the Company fails to institute such special
proceeding the Objecting Shareholder may do so within 30 days after
the expiration of such 20 day period. Failure of the Objecting
Shareholder to institute such proceedings will result in the loss of
his or her objector's rights unless the court, for good cause shown,
otherwise directs.
(j) Within 60 days after the final determination of the
special proceeding, the Company shall pay to each Objecting
Shareholder the amount found to be due him or her, upon surrender of
the certificates representing his or her shares.
The foregoing summary of the rights of Objecting Shareholders does
not purport to be complete and is qualified in its entirety by reference to
Sections 623 and 910 of the New York Business Corporation Law, a copy of which
appears in Appendix D to this Information Statement.
PROCEDURE FOR PAYMENT
General. Upon consummation of the Merger, the Company will make
available to the Paying Agent for the holders of record of shares of Common
Stock as of the Effective Date, as needed, the aggregate amount of Merger
Payment payable to shareholders. Holders of record should use a Letter of
Transmittal, which will be provided by the Company following the Effective
Date, to effect the surrender of certificates evidencing shares of Common
Stock in exchange for the Merger Payment. All certificates so surrendered will
be canceled. Upon consummation of the Merger and surrender of certificates
evidencing the shares of Common Stock, together with a duly executed Letter of
Transmittal, the holder of record thereof will receive in exchange for each
share surrendered the Merger Payment. Any cash held by the Paying Agent that
remains unclaimed by shareholders for one year after the Effective Date will
be returned to the Company upon demand and thereafter shareholders may look,
subject to applicable abandoned property, escheat and other similar laws, only
to the Company for payment thereof.
- 25 -
<PAGE>
Letter of Transmittal. A Letter of Transmittal will be sent under
separate cover to all shareholders of record as of the close of business on
the Effective Date. The Letter of Transmittal will advise such shareholders of
the terms of the Merger and the procedures for surrendering stock certificates
to the Paying Agent in exchange for cash.
Valid Surrender of Shares. For shares to be validly surrendered
pursuant to the Merger, a Letter of Transmittal (or a manually signed
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, must be received by Registrar and Transfer Company, as
the paying agent (the "Paying Agent"), at its address set forth in the Letter
of Transmittal and either (i) certificates representing the shares must be
received by the Paying Agent or (ii) such shares must be delivered by
book-entry transfer.
Book-Entry Transfer. The Paying Agent will establish an account with
respect to the shares at The Depository Trust Company ("DTC") for purposes of
the Merger. Any financial institution that is a participant in DTC's system
may make book-entry delivery of shares by causing the DTC to transfer such
shares into the Paying Agent's account at DTC in accordance with DTC's
procedure for such transfer.
Signature Guarantee. If the Merger Payment is to be made to a person
other than the name of the shareholder of record, signatures on Letters of
Transmittal must be medallion guaranteed as set forth in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF CERTIFICATES FOR SHARES, THE LETTER OF TRANSMITTAL
AND ANY OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE SHAREHOLDER.
IF DELIVERY IS MADE BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, IS RECOMMENDED.
Backup Federal Income Tax Withholding. To prevent backup federal
income tax withholding of 31% of the aggregate Merger Payment payable to a
shareholder, such shareholder must provide the Paying Agent with his correct
taxpayer identification number and certify that he is not subject to backup
federal income tax withholding by completing the substitute Form W-9 included
in the Letter of Transmittal.
OTHER MATTERS
Additional copies of the Company's Form 10-K for the fiscal year
ended September 30, 1997 and Form 10-Q for the quarter ended June 30, 1998,
without exhibits, may be obtained without charge by writing to Mr. Andrew J.
Frankel, Chairman of the Board, Andal Corp., 630 Fifth Avenue, New York, New
York 10111. Exhibits will be furnished upon request and upon payment of a
handling charge of $.25 per page, which represents the Company's reasonable
cost of furnishing such exhibits.
The Board of Directors does not know of any other matters to be
brought before the meeting.
By Order of the Board of Directors
Andrew J. Frankel
Chairman of the Board
October , 1998
- 26 -
<PAGE>
APPENDIX A
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-6856
ANDAL CORP.
(Exact name of registrant as specified in its charter)
New York 13-2571394
- - --------------------------------------------- -------------------------
(State or other jurisdiction of incorporation (I. R. S. employer ID no.)
or organization)
909 Third Avenue, New York, New York 10022
- - ----------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (212) 376-5545
Securities registered pursuant to section 12(b) of the Act:
None
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $1.00 par value None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Nonaffiliates of the Registrant hold approximately 52% of the
Registrant's common stock. The aggregate market value of the shares of common
equity held by nonaffiliates of the Registrant as of December 12, 1997 was
approximately $5,600,000.
As of December 12, 1997, the number of outstanding shares of Registrant's
Common Stock was 433,029 shares.
A-1
<PAGE>
PART I
Item 1. Business
GENERAL
During the year ended September 30, 1997, Andal Corp. (the "Company" or
"Andal"), through its majority-owned Multi-Arc Inc. subsidiary ("Multi-Arc"),
had been engaged in surface enhancement which 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.
On September 25, 1997, the Company's shareholders at a meeting of
shareholders approved an Agreement and Plan of Merger (the "Agreement") dated
as of June 9, 1997, between Bernex Inc. ("Bernex"), M-A Acquisition Corp.,
Multi-Arc, and the Company. The Agreement, in essence, represented a contract
to sell Multi-Arc to Bernex for cash. Bernex and M-A Acquisition Corp. are
indirectly owned subsidiaries of Saurer AG, a publicly traded Swiss
corporation.
The sale of Multi-Arc was completed on September 30, 1997. Pursuant to
the Agreement, M-A Acquisition Corp. was merged into Multi-Arc; and Multi-Arc
became the surviving corporation and also became wholly-owned by Bernex. The
Company recorded a gain of approximately $8.8 million from the sale.
A-2
<PAGE>
As a result of the merger, the Company received net proceeds of
approximately $17.8 million of cash and may be entitled to receive additional
cash from three escrow funds which were established at the time of closing, as
described below. As a result of the sale, the Company has no operating
business. The directors of the Company are currently considering whether the
Company should be liquidated, function as an investment company, or seek to
enter some other business activity. A decision on the future direction of the
Company is expected to be made during fiscal 1998.
Net Proceeds from the Sale of Multi-Arc
The 100% ownership of Multi-Arc was sold to Bernex for $29,200,000 in
cash. At the time of closing, Andal owned approximately 84% of Multi-Arc. A
reconciliation of Andal's 84% share of the gross proceeds to the amount of
cash actually received by Andal at the closing is as follows:
000's
Andal share of gross proceeds--
approximately 84% ownership $24,517
Plus:
Net payment received from Multi-Arc stock option holders
and minority shareholders pursuant to the Agreement 839
Less:
Payments to Escrow accounts
Main Escrow Fund (2,451)
Tax Escrow Fund (955)
Expense Escrow Fund (630)
--------
Net proceeds before amounts paid at closing 21,320
Bonus payments to Multi-Arc management (1,965)
Repayment of intercompany indebtedness to Multi-Arc (1,390)
Repayment of shareholder loan (97)
--------
Net cash received by Andal $17,868
========
The Main Escrow Fund
An escrow fund for a portion of the selling price of Multi-Arc, of which
Andal's share is approximately $2,451,000, was established at the closing to
secure Bernex against breaches of representations and warranties and the
covenants made by Multi-Arc and the Company in connection with the Agreement.
This escrow fund (the "Main Escrow") may also be a source for payment of
certain indemnifications for environmental and tax obligations, and also for
payment to Multi-Arc minority shareholders who exercise their appraisal rights
and obtain an award in excess of their pro rata share of the agreed to selling
price of Multi-Arc. Certain types of claims against the Main Escrow would have
to aggregate $700,000 before such claims would be eligible for reimbursement
from the fund, and then only the amount over $700,000 would be eligible. By
the terms of the Agreement, the Main Escrow terminates on March 31, 1999.
A-3
<PAGE>
While the Company believes that its representations and warranties
concerning Multi-Arc are accurate and that adequate provision has been made
for all indemnifications, the Company has deferred recognition of the gain
equal to the $2,451,000 until such time as the cash has been received.
The Tax Escrow Fund
A second escrow fund (the "Tax Escrow") was established under the
Agreement out of funds which would otherwise have been payable to Andal in the
amount of $955,000 to indemnify Bernex against certain tax obligations of
Andal to a taxing authority which have been assessed and which were contested
by Andal and not paid. If, by July 31, 2002, these tax claims have not been
resolved entirely, Andal has agreed to pay $300,000 to Bernex out of this
fund. Under certain circumstances, Andal is entitled to use this fund for
payment of certain taxes.
The Company has established reserves in its financial statements related
to 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. Nevertheless, the
Company believes it prudent to defer recognition of the gain equal to this Tax
Escrow Fund until such time as it is received in cash.
The Expense Escrow Fund
At the closing, an escrow fund of $750,000 (the "Expense Escrow") was
established out of the proceeds otherwise payable to Andal and the minority
shareholders of Multi-Arc to pay for the legal and other expenses of Andal and
Multi-Arc relating to the sale. At and soon after closing, a substantial
portion of this fund was disbursed in payment of such expenses. Recovery from
the fund will not be material and will be recognized as income when received.
The escrow funds are in the possession of a commercial bank which serves
as escrow agent and are being invested in a money market fund pending their
resolution.
Election of Officers and Office Relocation
Effective with the sale of Multi-Arc, Messrs. Peter D. Flood and Walter
N. Kreil, Jr., Chairman and Chief Executive Officer, and Vice President and
Chief Financial Officer, respectively, of the Company and of Multi-Arc,
resigned as officers and directors of the Company, and the Company's corporate
office was relocated back to its former premises in New York City. On October
1, 1997, the remaining directors, consisting of Andrew J. Frankel and Alan N.
