Andal Corp · 10-K · For 9/30/96

Filed On 1/31/97   ·   SEC File 1-06856   ·   Accession Number 70262-97-2

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SECURITIES AND EXCHANGE COMMISSION                
Washington, D. C.   20549                 

FORM 10-K                 
(MARK ONE)                                                                      

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, 1996                                   

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                   (I. R. S. employer ID no.)    
incorporation or organization)                                                  

200 Roundhill Drive, Rockaway, New Jersey                        07866          
(Address of principal executive offices)                    (Zip code)          

Registrant's telephone number, including area code (201) 625-3400               

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                       
5 1/2% Convertible Subordinated Debentures due 1997  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.  [   ]                                             

Non-affiliates of the Registrant hold approximately 28% of the        
Registrant's common stock.  There is currently no established trading market    
for such stock.  See Item 5 within.                                             

   As of December 31, 1996, the number of outstanding shares of Registrant's
Common Stock was 447,359 shares.                                                

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PART I                                                                          

Item 1.   Business                                                              

GENERAL                                                                         

Andal Corp. (the "Company" or "Andal"), through its Multi-Arc Inc.    
subsidiary ("Multi-Arc"), is 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.       
Multi-Arc owns and operates nine coating centers in the United States, one in   
Canada, and one in England, and has royalty or equity interests or to which it  
licenses technology through the ION BOND  Network in 25 coating centers in      
Europe, Japan, India, Korea, Taiwan, Singapore, and Argentina.  These centers   
offer coating services on a fee basis to manufacturers and end-users of         
industrial tools, components, and other products.  Multi-Arc also engages in    
the design, manufacture, assembly, and sale of proprietary coating equipment    
systems to manufacturers and large volume end-users of tools, consumer          
products, and other products that benefit from surface enhancement, as well as  
to its own joint venture coating centers.  See Note 20 of the Notes to          
Consolidated Financial Statements included elsewhere in this Report for         
certain information regarding revenues, operating profit and identifiable       
assets, and other information about foreign operations of the Company for each  
of the three years in the period ended September 30, 1996.                      

The Company is presently in discussion with a much larger company for 
the sale of the Company's principal operating subsidiary, Multi-Arc Inc.  No    
agreement has been reached on either price or structure of any transaction.     
Important factors which could interfere with the completion of this             
transaction are the ability of the parties to reach an agreement as to price    
and structure or other details of the transaction and the satisfactory          
completion of the purchaser's due diligence concerning Multi-Arc's business     
affairs.  There can be no assurance that these dicussions will result in any    
transaction.                                                                    

In October 1995, Multi-Arc (UK) Ltd., a wholly-owned subsidiary of    
Multi-Arc, acquired a 33% interest in Multi-Arc Eifeler Beschichtungs Gmbh      
("Austria") in exchange for $49,000 in cash and guarantees of certain of        
Austria's bank debt of $360,000.  In July 1996, Multi-Arc opened a wholly-owned 
coating center in Columbus, Ohio.  In October 1996, Multi-Arc (UK) Ltd.         
acquired a 33% interest in Preci-Coat S. A., a Switzerland joint venture, for   
$420,000 in cash and bank guarantees of $1.6 million.                           

SURFACE ENHANCEMENT                                                             

Surface enhancement is the exploitation of a variety of technological 
processes to produce new or changed surface properties of materials by the      
deposition of thin films only microns thick (a micron is one millionth of a     
meter).                                                                         

 The electric arc technology utilized by Multi-Arc in its Physical Vapor
Deposition ("PVD") process (ION BOND ) was originally developed in the Soviet   
Union, and Multi-Arc acquired a patent and know-how license from the U. S. S.   
R. in 1979.  Multi-Arc also employs a Chemical Vapor Deposition ("CVD")         
process.                                                                        

Multi-Arc first introduced the ION BOND  process on a commercial basis
in the United States in 1981 and has continually improved and enhanced the      
original technology.  Initially, the principal application of the ION BOND      
process was the coating of metal cutting tools, such as drills, used in metal-  
working industries to increase the useful life and productivity of such tools.  
Subsequently, Multi-Arc has been successful in developing additional            
commercial applications for its processes, including the coating of metal       
forming tools, such as dies, molds and punches, jewelry, carbide inserts,       
plastic injection molds and screws, and medical instruments and implants.       
Multi-Arc has also effected improvements in CVD technology which it employs     
for the coating of steel and carbide materials.                                 

In 1995, Multi-Arc formed the TETRABOND  division to commercialize its
amorphous diamond films for use in cutting tools, computer hardware, medical    
instruments, and decorative and industrial wear component applications.         

Multi-Arc derives revenues from (i) the 11 coating centers owned and  
operated by Multi-Arc located in the United States, Canada, and England, and    
the 25 coating centers in which it has varying royalty or equity interests or   
to which it licenses technology located in Europe, Japan, India, Korea,         
Taiwan, Singapore, and Argentina, all of which coating centers perform coating  
services on a fee basis; (ii) the design, manufacture, assembly, and sale of    
proprietary coating equipment systems to coating centers and to manufacturers   
of, and large volume end-users of, tools and other industrial products, such    
as component parts requiring a high degree of wear resistance; (iii) royalties  
paid by system purchasers for licenses to use the coating technology which the  
systems employ; and (iv) research and development contracts.                    

Sales and Marketing                                                   

Multi-Arc's coating systems and services are marketed throughout the  
United States by its own sales personnel, through independent sales             
representatives, through the use of direct marketing catalogues, and the        
display of its products at trade shows.  Sales personnel at each of the         
coating centers are involved in marketing the services performed at such        
centers.                                                                        

Competition                                                           

 There are several manufacturers in the United States, Europe, and Japan
which produce coating equipment utilizing a PVD process; and Multi-Arc          
anticipates that additional PVD technologies will be developed as the surface   
enhancement industry develops.  Moreover, there are numerous manufacturers of   
CVD equipment which compete with the CVD systems manufactured by Multi-Arc, as  
well as with its PVD systems in certain applications.  There are also several   
technologies other than the PVD and CVD processes, some of which involve        
surface enhancement, which are currently being used by numerous other firms to  
extend the useful lives and productivity of metal-cutting tools and other       
items.                                                                          

Although there are several companies which operate coating centers in 
the United States that utilize PVD or CVD technology, only one is a             
significant national and international competitor of the Company.  The Company  
also competes with numerous coating centers in the United States that employ    
technologies other than PVD and CVD.                                            

 The Company competes in the manufacture of coating systems primarily on
the basis of quality and technical innovation, as well as price.  In the        
operating of coating centers, quality, price, and service are the principal     
competitive factors.                                                            

Backlog                                                               

  The approximate dollar amount of Multi-Arc's backlog of coating systems,
ancillary equipment, and coating services orders at September 30, 1996 and      
1995 was $896,000 and $390,000, respectively.  The Company believes that all    
of its backlog orders at September 30, 1996 will be shipped within the          
Company's current fiscal year.                                                  

Patents and Trademarks                                                

Multi-Arc has been issued a number of patents.  Although the Company  
considers these patent rights to be significant, it believes that Multi-Arc's   
competitive position and its continued operations are more dependent on its     
technical knowledge, its processes, and its research and development programs   
than on patent protection.  The Company intends to continue to apply for        
patent protection with respect to new inventions in order to protect its        
competitive position.  Multi-Arc  has registered several trademarks, the        
principal ones being "Multi-Arc ," "TETRABOND ,"  and "ION BOND ."  Although    
these trademarks afford Multi-Arc a degree of recognition in the industry and   
are valuable assets, the Company does not regard them as material to its        
overall business.                                                               

Research and Development                                              

Multi-Arc is engaged in ongoing research and development in connection
with new and existing products.  Research and development expenditures have     
been expensed as incurred and amounted to $1,426,000, $1,628,000, and           
$1,400,000 for fiscal 1996, 1995, and 1994, respectively.  In addition, the     
Company has research and development agreements with several licensees          
pursuant to which each company makes known to the others the results of         
research undertaken by it in the field of surface enhancement.                  