Cohen, appointed new officers; and the directors resolved that the Company
should once again absorb all of the costs of the New York City premises,
including the cost of executive, administrative, and secretarial services,
except that Messrs. Frankel and Cohen agreed to reimburse the Company for 25%
of the lease, utility, office expense, and other costs to maintain the New
York premises (excluding salary costs of all Company personnel). This
reimbursement represents a reimbursement for the personal use of the Company's
facility by Messrs. Frankel and Cohen.
A-4
<PAGE>
The following officers were elected at the October 1, 1997 meeting of the
Board:
Andrew J. Frankel Chairman and Chief Executive Officer
Alan N. Cohen President
Michael S. Huber Senior Vice President, Chief Financial
Officer, and Treasurer
Mary Lou Holcombe Vice President and Secretary
See Item 10--Directors and Executive Officers of the Company, Item 11--
Executive Compensation, and Item 12--Security Ownership of Certain Beneficial
Owners and Management included elsewhere herein.
Stockholders' Appraisal Rights
In connection with the sale of Multi-Arc, certain shareholders of Andal
had indicated an interest in selling their shares in the Company or seeking
appraisal rights, including the Small Business Administration of the Federal
Government (the "SBA"), the beneficial owner of 8,672 shares of the Company's
common stock. In lieu of appraisal, on October 1, 1997, the Company purchased
these shares from the SBA at a price of $25.00 per share. Also, on October 1,
1997, the directors of the Company authorized the Company to make additional
incidental stock purchases from non-affiliates who make unsolicited inquiries
at a price not to exceed $25.00 per share, so long as the aggregate purchases
made would not reach a level where any such purchases could be considered part
of a "going private transaction." During the period October 1, 1997 through
December 7, 1997, 14,330 shares were purchased by the Company. The Company
ceased purchasing its shares on December 8, 1997. See Item 5--"Market for the
Company's Common Equity and Related Stockholder Matters."
Item 2. Properties
The Company's executive office and only location is at 909 Third Avenue,
New York, New York. The office occupies approximately 4,000 square feet of
space under a lease requiring an annual rental payment of approximately
$80,000. The lease expires on September 29, 1998 and cannot be renewed.
Item 3. Legal Proceedings
The Company is aware of several lawsuits which are pending involving it
or its inactive subsidiaries. In the opinion of the Company's management,
these lawsuits will not result in any material adverse effect on the Company's
consolidated financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
An annual meeting of shareholders of Andal Corp. was held on September
22, 1997 and adjourned until September 25, 1997. At this meeting, an election
of directors was held and the approval of shareholders was sought of an
Agreement and Plan of Merger with Bernex, Inc., M-A Acquisition Corp., and
Multi-Arc Inc.
A-5
<PAGE>
Proxies for this meeting were solicited pursuant to Regulation 14A, and
there was no opposing solicitation. At the meeting of shareholders, the
following directors of the Company were elected by the following votes:
Director For Withheld
Andrew J. Frankel 330,973 11,221
Alan N. Cohen 330,973 11,219
Peter D. Flood 330,991 11,203
Walter N. Kreil, Jr. 330,996 11,198
Mr. Flood and Mr. Kreil resigned as directors on September 30, 1997.
With respect to the approval of the Agreement and Plan of Merger, the
Agreement was approved by the following vote:
For Against Abstained Brokers' Non-Vote
332,341 9,835 18 0
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters
The Company's common stock was delisted from the American Stock Exchange
in October 1992. During the period from November 1992 until September 1995,
the Company's common stock was quoted on the NASDAQ OTC Bulletin Board by a
market maker. During the period September 1995 through September 1997, the
Company's common stock had not been quoted on the NASDAQ OTC Bulletin Board or
on any other established public market. During the period that the Company's
common stock was quoted on the NASDAQ OTC Bulletin Board, transactions in the
stock were limited and sporadic and, in the Company's opinion, did not
constitute an established public trading market. The Company was made aware of
the existence of a market-making activity in the Company's common stock on
December 7, 1997; and, on December 8, 1997, the Board of Directors terminated
its authorization of unsolicited stock purchases. During the period October 1
through December 12, 1997, the market maker has quoted a bid/ask range of
$20--$30 per share. See Item 1--"Business--Stockholders' Appraisal Rights" for
a discussion of recent purchases of the Company's common stock by the Company.
As of December 12, 1997, the number of registered holders of the
Company's common stock was 1,108.
The Company has never paid a cash dividend on its common stock.
A-6
<PAGE>
Item 6. Selected Financial Data
The following table sets forth selected financial data as of the fiscal
year-end of each respective year and for the year then ended:
September 30,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Thousands of dollars, except per share amounts)
Operating revenues 0 0 0 0 0
Operating income (loss) (417) (1,953) (1,333) (1,768) (1,375)
Income (loss) from
continuing operations (423) 3,390 (2,129) (2,435) (1,708)
Income (loss) from
discontinued operations 10,081 4,995 4,015 3,556 748
Net income (loss) 9,658 8,385 1,886 (1,121) (960)
Income (loss) per share from
continuing operations (0.95) 9.98 (6.45) (7.38) (5.18)
Net income (loss) per share 21.59 24.69 5.72 (3.40) (2.91)
Average number of common
shares outstanding (000) 447 340 330 330 330
Total assets 21,775 9,488 6,420 6,521 7,441
Long-term obligations
(excluding current maturities) 0 0 6,364 7,364 14,720
Shareholders' equity
(deficit) 14,513 4,855 (5,098) (6,984) (5,863)
Book value (deficit)
per share at year end 32.44 10.85 (15.46) (21.17) (17.77)
See Notes 2 and 6 of the Notes to Consolidated Financial Statements for a
description of the income (loss) from discontinued operations recorded in
1997, 1996, and 1995. Income from discontinued operations in 1994 and 1993
resulted from the operations of the Company's discontinued Multi-Arc business,
after deduction of $419,000 and $527,000, respectively, of legal expenses and
settlements on litigation related to the Company's discontinued construction
operations. The 1994 income from discontinued operations also included $69,000
of gain relating to the divestiture of Olsher Metals Corporation.
A-7
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
1997 vs. 1996
General and administrative expense declined from $1,953,000 in fiscal
1996 to $417,000 in fiscal 1997. The 1996 fiscal year expense included one-
time charges of $441,000 of retirement costs and accruals for management
signing bonuses of $300,000. The remainder of the decline in expense from 1996
to 1997 of approximately $800,000 resulted from a reduction of executive and
administrative salaries, insurance costs, occupancy costs, and office
expenses; all such reductions resulting from the retirement of the Company's
then Chief Executive Officer and its then President in August of 1996 and the
relocation of the Company's executive office. In addition, the fiscal 1997
base compensation of the Company's President and Chief Financial Officer was
borne by Multi-Arc. In 1996 the Company recorded a $6,009,000 one-time gain
from the sale of its 61st Street property. Interest expense in fiscal 1996 was
$747,000, compared with only $6,000 in fiscal 1997, as the Company was able to
repay substantially all of its debt by the end of fiscal 1996 with the
proceeds from the sale of the 61st Street property. Income from discontinued
operations in fiscal 1996 was $4,995,000, representing $4,761,000 of equity in
earnings of Multi-Arc (including a tax benefit of approximately $2,300,000
relating to the recognition of the cumulative net benefit of net operating
loss carryforwards) plus $234,000 from the Company's discontinued construction
operations. In fiscal 1997 the Company's equity in earnings in Multi-Arc
declined to $1,337,000 as a result of a softening in Multi-Arc's business
during the year; and the Company recorded a gain of $8,734,000 from the sale
of Multi-Arc.
1996 vs. 1995
General and administrative expense increased from $1,333,000 in
fiscal 1995 to $1,953,000 in fiscal 1996, principally as a result of the
one-time charges discussed above. Interest expense was $833,000 in fiscal
1995, compared with $747,000 in fiscal 1996, reflecting lower levels of debt.
The Company's equity in earnings of Multi-Arc was $2,660,000 in fiscal 1995,
compared with $4,761,000 in fiscal 1996. The increase in 1996 was accounted
for primarily by reduced pre-tax income of Multi-Arc, offset by the one-time
tax benefit discussed above.
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 and $42,000 of interest on said notes, offset by a writedown of
$143,000 on the Company's investment in Integrated Brands Inc. ("Integrated").
Effects of Inflation
Inflation has a minimal effect on Andal's operations.
Liquidity and Capital Resources
The Company had $17,875,000 of cash at September 30, 1997, substantially
all of which resulted from the sale of Multi-Arc; and it believes that income
from its cash and investments will be sufficient to fund its operating cash
needs for the foreseeable future. The Company has no indebtedness.
A-8
<PAGE>
New Accounting Pronouncements
In the first quarter of fiscal 1998, the Company is required to adopt the
provisions of FASB 128, "Earnings per Share." This pronouncement is not
expected to have any impact on the reported amounts of earnings per share of
the Company.
Trends
As a result of the disposition of Multi-Arc Inc. during the past fiscal
year, comparative historical financial information is not indicative of the
Company's anticipated results of operations. Income in future periods will be
dependent upon releases of funds from the escrows (which income has been
deferred) and the interest earned on the Company's cash and investments, less
the cost of corporate office operations.
Item 8. Financial Statements and Supplementary Data
See Index to Financial Statements at page 20 below.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
A-9
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Company
The following table sets forth certain information regarding the
Directors and executive officers of the Company as of November 30, 1997.
Name Age Positions and Offices with the Company
Andrew J. Frankel 65 Chairman of the Board of Directors and Chief
Executive Officer
Alan N. Cohen 66 President and Director
Michael S. Huber 54 Senior Vice President, Chief Financial Officer, and
Treasurer
Mary Lou Holcombe 53 Vice President and Secretary
The Company's Directors are elected annually and hold office until their
successors are elected and qualified.
Andrew J. Frankel has been Chairman of the Board of Directors and Chief
Executive Officer of the Company since 1971 (except for the period September
1, 1996 through September 30, 1997, during which time he served as a
Director). He served as a member of the Board of Directors of Integrated
Brands Inc. from December 1985 until June 1993.
Alan N. Cohen has been a Director of the Company since October 1979 and
served as President of the Company from October 1981 (except for the period
September 1, 1996 through September 30, 1997). 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 the Boston Celtics Limited Partnership.
Michael S. Huber joined the Company in December 1987 as Senior Vice
President, Chief Financial Officer, and Treasurer and has served in that
position continuously (except for the period September 1, 1996 through
September 30, 1997).
Ms. Holcombe has been employed by the Company since 1970 (except for the
period September 1, 1996 through September 30, 1997) and served as Assistant
Vice President and Secretary of the Company from August 1994 to September 1,
1996. Ms. Holcombe was re-elected Secretary on October 1, 1997.
A-10
<PAGE>
Item 11. 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 $100,000 for the
year ended September 30, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long All Other
--------------------------------- Term Compensation
Name and Other Annual Options ($)
Principal Salary Bonuses Compensation SARs (401K Plan
Position Year ($) ($) (1) (#) Contributions)
<S> <C> <C> <C> <C> <C> <C>
Peter D. Flood 1997 250,000 1,510,000 (2) 0 4,750
Chief Executive
Officer and 1996 250,000 138,000 (2) 0 4,750
President from
September 1996 1995 250,000 151,000 (2) 2,500(3) 4,620
to September 30,
1997 and Chief
Executive of
Multi-Arc
Walter N. Kreil, Jr. 1997 149,350 580,000 (2) 0 4,750
Senior Vice
President and 1996 142,000 35,000 (2) 0 4,750
Chief Financial
Officer from 1995 135,200 50,000 (2) 500(3) 4,620
September 1996
to September 30,
1997 and Chief
Financial Officer of
Multi-Arc
Andrew J. Frankel 1997 0 0 0 0 0
Chief Executive
Officer through 1996 157,000 0 42,739 0 0
August 1996 1995 244,000 0 33,333 0 0
Alan N. Cohen 1997 0 0 0 0 0
President
through August 1996 157,000 0 16,000 0 0
1996 1995 244,000 0 16,000 0 0
</TABLE>
A-11
<PAGE>
(1) Other Annual Compensation includes professional services and
supplemental life and accrued 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
(2) Amounts were less than 10% of salary.
(3) Options to acquire common stock of Multi-Arc Inc. at $205.13 per share.
The salaries of Messrs. Flood and Kreil were paid by and charged to
Multi-Arc for all years.
Certain bonuses paid to Messrs. Flood and Kreil were paid by and charged
to Andal as follows:
Amounts Paid by Andal to
---------------------------------------
Year Peter D. Flood Walter N. Kreil, Jr.
-------------- --------------------
1997 $1,400,000(a) $550,000(b)
1996 0 0
1995 0 15,000
(a) Consists of a bonus payment of $1,150,000 as a result of the
sale of Multi-Arc, plus a bonus payment of $250,000 in
connection with the 1996 execution of an employment
agreement. In addition, in 1997, Multi-Arc paid a bonus of
$110,000 to Mr. Flood in accordance with the employment
agreement.
(b) Consists of a bonus payment of $500,000 as a result of the
sale of Multi-Arc, plus a bonus payment of $50,000 in
accordance with the 1996 execution of an employment
agreement. In addition, in 1997, Multi-Arc paid a bonus of
$30,000 to Mr. Kreil in accordance with an incentive
compensation plan.
On September 30, 1997, Messrs Flood and Kreil exercised their options to
acquire common shares of Multi-Arc. As a result of the Multi-Arc sale, they
received net cash of $220,000 and $35,000, respectively, from the sale of
their ownership in Multi-Arc resulting from the exercise of such options and
from the sale of Multi-Arc's stock and debentures they had acquired in 1995
(after deducting for payments required to exercise the options and repay loans
made to them in 1995 to acquire the Multi-Arc shares and debentures).
Stock Options
No stock options or stock appreciation rights were granted by the Company
during the fiscal year ended September 30, 1997 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, 1997.
A-12
<PAGE>
The following table sets forth information with respect to the exercise
during fiscal 1997 and the value as of September 30, 1997 of unexercised stock
options and stock appreciation rights for the Chief Executive Officer and all
other executive officers whose annual salary exceeded $100,000 for the fiscal
year ended September 30, 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Shares Options/SARs at Options/SARs at
Acquired on Fiscal Year End Fiscal Year End
Exercise Value (#) Exercisable ($) Exercisable/
(#) Realized($) /Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Peter D. Flood 0 0 2,000/3,000 45,500/68,250
Walter N. Kreil, Jr. 0 0 300/450 6,825/10,238
Andrew J. Frankel 0 0 0/0 0/0
Alan N. Cohen 0 0 0/0 0/0
</TABLE>
The Company does not have a long term incentive compensation plan for its
executives.
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:
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.
A-13
<PAGE>
Employment Agreements
The Company does not have any employment agreements with its officers.
Pursuant to a retirement agreement between the Company and Messrs. Frankel and
Cohen entered into on August 31, 1996, the Company is obligated to provide
life and health insurance benefits to Messrs. Frankel and Cohen for the
remainder of their lives and to provide health insurance benefits to Ms.
Holcombe until age 65. In fiscal 1996, the Company recorded a charge of
$441,000 in connection with the retirement agreement.
Repricing of Options/SARs
No stock options previously granted to the Company's executive officers
were repriced during the fiscal year ended September 30, 1997.
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.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Messrs. Frankel and Cohen comprise the Compensation Committee and are
also Chief Executive Officer and President of the Company. On October 1, 1997,
they submitted the following report:
REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Company's compensation policies applicable to its executive
officers are administered by the Compensation Committee (the "Committee") of the
Board of Directors.
Base Salary
The base salaries of the executive officers of the Company were
determined by employment contracts entered into in 1995. On October 1, 1997, the
members of the Committee were elected as officers and agreed to accept salaries
as Chairman of the Board and President of $100,000 each, less than they had
earned in prior years.
Bonuses
The Committee reviewed and gave final approval for a bonus plan for the
Multi-Arc officers to encourage their promotion of the recent sale of Multi-Arc.
Respectfully submitted,
Andrew J. Frankel
Alan N. Cohen
A-14
<PAGE>
PERFORMANCE GRAPH
The following line graph compares the cumulative total return of the
Company's common stock to the American Stock Exchange Market Value Index and
the S&P; 500 Index for the period October 1, 1992 to September 30, 1997.
CUMULATIVE TOTAL RETURN
Andal Shares vs. Amex Indices and S&P; 500
Measurement Andal AMEX MV S & P 500
Period Invested Invested Invested
9/30/92 100 100 100
9/30/93 0 122.21 109.84
9/30/94 32 121.79 110.75
9/30/95 36 144.6 139.88
9/30/96 0 151.7 164.51
9/30/97 400 191 226.73
Assumes $100 invested on September 30, 1992 in Andal Corp.
Common Stock, the Amex Market Value Index, and the S&P; 500 Index.
The closing market price per share of the Company's common stock on
September 30, 1997 has been assumed to be $25.00 per share for purposes of
computing cumulative total return. See Item 1--"Business--Stockholders'
Appraisal Rights and Item 5--Market Value for the Company's Common Equity and
Related Stockholder Matters" included elsewhere herein.
A-15
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of December 12, 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.
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
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 29.7%
Alan N. Cohen Family 47,500 shares (1)
Company LLC
909 Third Avenue
Ninth Floor
New York, NY 10022
Alan N. Cohen 47,500 (9)
909 Third Avenue 27,712 (1)
Ninth Floor 4,250 (5)
New York, NY 10022 -------
79,462 shares 18.4%
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) 22.9%
c/o Milstein Properties
1271 Avenue of the Americas
New York, NY 10020
All officers and directors
as a group (4 persons) 209,010 shares (10) 48.2%
A-16
<PAGE>
(1) Direct record and beneficial ownership.
(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 4,845 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) As manager of the Alan N. Cohen Family Company, LLC, the record holder of
these shares.
(10) Includes 650 shares issuable on exercise of stock options.
Item 13. Certain Relationships and Related Transactions
See Item 1--Business-Election of Officers and Office Relocation, Item
10-- Directors and Executive Officers of the Company, Item 11--Executive
Compensation, and Item 12--Security Ownership of Certain Beneficial Owners and
Management.
A-17
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements
See Index to Financial Statements and Schedules at page 20 below.
(a)(2) Financial Statement Schedules
None.
(b) Reports on Form 8-K
None.
(c) Exhibits
The following exhibits are filed herewith unless otherwise indicated:
3(a) Restated Certificate of Incorporation of the Company as filed
with the Secretary of State of New York on March 16, 1972 (the
"Certificate of Incorporation") (incorporated by reference to
Exhibit 3(a) to Company's Annual Report on Form 10-K for
fiscal year ended September 30, 1986).
3(b) Certificate of Amendment of the Certificate of Incorporation as
filed with the Secretary of State of New York on November 5,
1979 (incorporated by reference to Exhibit 3(b) to Company's
Annual Report on Form 10-K for fiscal year ended September 30,
1986).
3(c) Certificate of Amendment of the Certificate of Incorporation as
filed with the Secretary of State of New York on October 22,
1981 (incorporated by reference to Exhibit 3(c) to Company's
Annual Report on Form 10-K for fiscal year ended September 30,
1986).
3(d) Certificate of Amendment of the Certificate of Incorporation as
filed with the Secretary of State of New York on November 7,
1983 (incorporated by reference to Exhibit 3(d) to Company's
Annual Report on Form 10-K for fiscal year ended September 30,
1986).
3(e) Certificate of Amendment of the Certificate of Incorporation as
filed with the Secretary of State of New York on April 8, 1987
(incorporated by reference to Exhibit 4.5 to Company's
Registration Statement on Form S-8 as filed with the
Securities and Exchange Commission on May 5, 1987).
3(f) Certificate of Amendment of the Certificate of Incorporation
as iled with the Secretary of State of New York on June 15,
1993 (incorporated by reference to Exhibit 3(f) to Company's
Annual Report on Form 10-K for Fiscal Year ended September 30,
1993).