Environmental Considerations                                          

Compliance with federal, state, and local provisions which have been  
enacted or adopted regulating the discharge of materials into the environment,  
or otherwise relating to the protection of the environment, is not expected to  
have a material effect on the Company's capital expenditures, earnings, or      
competitive position.                                                           

Employees                                                             

 As of September 30, 1996, Multi-Arc employed approximately 360 persons,
none of whom are covered by collective bargaining agreements.  Multi-Arc        
believes that its relationship with its employees is good.                      

OTHER                                                                           

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       
notice from the optionor that the 90-day period for exercise of the Option had  
commenced, the Company made contact with several brokers who were not able to   
identify a buyer.  The Company's attempts to sell the Option did not result in  
any bona fide offer from a third party to purchase the Option.                  

Once it was learned that the Option had become exercisable, the Option
Lenders expressed an interest in acquiring the Property in satisfaction of the  
amount outstanding on the Option Loan.  In that event, the Company would no     
longer have been obligated with respect to the $3 million purchase price        
obligation due on the Option exercise.                                          

 The Board of Directors of the Company met on October 5, 1995 to discuss
the difficulties entailed in the Company's exercise of the Option, including    
the Company's lack of cash flow, diminished borrowing power, debt structure,    
and difficulties in raising funds through a private placement of Multi-Arc's    
common stock and subordinated debentures.  After discussion, the Board members  
who were not Option Lenders (Messrs. Flood and Glickman) authorized the         
officers of the Company to engage an independent appraiser to conduct an        
appraisal of the Property, following which such Board members would seek to     
negotiate a transaction with the Option Lenders taking into account, in         
addition to the appraisal, all material circumstances relating to the           
Property, including, without limitation, the inability of the Company to raise  
sufficient funds required to exercise the Option, the time constraints within   
which the Company must exercise the Option, and the consequent probability      
that, without a sale to a related party, the Option would expire worthless.     

  On November 21, 1995, the Company received a report from the independent
appraiser it had retained which concluded that the range for the market value   
of the Property was between $9.9 million and $11.9 million (before deducting    
the $3 million that would have to be paid to exercise the Option), depending    
on the ultimate cost of complying with zoning restrictions and other costs      
that would be incurred in the development of the Property.  The appraiser's     
conclusion was based on a number of assumptions, including the assumption that  
a sale would occur after a reasonable exposure in a competitive market under    
all conditions requisite for a fair sale, with the buyer and seller acting      
prudently, knowledgeably, for self-interest, and not under undue duress.        

 On March 4, 1996, at a special meeting of the Board of Directors of the
Company, appropriate officers of the Company were authorized and empowered to   
engage in negotiations with the Option Lenders to reach a definite agreement    
to sell the Option to them under terms and conditions that were outlined by     
the Board.  Although the parties were unable to reach a definitive agreement    
prior to May 8, 1996, the Company continued to negotiate with affiliates of     
the Option Lenders for the sale of the Property to them; and, on July 10,       
1996, the Company entered into a contract to sell the Property to FAM, LLC      
("FAM"), a Delaware limited liability company owned by Frankhill Associates,    
the Alan N. Cohen Family Company, LLC, a Delaware limited liability company,    
of which Alan N. Cohen is manager, and Builtland Associates, a New York         
general partnership, of which Paul Milstein is a general partner.  Builtland    
Associates is the managing director of FAM and, as such, controls its           
activities.                                                                     

  On August 1, 1996, FAM purchased the Property for $9.1 million, paid for
as follows:                                                                     

    a)   Cancellation of the principal balance of the Option Loan in
the amount of $5,571,285 (after adjustment for a  
    restructuring which occurred in 1992) due to Frankhill
         Associates, the Alan N. Cohen Family Company, LLC, and Paul
Milstein, and at closing held by FAM.             
b)   Cancellation of the Demand Loan of $3.3 million due    
          Frankhill Associates, the Alan N. Cohen Family Company, LLC,
and Paul Milstein, and at closing held by FAM.    

c)   Cash payment to the Company of $228,715.               