A-18
<PAGE>
3(g) By-laws of the Company (incorporated by reference to Exhibit 4.6
to Company's Registration Statement on Form S-8 as filed with
the Securities and Exchange Commission on May 5, 1987).
10(a) 1987 Stock Option Plan of the Company (incorporated by
reference to Exhibit 10(c) to the Company's Annual Report on
Form 10-K for fiscal year ended September 30, 1987).
10(b) Retirement Agreement between Andal Corp. and Andrew J. Frankel
and Alan N. Cohen dated August 31, 1996 (incorporated by
reference to Exhibit 10(a) to the Company's Current Report on
Form 8-K dated August 30, 1996).
10(c) Agreement and Plan of Merger by and among Bernex, Inc.,
M-A Acquisition Corp., Andal Corp., and Multi-Arc Inc.
(incorporated by reference to Exhibit 10(a) to Company's
report on Form 8-K as filed with the Securities and Exchange
Commission on October 15, 1997).
10(d) First Amendment dated September 24, 1997 to the Agreement and
Plan of Merger by and among Bernex, Inc., M-A Acquisition
Corp., Andal Corp., and Multi-Arc Inc. (incorporated by
reference to Exhibit 10(b) to Company's report on Form 8-K as
filed with the Securities and Exchange Commission on October
15, 1997).
10(e) Second Amendment dated September 30, 1997 to the Agreement and
Plan of Merger by and among Bernex, Inc., M-A Acquisition
Corp., Andal Corp., and Multi-Arc Inc. (incorporated by
reference to Exhibit 10(c) to Company's report on Form 8-K as
filed with the Securities and Exchange Commission on October
15, 1997).
10(f) Escrow Agreement dated September 30, 1997 among Bernex, Inc.,
Multi-Arc Inc., Andal Corp., as agent, and the Chase Manhattan
Bank as escrow agent.
10(g) Andal Escrow Agreement dated September 30, 1997, among Bernex,
Inc., Multi-Arc Inc., Andal Corp., as agent, and the Chase
Manhattan Bank as escrow agent.
10(h) Expense Escrow Agreement dated September 30, 1997, among Bernex,
Inc., Multi-Arc Inc., Andal Corp., as agent, and the Chase
Manhattan Bank as escrow agent.
27 Financial Data Schedule
A-19
<PAGE>
Index to Financial Statements
Financial Statements Page
Report of Independent Auditors 22
Consolidated Balance Sheet--September 30, 1997 and September 30, 1996 F-1
Consolidated Statement of Operations--Years ended September 30, 1997,
1996, and 1995 F-2
Consolidated Statement of Shareholders' Equity (Deficit)
--Years Ended September 30, 1997, 1996, and 1995 F-3
Consolidated Statement of Cash Flows--Years Ended September 30,
1997, 1996, and 1995 F-4
Notes to Consolidated Financial Statements F-5
All schedules are omitted because they are not applicable, not required,
or the other information required to be set forth therein is included in the
Consolidated Financial Statements or in the Notes thereto.
A-20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ANDAL CORP.
(Registrant)
By /s/ Andrew J. Frankel
Andrew J. Frankel
Chairman of the Board of Directors
Dated: December 23, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title Date
Principal Executive Officer:
/s/ Andrew J. Frankel Chairman of the Board of December 23, 1997
(Andrew J. Frankel) Directors, Chief Executive
Officer, President, and
Director
Principal Financial Officer:
/s/ Michael S. Huber Senior Vice President, December 23, 1997
(Michael S. Huber) Chief Financial Officer,
and Treasurer
Directors:
/s/ Andrew J. Frankel Director December 23, 1997
(Andrew J. Frankel)
/s/ Alan N. Cohen Director December 23, 1997
(Alan N. Cohen)
A-21
<PAGE>
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, 1997 and 1996, 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, 1997. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
We believe that our provide a reasonable basis for our opinion.
In our opinion, 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, 1997 and 1996, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
December 2, 1997
A-22
<PAGE>
ANDAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
September 30
1997 1996
<S> <C> <C>
Current assets:
Cash $ 17,875,000 $ 21,000
Accounts and notes receivable 191,000 402,000
Other current assets 36,000 0
------------ ------------
Total current assets 18,102,000 423,000
Investment in Integrated Brands, Inc. 250,000 250,000
Net assets of Multi-Arc Inc 0 8,450,000
Escrow accounts receivable 3,407,000 0
Other assets 16,000 365,000
------------ -----------
$ 21,775,000 $ 9,488,000
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of debt due shareholders $ 0 $ 97,000
Accounts payable 223,000 126,000
Accrued expenses 3,632,000 3,794,000
----------- -----------
Total current liabilities 3,855,000 4,017,000
Deferred income 3,407,000 616,000
Shareholders' equity (deficit):
Common shares, par value $20 per share,
1,500,000 authorized, 447,359 issued
8,947,000 8,947,000
Paid-in-capital 25,995,000 25,995,000
Deficit (20,429,000) (30,087,000)
----------- -----------
Total shareholders' equity 14,513,000 4,855,000
----------- -----------
$21,775,000 $ 9,488,000
=========== ===========
</TABLE>
See accompanying notes.
A-23
<PAGE>
ANDAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended September 30
1997 1996 1995
<S> <C> <C> <C>
Operating costs and expenses:
General and administrative expense $ (417,000) $(1,953,000) $(1,333,000)
Other income (expense):
Gain on sale of 61st Street property 0 6,009,000 0
Interest expense (6,000) (747,000) (833,000)
Investment and other income 0 150,000 37,000
----------- ----------- -----------
Income (loss) from continuing operations
before income taxes (423,000) 3,459,000 (2,129,000)
(Provision) benefit for income taxes 0 (69,000) 0
----------- ----------- -----------
Income (loss) from continuing operations (423,000) 3,390,000 (2,129,000)
Income from discontinued operations
(net of income tax expense (benefit)
of $(2,311,000) in 1996 and
$532,000 in 1995 1,285,000 4,995,000 3,667,000
Gain on sale of Multi-Arc Inc.
(net of income tax expense of
$489,000 in 1997) 8,796,000 0 348,000
----------- ----------- -----------
Net income $ 9,658,000 $ 8,385,000 $ 1,886,000
=========== =========== ===========
Income (loss) per common share:
Income (loss) from continuing operations $ (.95) $ 9.98 $ (6.45)
Income from discontinued operations 2.87 14.71 11.12
Gain on sale of Multi-Arc Inc. 19.67 0.00 1.05
------ ------ -------
Net income $21.59 $24.69 $ 5.72
====== ====== =======
</TABLE>
See accompanying notes.
A-24
<PAGE>
ANDAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Retained
Common Paid-in- Earnings Treasury
Stock Capital (Deficit) Stock Total
<S> <C> <C> <C> <C> <C>
Balance at
Sept. 30, 1994 $7,410,000 $31,625,000 $(40,358,000) $(5,661,000) $(6,984,000)
Net income 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 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
Net income 1997 0 0 9,658,000 0 9,658,000
---------- ----------- ------------ ----------- -----------
Balance at
Sept. 30, 1997 $8,947,000 $25,995,000 $(20,429,000) $ 0 $14,513,000
========== =========== ============ =========== ===========
</TABLE>
See accompanying notes.
A-25
<PAGE>
ANDAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30
1997 1996 1995
<S> <C> <C> <C>
Cash provided (used) by operations:
Income (loss) from continuing operations
before income taxes $ (423,000) $ 3,390,000 $(2,129,000)
Adjustments to reconcile income (loss)
from continuing operations to net cash
provided (used) by operations
Depreciation 0 8,000 9,000
Write down of investment in Integrated 0 143,000 0
Gain on sale of 61st Street property 0 (6,009,000) 0
Other, net 7,000 121,000 41,000
Change in operating assets and liabilities:
Decrease in accounts receivable 211,000 306,000 0
(Increase) decrease in
other current assets (36,000) 93,000 4,000
Increase (decrease) in accounts payable
and accrued liabilities (66,000) 773,000 (379,000)
Cash provided (used) by discontinued
operations 344,000 73,000 (294,000)
---------- ----------- -----------
Net cash provided (used) by operating
activities before income taxes 37,000 (1,102,000) (2,748,000)
Income taxes paid (51,000) (25,000) (25,000)
---------- ----------- -----------
Net cash provided (used) by
operating activities (14,000) (1,127,000) (2,773,000)
----------- ----------- -----------
Cash flows from financing activities:
Advances from (repayments to)
Multi-Arc Inc. (930,000) 643,000 0
Reductions of long term debt 0 (543,000) (1,357,000)
Decrease in debt due to shareholders (97,000) 0 -
---------- ----------- -----------
Net cash provided (used) by
financing activities (1,027,000) 100,000 (1,357,000)
---------- ----------- -----------
Cash flows from investing activities:
Net proceeds from sale of
Multi-Arc Inc. 18,895,000 468,000 2,671,000
Distributions from Multi-Arc Inc. 0 0 957,000
Net proceeds from sale of
61st Street property 0 529,000 0
Other, net 0 0 18,000
---------- ------------ -----------
Net cash (used) by investing activities 18,895,000 997,000 3,646,000
---------- ------------ -----------
(Decrease) increase in cash 17,854,000 (30,000) (484,000)
Cash at beginning of year 21,000 51,000 535,000
---------- ------------ -----------
Cash at end of year $17,875,000 $ 21,000 $ 51,000
=========== =========== ===========
</TABLE>
See accompanying notes.
A-26
<PAGE>
ANDAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Presentation
The consolidated financial statements include the accounts of Andal
Corp. ("Andal" or the "Company") and its subsidiaries, all of which
subsidiaries are inactive and insignificant. As discussed in Note 2, on
September 30, 1997, the Company closed on the sale of its only operating
business, Multi-Arc Inc. ("Multi-Arc"); and, thereafter, its operations
consist of the maintenance of a corporate executive and administrative office.