In addition to the consideration outlined above, the Company was not  
required to pay unpaid interest of $283,000 on the Option Loan and Demand Loan  
and will be entitled to additional consideration if, within one year from the   
date of sale to FAM, all or any portion of the Property is further transferred  
to a bona fide third party or if FAM enters into an agreement to transfer all   
or any portion of the Property to a bona fide third party and such transfer     
ultimately occurs.  In either of such events, the Company will be entitled to   
50% of the amount by which the "Net Proceeds" of the sale of all or any         
portion of the Property exceeds $10 million.  In no event can such additional   
consideration exceed $3 million.  "Net Proceeds" is defined to mean the gross   
sales price attributable to the sale of all or any portion of the Property      
plus the then fair market value of any of the Property retained by FAM in       
connection with a partial sale, less any and all transaction costs, taxes, and  
all other expenses of FAM including, without limitation, brokerage              
commissions, reasonable attorney's fees, and transfer taxes.                    

The Company reported a gain of approximately $6 million from the sale.

Management Changes and Relocation of Executive Office                 

On August 31, 1996, the following management changes occurred:        

   a)   Andrew J. Frankel and Alan N. Cohen retired as officers of
          the Company.  They continue to serve as members of the Board
of Directors.                                     

     b)   Peter D. Flood, the President of Multi-Arc Inc., was elected
 Chairman of the Board, Chief Executive Officer, and
         President of Andal.  (See Item 11, "Employment Agreements,"
included elsewhere herein for a description of the
Employment Agreement entered into with Mr. Flood.)

 c)   Walter N. Kreil, Jr., Vice President and Chief Financial
          Officer of Multi-Arc Inc., was elected Senior Vice President
      and Chief Financial Officer of Andal and a member of the
          Board of Directors.   (See Item 11, "Employment Agreements,"
included elsewhere herein for a description of the
Employment Agreement entered into with Mr. Kreil.)

On August 31, 1996, Messrs. Andrew J. Frankel, then Chairman of the   
Board of Directors, and Alan N. Cohen, then President of the Company, retired   
pursuant to an agreement which provides that, in exchange for the issuance of   
32,500 common shares of the Company to each of them, they jointly agreed to     
reimburse Andal for the lease obligation of Andal's former executive            
headquarters office in New York City and certain other costs of operation of    
that office, including the salary of Andal employees located there. The         
Company agreed to maintain, at its own expense, health and life insurance       
benefits on Andal's New York employees and to continue to pay the costs of      
letter of credit guarantees by Mr. Frankel and Mr. Cohen until September 29,    
1998, at which time Andal will use its best efforts to replace the letters of   
credit with other security.  The Company recorded a charge of $441,000 in       
connection with this Agreement.    In September 1996, Andal's executive office  
records were moved to Multi-Arc's facilities in Rockaway, New Jersey; and that  
facility now serves as executive headquarters of the Company.                   

Refinancing of Multi-Arc's Indebtedness                               

On August 27, 1996, Multi-Arc Inc. completed a refinancing of its     
indebtedness to its principal bank lender, and obtained a $7 million Term       
Loan, a $1.5 million Equipment Term Line of Credit, and a $5 million Revolving  
Credit Facility.  (See Note 12 of the Notes to Consolidated Financial           
Statements included elsewhere in this Report.)                                  

Retirement of Fleet Indebtedness                                      

 On August 27, 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.  Frankhill Associates and Messrs.  
Cohen and Milstein had purchased the indebtedness from the Fleet Bank in 1994.  
During the year, the Company had repaid $543,000 of the Fleet Debt in cash;     
and, at September 30, 1996, the balance of $96,000 was still owing to Peter D.  
Flood.  (See Item 13, Certain Relationships and Related Transactions included   
elsewhere in this Report.)                                                      

Item 2.   Properties                                                            

The Company's executive office and Multi-Arc's administrative offices 
and Northeast Regional Coating Center, including TETRABOND , are located in a   
20,400 square foot building located in Rockaway, New Jersey.  The building,     
which the Company has an option to purchase, leases for a base rent of          
$227,000 per year.  The eight other facilities which are operated by the        
Company in the United States and Canada occupy leased facilities containing an  
aggregate of approximately 104,000 square feet, at an aggregate annual rental   
of approximately $656,000.  In addition, the Company leases a 25,000 square     
foot coating facility in the United Kingdom for 32,250 pounds sterling          
(approximately $51,000) per year.                                               

All of the foregoing facilities are suitably equipped and adequate for
their current use.                                                              

Item 3.   Legal Proceedings                                                     

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.      

Item 4.   Submission of Matters to a Vote of Security Holders                   

None.                                                                 

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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 listed on the NASD Electronic Bulletin Board by  
a market maker.  Subsequent to September 1995, the Company's common stock has   
not been listed on the NASD Electronic Bulletin Board or on any other           
established public market.  During the period that the Company's common stock   
was listed on the NASD OTC Bulletin Board, transactions in and quotations of    
the stock were limited and sporadic and, in the Company's opinion, did not      
constitute an established public trading market.  There has been no listing of  
and quotations on the Company's common stock during the fiscal year ended       
September 30, 1996.  The following table sets forth the range of high and low   
bid prices per share of the common stock as reported by the Pink Sheets  and    
the NASD OTC Bulletin Board during fiscal 1995.  Such quotations reflect        
inter-dealer prices without retail mark-up, mark-down, or commission and may    
not necessarily represent actual prices.                                        

          BID PRICES
                          High           Low
FISCAL 1995                                                 

First Quarter                    $2.50          $2.00       
Second Quarter                   $2.25          $2.25       
Third Quarter                    $2.25          $2.25       
Fourth Quarter                   $2.25          $2.25       

As of December 31, 1996, the number of registered holders of the      
Company's common stock was 1,125.                                               

 The Company has never paid a cash dividend on its common stock and does
not anticipate paying such dividends in the foreseeable future.                 

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,
                       1996        1995         1994      1993      1992
          (Thousands of dollars, except per share amounts)
Operating revenues      $31,615     $30,383      $27,077   $24,887   $20,834    
Income (loss) from                                                              
operations             1,635       2,414        1,627       832    (1,048)
Income (loss) from continuing                                                   
operations             8,151         879         (771)     (433)   (2,733)
Income (loss) from                                                              
discontinued                                                              
operations               234       1,007         (350)     (527)   (2,067)
Net income (loss)         8,385       1,886       (1,121)     (960)   (4,800)   
Income (loss) per share from                                                    
continuing operations   24.00        2.67        (2.34)    (1.31)    (8.29) 
Net income (loss) per                                                           
share                   24.69        5.72        (3.40)    (2.91)   (14.55) 
Average number of common shares                                                 
outstanding (000)        340         330          330       330       330 
Total assets            $27,196     $23,625      $20,457   $23,475   $24,282    
Long-term obligations (excluding                                                
current maturities)   10,181      17,585       16,141    18,721    20,398 
Shareholders' equity                                                            
(deficit)              4,855      (5,098)      (6,984)   (5,863)   (4,903)
Book value (deficit) per share at                                               
year end               10.85      (15.46)      (21.17)   (17.77)   (14.86)

See Note 6 of the Notes to Consolidated Financial Statements for a    
description of the income (loss) from discontinued operations recorded in       
1996, 1995, and 1994.  The 1993 loss from discontinued operations resulted      
from legal expenses and settlements on litigation related to the Company's      
discontinued construction operations.  The loss from discontinued operations    
in 1992 relates to a $1,852,000 loss on disposal of the Company's investment    
in preferred stock, a substantial portion of common stock, and promissory       
notes due from Olsher Metals Corporation ("OMC") and a $215,000 loss for the    
Company's equity share of OMC's loss for 1992.                                  

Item 7.   Management's Discussion and Analysis of Financial Condition and       
Results of Operations                                       

Results of Operations                                                 

1996 vs. 1995                                                         

 A summary of information relating to certain foreign operations for the
three fiscal years ended September 30, 1996 is provided in Note 20.  All note   
references in this discussion and analysis are to the Notes to Consolidated     
Financial Statements included elsewhere in this Report.                         