Accordingly, the consolidated financial statements for 1996 and 1995 have been
reclassified to show the accounts of Multi-Arc as a discontinued operation.
(See Note 2.)
Property and Equipment
Property and equipment are recorded at cost and depreciated over
estimated useful lives on a straight-line basis. The Company's property and
equipment is comprised of office furniture and equipment, all of which is
fully depreciated.
Stock Based Compensation
The Company accounts for its stock based compensation arrangements
under the provisions of APB 25, "Accounting for Stock Issued to Employees."
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 immaterial.
The average number of shares used in computing primary income (loss)
per share was 447,359 in 1997, 339,639 in 1996, and 329,859 in 1995.
2. SALE OF MULTI-ARC
During the year ended September 30, 1997, Andal Corp. (the "Company"
or "Andal"), through its majority-owned Multi-Arc Inc. subsidiary
("Multi-Arc"), had been engaged in surface enhancement which 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.
A-27
<PAGE>
On September 25, 1997, the Company's shareholders at a meeting of
shareholders approved an Agreement and Plan of Merger (the "Agreement") dated
as of June 9, 1997, between Bernex Inc. ("Bernex"), M-A Acquisitions Corp.,
Multi- Arc, and the Company. The Agreement, in essence, represented a contract
to sell Multi-Arc to Bernex for cash. Bernex and M-A Acquisition Corp. are
indirectly owned subsidiaries of Saurer AG, a publicly traded Swiss
corporation.
The sale of Multi-Arc was completed on September 30, 1997. Pursuant
to the Agreement, M-A Acquisition Corp. was merged into Multi-Arc; and Multi-
Arc became the surviving corporation and also became wholly-owned by Bernex.
The Company recorded a gain of approximately $8.8 million from the sale.
As a result of the merger, the Company received net proceeds of
approximately $17.8 million of cash and may be entitled to receive additional
cash from three escrow funds which were established at the time of closing, as
described below. As a result of the sale, the Company has no operating
business. The directors of the Company are currently considering whether the
Company should be liquidated, function as an investment company, or seek to
enter some other business activity. A decision on the future direction of the
Company is expected to be made by during fiscal 1998.
Net Proceeds from the Sale of Multi-Arc
The 100% ownership of Multi-Arc was sold to Bernex for $29,200,000 in
cash. At the time of closing, Andal owned approximately 84% of Multi-Arc. A
reconciliation of Andal's 84% share of the gross proceeds to the amount of
cash actually received by Andal at the closing is as follows:
000's
Andal share of gross proceeds--approximately 84% ownership $24,517
Plus:
Net payment received from Multi-Arc stock option holders
and minority shareholders pursuant to the Agreement 839
Less:
Payments to Escrow accounts
Main Escrow Fund (2,451)
Tax Escrow Fund (955)
Expense Escrow Fund (630)
--------
Net proceeds before amounts paid at closing 21,320
Bonus payments to Multi-Arc management (1,965)
Repayment of intercompany indebtedness to Multi-Arc (1,390)
Repayment of shareholder loan (97)
-------
Net cash received by Andal $17,868
========
A-28
<PAGE>
The Main Escrow Fund
An escrow fund for a portion of the selling price of Multi-Arc, of
which Andal's share is approximately $2,451,000, was established at the
closing to secure Bernex against breaches of representations and warranties
and the covenants made by Multi-Arc and the Company in connection with the
Agreement. This escrow fund (the "Main Escrow") may also be a source for
payment of certain indemnifications for environmental and tax obligations, and
also for payment to Multi-Arc minority shareholders who exercise their
appraisal rights and obtain an award in excess of their pro rata share of the
agreed to selling price of Multi-Arc. Certain types of claims against the Main
Escrow would have to aggregate $700,000 before such claims would be eligible
for reimbursement from the fund, and then only the amount over $700,000 would
be eligible. By the terms of the Agreement, the Main Escrow terminates on
March 31, 1999.
While the Company believes that its representations and warranties
concerning Multi-Arc are accurate and that adequate provision has been made
for all indemnifications, the Company has deferred recognition of the gain
equal to the $2,451,000 until such time as the cash has been received.
The Tax Escrow Fund
A second escrow fund (the "Tax Escrow") was established under the
Agreement out of funds which would otherwise have been payable to Andal in the
amount of $955,000 to indemnify Bernex against certain tax obligations of
Andal to a taxing authority which have been assessed and which were contested
by Andal and not paid. If, by July 31, 2002, these tax claims have not been
resolved entirely, Andal has agreed to pay $300,000 to Bernex out of this
fund. Under certain circumstances, Andal is entitled to use this fund for
payment of certain taxes.
The Company has established reserves in its financial statements
related to 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. Nevertheless, the
Company believes it prudent to defer recognition of the gain equal to this Tax
Escrow Fund until such time as it is received in cash.
The Expense Escrow Fund
At the closing, an escrow fund of $750,000 (the "Expense Escrow") was
established out of the proceeds otherwise payable to Andal and the minority
shareholders of Multi-Arc to pay for the legal and other expenses of Andal and
Multi-Arc relating to the sale. At and soon after closing, a substantial
portion of this fund was disbursed in payment of such expenses. Recovery from
the fund will not be material and will be recognized as income when received.
The escrow funds are in the possession of a commercial bank which
serves as escrow agent and are being invested in a money market fund pending
their resolution.
A-29
<PAGE>
3. 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") 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 Optionor, 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.
A-30
<PAGE>
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 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.
A-31
<PAGE>
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 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 was 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 occurred. 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 exceeds $10 million. In no event
could such additional consideration exceed $3 million. As of August 1, 1997,
FAM had not transferred or entered into any agreement to transfer the property
to an independent third party. Accordingly, the Company is not entitled to any
additional consideration.
The Company reported a gain of approximately $6 million from the sale.
4. 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 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 a letter of credit guarantee by
Mr. Frankel and Mr. Cohen until September 29, 1998, at which time Andal would
use its best efforts to replace the letters of credit guarantee with other
security. The Company intends to fund this outstanding letter of credit with
an interest-bearing cash deposit of approximately $900,000, at which time the
guarantors will be released from their guarantee. The Company recorded a
charge of $441,000 in 1996 in connection with this Agreement. In September
1996, Andal's executive office records were moved to Multi-Arc's facilities in
Rockaway, New Jersey.
In September 1997, as a result of the sale of Multi-Arc, the Company
relocated its executive headquarters back to the New York City location; and,
on October 1, 1997, Messrs. Frankel and Cohen reassumed their positions as
Chairman and President, respectively, of the Company. In addition, the Company
reassumed all of the costs of the office, including executive, administrative,
and secretarial expenses, except that Messrs. Frankel and Cohen agreed to
reimburse the Company for 25% of the lease, utility, office expense, and other
costs of maintaining the premises (excluding salary costs of all Company
personnel), respecting their personal use of the premises.
A-32
<PAGE>
5. 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 Union National Bank. Because of the
non-recourse nature of the loans, the gain on the sale of Multi-Arc common
stock of approximately $396,000 was deferred until such time as the management
loans were repaid, which occurred on September 30, 1997.
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. Approximately $450,000 of the common stock sold, and
$450,000 principal amount of the debentures sold were evidenced by a
promissory note which required 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. In 1996, $232,000 of the deferred gain was
included in investment income.
The management loans and the balance of the promissory note were repaid
upon the sale of Multi-Arc (described in Note 2). Accordingly, all deferred
gains relating to the minority interest sales discussed above were realized at
September 30, 1997.
6. DISCONTINUED OPERATIONS
The income (loss) from discontinued operations in 1997, 1996, and 1995 is
comprised of the following:
1997 1996 1995
Gain on sale of Multi-Arc $ 8,796,000 $ 0 $ 348,000
Reversal of reserve for income taxes 0 0 996,000
Equity in earnings of Multi-Arc 1,275,000 4,761,000 2,660,000
Income from discontinued
construction operations 10,000 234,000 11,000
------------ ---------- ----------
$10,081,000 $4,995,000 $4,015,000
============ ========== ==========
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.
A-33
<PAGE>
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 from discontinued construction operations for 1997, 1996, and 1995 is
principally due to claims, settlements, and miscellaneous income.
See Note 2 for a discussion of the sale of Multi-Arc.
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 3.5%. In the
fourth quarter of 1996, based on then current market conditions, the Company
recorded a writedown of $143,000 of its investment in Integrated.
8. 401(k) PLANS
The Company maintains a defined contribution 401(k) savings plan for the
benefit of its employees. Annual contributions to the plan are at the
discretion of management and were insignificant for all periods presented.
9. DEBT DUE SHAREHOLDERS
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
fiscal 1996, the Company had repaid $543,000 of the debt in cash. At September
30, 1996, $97,000 of the Fleet Assignee Debt was owing to Mr. Flood. This
amount was repaid to Mr. Flood on September 30, 1997.
10. CAPITAL SHARES
At September 30, 1997, common shares reserved for future issuance were as
follows:
Issuable under stock option plans 15,000
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 4).
See Note 10 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.
A-34
<PAGE>
11. 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 24 months after grant. After 24 months, 40% of the
option shares may be exercised; after 36 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.
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 1997, 1996, and
1995.
At September 30, 1997 and 1996, there were 6,125 shares reserved for
future grant of options. At September 30, 1997, 3,550 shares were exercisable.
None were exercisable at September 30, 1996. A summary of stock option
transactions follows:
1987 Stock Option Plan
Average Price per
Number of Shares Share
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, 1997 and 1996 8,875 $ 2.25
======
A-35
<PAGE>
12. 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 uses the liability method 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.
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, 1997 and 1996 are as follows:
1997 1996
Deferred Tax Assets:
Accruals and Reserves $ 1,218,000 $ 1,218,000
Deferred Gain on Sale of Subsidiary Stock 0 228,000
Future Tax Benefit of NOL Carryforwards 5,184,000 7,297,000
Future Tax Benefit of Credit Carryforwards 239,000 69,000
------------ ------------
Gross Deferred Tax Assets 6,641,000 8,812,000
Valuation Allowance (6,641,000) (8,812,000)
------------ ------------
Net Deferred Taxes $ 0 $ 0
============ ============
The Company has provided a valuation allowance because it is more likely
than not that 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 applicable to continuing operations for the
year ended September 30, 1997, 1996, and 1995 is:
1997 1996 1995
Tax (expense) benefit at
U. S. statutory rate $ (144,000) $ 1,176,000 $(724,000)
Utilization of federal and state net
operating losses 2,311,000 0 0
Other 4,000 4,000 3,000
Change in valuation allowance (2,171,000) (1,111,000) 721,000
----------- ------------ ----------
Income tax (expense) benefit $ 0 $ 69,000 $ 0
At September 30, 1997, the Company had net operating loss carryforwards
("NOL's") for federal income tax purposes of approximately $13.3 million which
expire in varying amounts through 2010.
A-36
<PAGE>
The gain on sale of Multi-Arc stock for income tax purposes was
approximately $8.5 million. The corresponding income tax liability on such
sale is approximately $489,000, which principally represents the federal
alternative minimum taxes. As part of the sales agreement, the Company and the
acquirer may elect to treat such stock sale as a sale of Multi-Arc assets,
pursuant to Section 338(h)(10) of the Internal Revenue Code. If such election
were to be made, the acquirers have agreed to indemnify Andal for any federal
or state income taxes due in excess of $170,000. The Company's federal net
operating loss carryforward would be reduced to approximately $4.6 million in
the event of such election.
14. 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.
A-37
<PAGE>
APPENDIX B
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-6856
ANDAL CORP.
(Exact name of registrant as specified in its charter)
New York 13-2571394
- - --------------------------------------------- -------------------------
(State or other jurisdiction of incorporation (I. R. S. Employer ID no.)
or organization)
909 Third Avenue, New York, New York 10022
- - ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (212) 376-5545
Not Applicable
(Former Name, Former Address, and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check (X) whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the registrant's common stock as of
July 31, 1998 was 286,220.
B-1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANDAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands of dollars, except share and per share amounts)
ASSETS
June 30, September 30,
1998 1997
(Unaudited)
Current assets:
Cash and cash investments $ 12,281 $ 17,875
Accounts and notes receivable 0 191
Other current assets 248 36
-------- --------
Total current assets 12,529 18,102
Investment in Yogen Fruz World-Wide Inc. 0 250
Escrow accounts receivable 3,059 3,407
Other assets 18 16
-------- --------
$ 15,606 $ 21,775
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 0 $ 223
Accrued expenses 1,759 3,632
-------- --------
Total current liabilities 1,759 3,855
Deferred income 3,059 3,407
Shareholders' equity:
Common shares, par value $20 per share,
1,500,000 authorized and 447,359 issued 8,947 8,947
Paid-in-capital 25,942 25,995
Deficit (18,652) (20,429)
Less 161,139 shares held in Treasury,
at cost (5,449) 0
-------- --------
Total shareholders' equity 10,788 14,513
-------- --------
$ 15,606 $ 21,775
======== ========
See accompanying notes to consolidated financial statements.
B-2
<PAGE>
ANDAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited and in thousands of dollars,
except per share amounts)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Operating costs and expenses:
General and administrative expense $ (260) $ (89) $ (744) $ (289)
Other income
Gain on disposals of Yogen Fruz stock 1,236 0 1,236 0
Interest income (expense) 149 (41) 555 (124)
------- ------- ------- -------
Income (loss) from continuing operations
before income taxes 1,125 (130) 1,047 (413)
(Provision) benefit for income taxes 0 (24) 0 (49)
------- ------- ------- -------
Income (loss) from continuing operations 1,125 (154) 1,047 (462)
Income from discontinued operations 0 552 730 1,839
------- ------- ------- -------
Net income $ 1,125 $ 398 $ 1,777 $ 1,377
======= ======= ======= =======
Income (loss) per common share
Income (loss) from continuing operations $ 3.80 $ (0.34) $ 2.83 $ (1.03)
Income from discontinued operations 0 1.23 1.98 4.11
------- ------- ------- -------
Net income $ 3.80 $ 0.89 $ 4.81 $ 3.08
======= ======= ======= =======
Average number of common shares
outstanding (000) 296 447 370 447
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
B-3
<PAGE>
ANDAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited and in thousands of dollars)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
1998 1997
<S> <C> <C>
Cash provided (used) by operations:
Income (loss) from continuing operations
before income taxes $ 1,047 $ (413)
Adjustments to reconcile income (loss) from
continuing operations before income taxes
to net cash provided by operations
Gain on disposals of Yogen Fruz stock (1,236) 0
Change in operating assets and liabilities:
Decrease in accounts receivable 191 0
(Increase) decrease in other current assets (212) 35
(Decrease) in accounts payable and
accrued liabilities (1,400) (459)
Cash provided by discontinued operations 655 867
-------- --------
Net cash provided (used) by operating activities
before income taxes (955) 30
Income taxes paid (622) (39)
-------- --------
Net cash(used) by operating activities (1,577) (9)
-------- --------
Cash flows from investing activities:
Proceeds from sale of Yogen Fruz stock 1,247 0
Purchase of treasury shares (5,264) 0
-------- --------
Net cash (used) by investing activities (4,017) 0
(Decrease) increase in cash (5,594) (9)
Cash and cash investments at beginning of period 17,875 21
-------- --------
Cash and cash investments at end of period $ 12,281 $ 12
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
B-4
<PAGE>
NOTES TO 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, 1997. The consolidated financial statements include the accounts
of the Company and its subsidiaries, all of which subsidiaries are inactive
and insignificant. On September 30, 1997, the Company closed on the sale of
its only operating business, Multi-Arc Inc. ("Multi-Arc"); and, thereafter,
its operations consist of the maintenance of a corporate executive and
administrative office required to manage open issues, such as the Multi-Arc
escrows, taxes, pending claims, and lawsuits, etc. Accordingly, the
consolidated financial statements for fiscal 1997 have been reclassified to
show the accounts of Multi-Arc as a discontinued operation.
As a result of the sale of Multi-Arc, the Company received net proceeds
of approximately $17.8 million of cash and may be entitled to receive
additional cash from two escrow funds which were established at the time of
closing. In March 1998, the Company received $51,000 upon final settlement of
the Expense Escrow and a partial distribution of $455,000 from the Tax Escrow
as a result of the final settlement of certain tax obligations.
(2) On July 15, 1998, the Company entered into an agreement of merger with
Cafco Holding Corporation ("Cafco"), a company organized by Andal's principal
shareholders (who are also its executive officers) and their affiliates. Upon
completion of the merger, each Andal shareholder, other than Cafco, will
receive $37 in cash for each common share; and the Cafco shareholders will
become sole shareholders of Andal. Since Cafco, which owns 75.3% of such
stock, has agreed to vote in favor of the merger, approval by the requisite
two-thirds vote of outstanding common stock is assured.
(3) During the current fiscal year, the Company purchased 15,581 shares of its
common stock at $25 per share. An additional 107,370 shares were purchased at
$33 plus .8125 shares of the Integrated Brands, Inc. ("Integrated") common
stock owned by the Company for each share of Company stock purchased.
Integrated subsequently merged into Yogen Fruz World-Wide Inc. ("Yogen Fruz").
In addition, options for 2,300 shares exercisable at $2.25 per share of the
Company's common stock were exercised by former officers of the Company.
In April 1998, the Company purchased an additional 40,488 shares of its
common stock at $33 plus .4754 shares of the Yogen Fruz common stock owned by
the Company for each share of Company stock purchased. The Company recorded a
gain of $153,000 on the disposal of Yogen Fruz stock related to this
transaction. The Company then held 136,078 shares, or less than 1%, of the
common stock of Yogen Fruz.
(4) In May 1998, the Company sold its remaining 136,078 shares of Yogen Fruz
for $1,247,000 in cash and recorded a gain of $1,083,000.
(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.
B-5
<PAGE>
At September 30, 1997, the Company had net operating loss carry forwards
("NOL's") for federal income tax purposes of approximately $13.3 million which
expire in varying amounts through 2010. As part of the sales agreement for
stock of Multi- Arc, the Company and the acquirer have elected to treat such
stock sale as a sale of Multi-Arc assets, pursuant to Section 338(h)(10) of
the Internal Revenue Code. The acquirers have agreed to indemnify Andal for
any federal or state income taxes due in excess of $170,000. The Company's
federal net operating loss carry forward will be reduced to approximately $4.6
million as the result of such election.
(6) 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. No diluted per share amounts are shown for any period as the effects
would not be material.
(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.
B-6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General and administrative expense for the three months and nine months
ended June 30, 1998 were $260,000 and $744,000 compared with $89,000 and
$289,000 in the comparable periods of the prior year. The increase in expense
is accounted for by the increased executive, personnel, and office costs
resulting from the sale of Multi-Arc and the relocation of the Company's
executive office to New York City. Interest income for the nine months ended
June 30, 1998 was $555,000 compared with interest expense of $124,000 in the
prior year. The increase in interest income is attributable to the interest
earned on the funds received from the sale of Multi-Arc. In April and May
1998, the Company disposed of its remaining investment in Yogen Fruz common
stock and recorded an aggregate gain of $1,236,000 (see Notes 3 and 4).
Income from discontinued operations of $730,000 in the current nine-month
period resulted principally from the settlement of liabilities and the receipt
of $455,000 drawn from the Tax Escrow and $51,000 in final settlement of the
Expense Escrow account relating to the sale of Multi-Arc (see Note 1). The
current period also includes $185,000 from the sale of the Company's interest
in certain real estate projects which had been carried at nil value for
several years. The prior period income from discontinued operations was
attributable to the Company's equity in the earnings of Multi-Arc for that
period.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended June 30, 1998, cash decreased $5.6 million
to $12.3 million.
Cash used by operating activities amounted to $1.6 million compared with
$9,000 used by operating activities in the prior comparable period. In the
current period, the Company reduced accounts payable and accrued liabilities
by $1.4 million, principally due to settlement of certain tax obligations for
$981,000, including accrued interest. Cash provided by discontinued operations
reflects $455,000 drawn from the Tax Escrow and $51,000 in final settlement of
the Expense Escrow related to the sale of Multi-Arc (see Note 1), and $185,000
from the sale of the Company's interest in certain real estate projects. In
the prior period, Multi-Arc advanced to the Company substantially all of the
Company's operating cash requirements.
During the nine months ended June 30, 1998, investing activities used
$4.0 million of cash, as the Company used $5.3 million for purchases of
treasury stock. During the current fiscal year, the Company purchased 15,581
shares of its common stock at $25 per share. An additional 107,370 shares were
purchased at $33 plus .8125 shares of the Integrated Brands, Inc.
("Integrated") common stock owned by the Company for each share of Company
stock purchased. Integrated subsequently merged into Yogen Fruz World-Wide
Ind. ("Yogen Fruz"). In addition, options for 2,300 shares exercisable at
$2.25 per share of the Company's common stock were exercised by former
officers of the Company. In April 1998, the Company purchased an additional
40,488 shares of its common stock at $33 plus .4754 shares of the Yogen Fruz
common stock owned by the Company for each share of Company stock purchased.
In May 1998, the Company sold its remaining investment in Yogen Fruz common
stock for $1.2 million in cash.
The Company believes that income from its cash and investments may be
sufficient to fund its operating cash needs for the foreseeable future. The
Company has no indebtedness.
B-7
<PAGE>
PART II.OTHER INFORMATION
ITEM 5.OTHER INFORMATION
On July 15, 1998, the Company entered into an agreement of merger with
Cafco Holding Corporation ("Cafco"), a company organized by Andal's principal
shareholders (who are also its executive officers) and their affiliates. Upon
completion of the merger, each Andal shareholder, other than Cafco, will
receive $37 in cash for each common share; and the Cafco shareholders will
become sole shareholders of Andal. Since Cafco, which owns 75.3% of such
stock, has agreed to vote in favor of the merger, approval by the requisite
two-thirds vote of outstanding common stock is assured.
ITEM 6.EXHIBITS AND REPORT ON FORM 8-K
Exhibit 2(a) Agreement and Plan of Merger by and between Andal Corp. and
Cafco Holding Corporation dated July 15, 1998.
Exhibit 27 Financial Data Schedule
No reports on Form 8-K were filed by the Company during the quarter ended
June 30, 1998.
B-8
<PAGE>
S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ANDAL CORP.
DATE:August 14, 1998 By: /s/ Andrew J. Frankel
Andrew J. Frankel
Chairman of the Board and
Chief Executive Officer
DATE:August 14, 1998 By: /s/ Mary Lou Holcombe
Mary Lou Holcombe
Vice President and
Secretary
B-9
<PAGE>
EXHIBIT 2(a)
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger (this "Plan of Merger") made as of the 15th
day of July, 1998, by and between Andal Corp., a New York corporation
("Andal"), and Cafco Holding Corporation, a New York corporation ("Cafco"),
Andal and Cafco being sometimes collectively referred to as the "Constituent
Corporations." Andal will be the surviving corporation, sometimes hereinafter
referred to as the "Surviving Corporation."
W I T N E S S E T H:
WHEREAS, Andal has authorized capital stock consisting of (a) 1,500,000
shares of Convertible Preferred Stock, par value $1.00 per share, none of
which are issued or outstanding, (b) 5,000,000 shares of Serial Preferred
Stock, par value $1.00 per share, none of which are issued or outstanding and
(c) 1,500,000 shares of common stock, par value $20.00 per share ("Andal
Common Stock"), of which 286,094 shares are issued and outstanding and none of
which are held as treasury shares; and
WHEREAS, Cafco has authorized capital stock consisting of 250,000 shares
of common stock, par value $.01 per share ("Cafco Common Stock"), of which
215,529 shares are outstanding; and
WHEREAS, 215,529 shares of Andal Common Stock are owned by Cafco; and
WHEREAS, the Board of Directors of each of the Constituent Corporations
deems it advisable and to the advantage and welfare of their respective
Constituent Corporations and their shareholders that Cafco merge with and into
Andal, with Andal to be the Surviving Corporation, pursuant to the provisions
of Section 901 of the Business Corporation Law of the State of New York (the
"NYBCL");
NOW, THEREFORE, subject to the approval of this Plan of Merger by the
shareholders of each of the Constituent Corporations, the Constituent
Corporations hereby agree as follows:
1. The names of the Constituent Corporations are Andal Corporation, which
was formed under the name National Cleaning Contractors, Inc., and Cafco
Holding Corporation.
2. (a) Andal has authorized capital stock consisting of (i) 1,500,000 shares
of Convertible Preferred Stock, par value $1.00 per share, none of which are
issued or outstanding, ii) 5,000,000 shares of Serial Preferred Stock, par
value $1.00 per share, none of which are issued or outstanding and (iii)
1,500,000 shares of Andal Common Stock, of which 286,094 shares are issued and
outstanding and none of which are held as treasury shares.
(b) Cafco has authorized capital stock consisting of 250,000 shares of
Cafco Common Stock, of which 215,529 shares are outstanding; and
3. At the Effective Time, as hereinafter defined, Cafco will be merged with
and into Andal (the "Merger").
4. This Plan of Merger constitutes a plan of merger pursuant to Section 902 of
the NYBCL, to be carried out in the manner, on the terms and subject to the
conditions herein set forth.
B-10
<PAGE>
5. The Merger will become effective immediately upon filing with the Secretary
of State of the State of New York following approval by the shareholders of
each of the Constituent Corporations of this Plan of Merger or a plan of
merger which sets forth the terms of the Merger as set forth in this Plan of
Merger and such other matters as may be provided by Section 902 of the NYBCL.
Such date and time is herein referred to as the "Effective Time."
6. Cafco agrees to vote its shares of Andal Common Stock in favor of the Plan
of Merger.
7. At the Effective Time, the separate existence of Cafco will cease, and
Andal, as the Surviving Corporation, will continue to exist under and be
governed by the laws of the State of New York. The name of the Surviving
Corporation will remain Andal Corp.
8. At and after the Effective Time, the Surviving Corporation will succeed to
and possess, without further act or deed, all of the estate, rights,
privileges, powers, and franchises, both public and private, and all of the
property, real, personal and mixed, of the Constituent Corporations; all debts
due either of the Constituent Corporations will be vested in the Surviving
Corporation; all claims, demands, property, rights, privileges, powers and
franchises and every other interest of either of the Constituent Corporations
will be the property of the Surviving Corporation; the title to any real
property of either of the Constituent Corporations will not revert or be in
any way impaired by reason of the Merger, but will be vested in the Surviving
Corporation; all rights of creditors and all liens upon any property of either
of the Constituent Corporations will be preserved unimpaired, limited in lien
to the property affected by such lien at the Effective Time; and all debts,
liabilities and duties of the Constituent Corporations will thenceforth attach
to the Surviving Corporation and may be enforced against it to the same extent
as if such debts, liabilities and duties had been incurred or contracted by
the Surviving Corporation.
9. At the Effective Time:
(a) Each outstanding share of Andal Common Stock, other than shares owned
by Cafco and any shares owned by shareholders exercising their appraisal
rights, shall, by operation of law and without further action on the part of
the former holders, automatically be converted into and become the right to
receive thirty seven dollars ($37.00). Holders of shares exercising their
dissenters' rights shall have the rights provided for in Sections 910 and 623
of the NYBCL.
(b) Each outstanding share of Cafco Common Stock shall, by operation of
law and without further action on the part of the former holders,
automatically be converted into and become the right to receive one fully paid
and non-assessable share of Andal Common Stock.
10. Each option to purchase one share of Andal Common Stock shall, with the
consent of the holder thereof, become the right to receive per share the
amount by which thirty seven dollars ($37.00) exceeds the exercise price
thereof.
11. The certificate of incorporation of Andal as existing at the Effective
Time shall not be modified or amended by the Merger.
12. The By-laws of Andal, as existing at the Effective Time, will continue in
force as the By-laws of the Surviving Corporation until altered, amended or
repealed as provided therein or as provided by law.
B-11
<PAGE>
13. The directors and officers of Andal immediately prior to the Merger, will
be the directors and officers of the Surviving Corporation, to hold office
until their respective successors have been elected and shall qualify, or as
otherwise provided in the By-Laws of the Surviving Corporation.
14. This Plan of Merger may be terminated and the Merger abandoned for any
reason whatsoever, by mutual consent of the Boards of Directors of the
Constituent Corporations, at any time prior to the Effective Time,
notwithstanding adoption and approval of this Plan of Merger by the
shareholders of the Constituent Corporations.
15. This Plan of Merger may be amended at any time prior to the Effective Time
by mutual consent of the Boards of Directors of the Constituent Corporations;
provided, however, that no such amendment shall adversely affect the rights of
the shareholders of Andal or Cafco subsequent to the adoption and approval of
this Plan of Merger by the shareholders of Andal or Cafco, as the case may be.
IN WITNESS WHEREOF, the foregoing Plan of Merger, which was duly adopted
by the Board of Directors of each of the Constituent Corporations, has been
executed by the chairman of the board and secretary or assistant secretary of
each of the Constituent Corporations on and as of the date first set forth
above.
ANDAL CORP.
By: /s/ Andrew J. Frankel
Andrew J. Frankel
Chairman of the Board and CEO
Attest: /s/ Alan N. Cohen
Alan N. Cohen, Assistant Secretary
CAFCO HOLDING CORPORATION
By: /s/ Andrew J. Frankel
Andrew J. Frankel
Chairman of the Board and CEO
Attest: /s/ Mary Lou Holcombe
Mary Lou Holcombe, Secretary
B-12
<PAGE>
APPENDIX C
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger (this "Plan of Merger") made as of the 15th day
of July, 1998, by and between Andal Corp., a New York corporation ("Andal"), and
Cafco Holding Corporation, a New York corporation ("Cafco"), Andal and Cafco
being sometimes collectively referred to as the "Constituent Corporations."
Andal will be the surviving corporation, sometimes hereinafter referred to as
the "Surviving Corporation."
W I T N E S S E T H:
--------------------
WHEREAS, Andal has authorized capital stock consisting of (a) 1,500,000
shares of Convertible Preferred Stock, par value $1.00 per share, none of which
are issued or outstanding, (b) 5,000,000 shares of Serial Preferred Stock, par
value $1.00 per share, none of which are issued or outstanding and (c) 1,500,000
shares of common stock, par value $20.00 per share ("Andal Common Stock"), of
which 286,094 shares are issued and outstanding and none of which are held as
treasury shares; and
WHEREAS, Cafco has authorized capital stock consisting of 250,000 shares of
common stock, par value $.01 per share ("Cafco Common Stock"), of which 215,529
shares are outstanding; and
WHEREAS, 215,529 shares of Andal Common Stock are owned by Cafco; and
WHEREAS, the Board of Directors of each of the Constituent Corporations
deems it advisable and to the advantage and welfare of their respective
Constituent Corporations and their shareholders that Cafco merge with and into
Andal, with Andal to be the Surviving Corporation, pursuant to the provisions of
Section 901 of the Business Corporation Law of the State of New York (the
"NYBCL");
NOW, THEREFORE, subject to the approval of this Plan of Merger by the
shareholders of each of the Constituent Corporations, the Constituent
Corporations hereby agree as follows:
1. The names of the Constituent Corporations are Andal Corporation, which
was formed under the name National Cleaning Contractors, Inc., and Cafco Holding
Corporation.
2. (a) Andal has authorized capital stock consisting of (i) 1,500,000 shares
of Convertible Preferred Stock, par value $1.00 per share, none of which are
issued or outstanding, (ii) 5,000,000 shares of Serial Preferred Stock, par
value $1.00 per share, none of which are issued or outstanding and (iii)
1,500,000 shares of Andal Common Stock, of which 286,094 shares are issued and
outstanding and none of which are held as treasury shares.
(b) Cafco has authorized capital stock consisting of 250,000 shares of
Cafco Common Stock, of which 215,529 shares are outstanding; and
3. At the Effective Time, as hereinafter defined, Cafco will be merged with
and into Andal (the "Merger").
4. This Plan of Merger constitutes a plan of merger pursuant to Section 902
of the NYBCL, to be carried out in the manner, on the terms and subject to the
conditions herein set forth.
5. The Merger will become effective immediately upon filing with the
Secretary of State of the State of New York following approval by the
shareholders of each of the Constituent Corporations of this Plan of Merger or a
plan of merger which sets forth the terms of the Merger as set forth in this
Plan of Merger and such other matters as may be provided by Section 902 of the
NYBCL. Such date and time is herein referred to as the "Effective Time."
6. Cafco agrees to vote its shares of Andal Common Stock in favor of the
Plan of Merger.
C-1
<PAGE>
7. At the Effective Time, the separate existence of Cafco will cease, and
Andal, as the Surviving Corporation, will continue to exist under and be
governed by the laws of the State of New York. The name of the Surviving
Corporation will remain Andal Corp.
8. At and after the Effective Time, the Surviving Corporation will succeed
to and possess, without further act or deed, all of the estate, rights,
privileges, powers, and franchises, both public and private, and all of the
property, real, personal and mixed, of the Constituent Corporations; all debts
due either of the Constituent Corporations will be vested in the Surviving
Corporation; all claims, demands, property, rights, privileges, powers and
franchises and every other interest of either of the Constituent Corporations
will be the property of the Surviving Corporation; the title to any real
property of either of the Constituent Corporations will not revert or be in any
way impaired by reason of the Merger, but will be vested in the Surviving
Corporation; all rights of creditors and all liens upon any property of either
of the Constituent Corporations will be preserved unimpaired, limited in lien to
the property affected by such lien at the Effective Time; and all debts,
liabilities and duties of the Constituent Corporations will thenceforth attach
to the Surviving Corporation and may be enforced against it to the same extent
as if such debts, liabilities and duties had been incurred or contracted by the
Surviving Corporation.
9. At the Effective Time:
(a) Each outstanding share of Andal Common Stock, other than shares
owned by Cafco and any shares owned by shareholders exercising their appraisal
rights, shall, by operation of law and without further action on the part of
the former holders, automatically be converted into and become the right to
receive thirty seven dollars ($37.00). Holders of shares exercising their
dissenters' rights shall have the rights provided for in Sections 910 and 623
of the NYBCL.
(b) Each outstanding share of Cafco Common Stock shall, by operation
of law and without further action on the part of the former holders,
automatically be converted into and become the right to receive one fully paid
and non-assessable share of Andal Common Stock.
10. Each option to purchase one share of Andal Common Stock shall, with the
consent of the holder thereof, become the right to receive per share the amount
by which thirty seven dollars ($37.00) exceeds the exercise price thereof.
11. The certificate of incorporation of Andal as existing at the Effective
Time shall not be modified or amended by the Merger.
12. The By-laws of Andal, as existing at the Effective Time, will continue
in force as the By-laws of the Surviving Corporation until altered, amended or
repealed as provided therein or as provided by law.
13. The directors and officers of Andal immediately prior to the Merger,
will be the directors and officers of the Surviving Corporation, to hold office
until their respective successors have been elected and shall qualify, or as
otherwise provided in the By-Laws of the Surviving Corporation.
<PAGE>
14. This Plan of Merger may be terminated and the Merger abandoned for any
reason whatsoever, by mutual consent of the Boards of Directors of the
Constituent Corporations, at any time prior to the Effective Time,
notwithstanding adoption and approval of this Plan of Merger by the shareholders
of the Constituent Corporations.
15. This Plan of Merger may be amended at any time prior to the Effective
Time by mutual consent of the Boards of Directors of the Constituent
Corporations; provided, however, that no such amendment shall adversely affect
the rights of the shareholders of Andal or Cafco subsequent to the adoption and
approval of this Plan of Merger by the shareholders of Andal or Cafco, as the
case may be.
C-2
<PAGE>
IN WITNESS WHEREOF, the foregoing Plan of Merger, which was duly adopted by
the Board of Directors of each of the Constituent Corporations, has been
executed by the chairman of the board and secretary or assistant secretary of
each of the Constituent Corporations on and as of the date first set forth
above.
ANDAL CORP.
By:
------------------------------
Andrew J. Frankel
Chairman of the Board and CEO
Attest:
----------------------------------
Alan N. Cohen, Assistant Secretary
CAFCO HOLDING CORPORATION
By:
-------------------------------
Andrew J. Frankel,
Chairman of the Board and CEO
Attest:
-----------------------------------
Mary Lou Holcombe, Secretary
C-3
<PAGE>
APPENDIX D
NEW YORK BUSINESS CORPORATION LAW
Section 910. Right of shareholder to receive payment for shares upon merger or
consolidation, or sale, lease, exchange or other disposition of assets, or share
exchange
(a) A shareholder of a domestic corporation shall, subject to and by
complying with section 623 (Procedure to enforce shareholder's right to receive
payment for shares), have the right to receive payment of the fair value of his
shares and the other rights and benefits provided by such section, in the
following cases:
(1) Any shareholder entitled to vote who does not assent to the
taking of an action specified in clauses (A), (B) and (C).
(A) Any plan of merger or consolidation to which the
corporation is a party; except that the right to receive payment of the fair
value of his shares shall not be available:
(i) To a shareholder of the parent corporation in a
merger authorized by section 905 (Merger of parent and subsidiary corporations),
or paragraph (c) of section 907 (Merger or consolidation of domestic and foreign
corporations); or
(ii) To a shareholder of the surviving corporation
in a merger authorized by this article, other than a merger specified in
subclause (i), unless such merger effects one or more of the changes specified
in subparagraph (b) (6) of section 806 (Provisions as to certain proceedings) in
the rights of the shares held by such shareholder; or
(iii) Notwithstanding subclause (ii) of this clause,
to a shareholder for the shares of any class or series of stock, which shares or
depository receipts in respect thereof, at the record date fixed to determine
the shareholders entitled to receive notice of the meeting of shareholders to
vote upon the plan of merger or consolidation, were listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc.
(B) Any sale, lease, exchange or other disposition of all
or substantially all of the assets of a corporation which requires shareholder
approval under section 909 (Sale, lease, exchange or other disposition of
assets) other than a transaction wholly for cash where the shareholders'
approval thereof is conditioned upon the dissolution of the corporation and the
distribution of substantially all of its net assets to the shareholders in
accordance with their respective interests within one year after the date of
such transaction.
(C) Any share exchange authorized by section 913 in which
the corporation is participating as a subject corporation; except that the right
to receive payment of the fair value of his shares shall not be available to a
shareholder whose shares have not been acquired in the exchange or to a
shareholder for the shares of any class or series of stock, which shares or
<PAGE>
depository receipt in respect thereof, at the record date fixed to determine the
shareholders entitled to receive notice of the meeting of shareholders to vote
upon the plan of exchange, were listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.
(2) Any shareholder of the subsidiary corporation in a merger
authorized by section 905 or paragraph (c) of section 907, or in a share
exchange authorized by paragraph (g) of section 913, who files with the
corporation a written notice of election to dissent as provided in paragraph (c)
of section 623.
(3) (Added, L 1997) Any shareholder, not entitled to vote with
respect to a plan of merger or consolidation to which the corporation is a
party, whose shares will be cancelled or exchanged in the merger or
consolidation for cash or other consideration other than shares of the surviving
or consolidated corporation or another corporation.
D-1
<PAGE>
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 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
<PAGE>
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 dissenters' 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
D-2
<PAGE>
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 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
<PAGE>
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 state, such proceeding shall be brought in
the county where the office of the domestic corporation, whose shares are to be
valued, was located.
D-3
<PAGE>
(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 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
<PAGE>
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.
D-4
<PAGE>
(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, 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).
D-5