  Andal's consolidated operating revenues, entirely attributable to Multi-
Arc, for the year ended September 30, 1996 were $31.6 million compared with     
$30.4 million in 1995.  The increase was the result of higher coating services  
revenues of approximately $2.7 million or 10%, but was partially offset by a    
decrease in equipment sales of $1.6 million.  Coating services revenues         
benefitted particularly from an increase of $580,000, or 16%, in the United     
Kingdom, which reflected better economic conditions and significantly improved  
market penetration.  The increase in coating service revenues in the United     
States was a result of moderately better economic conditions.  Equipment sales  
revenues were down because of decreased demand.  Royalty and commission income  
increased $131,000 from the prior year, which reflects higher commissions on    
equipment sales in Japan.  Equity in foreign joint ventures provided income of  
$104,000 in 1996 compared with $53,000 in 1995.  The 1996 amount includes       
income from Multi-Arc India Ltd. ("India") of $147,000, offset by a loss from   
Multi-Arc's Singapore joint venture of $43,000.                                 

  Income from continuing operations was $8.2 million in 1996 compared with
$879,000 in 1995.  The principal reason for the improvement was a $6.0 million  
gain on the sale of the 61st Street property (see Note 2) and a tax benefit of  
$2.2 million (see Note 17).                                                     

  Operating profits of Multi-Arc increased $744,000 in 1996.  The improved
operating income in the coating service business of $1.1 million was due to     
gross profits from the higher revenue offset in part by start-up costs of a     
new service center in Columbus, Ohio.  The lower operating profits from         
equipment sales of approximately $492,000 was due to lower demand for           
equipment.  Operating profits were adversely affected by higher depreciation    
expense of $193,000 from recent capital spending which was offset by lower      
research and development costs of $202,000.  Equity in earnings of foreign      
joint ventures rose $51,000 over prior year.  Operating profit was favorably    
affected by $131,000 of higher royalty and commission income.                   

  Selling, general, and administrative expenses rose $1.6 million from the
prior year.  Approximately $1.0 million of the increase related to both higher  
personnel and travel costs at Multi-Arc due to continued expansion of its       
selling and marketing efforts and international activities.  Andal's general    
corporate expenses increased $621,000 due primarily to retirement costs of      
$441,000 (see Note 3) and accruals for management signing bonuses of $300,000,  
offset by lower New York office expenses.                                       
 Investment income for 1996 includes recognition of $232,000 of deferred
income on the collection of notes related to the sale of a minority interest    
in Multi-Arc (see Note 4) and $42,000 of interest income on said notes, offset  
by a writedown of $143,000 of the Company's investment in Integrated Brands     
Inc. ("Integrated") (see Note 7).                                               

  Interest expense for 1996 was $1.7 million compared with $1.8 million in
1995.   The decrease was a function primarily of lower debt levels.             

Operating revenues and operating income attributable to foreign       
operations rose $831,000 and $438,000, respectively, over 1995, principally as  
a result of a continued substantial improvement in operations in the United     
Kingdom.                                                                        

For information concerning the provision for income taxes, as well as 
information regarding differences between effective tax rates and statutory     
rates, see Note 17 of the Notes to Consolidated Financial Statements.           

1995 vs. 1994                                                         

Andal's consolidated revenues, entirely attributable to Multi-Arc, for
the year ended September 30, 1995 were $30.4 million compared with $27.1        
million in 1994.  The increase was the result of both higher coating services   
revenues of approximately $1.9 million or 8% and higher revenues from           
equipment sales of $1.4 million.  Coating services revenues benefitted          
particularly from an increase of $830,000 or 29% in the United Kingdom which    
reflected better economic conditions and significantly improved market          
penetration.  Coating service revenues in the United States rose as a result    
of moderately better economic conditions.  Equipment sales revenues were up     
because of increased system deliveries with sales in the United States,         
Taiwan, and India.  Royalty and commission income decreased $106,000 from the   
prior year which reflects the final effects of Multi-Arc's restructuring of     
its European licensee arrangements.  Equity in foreign joint ventures provided  
income of $53,000 in 1995 compared with a loss of $16,000 in 1994.  The 1995    
amount  includes income from Multi-Arc India Ltd. ("India") of $163,000 offset  
by a loss from Multi-Arc's Singapore joint venture of $110,000. Earnings in     
India are up as a result of increased demand for decorative products.           

Income (loss) from continuing operations was $879,000 in 1995 compared
with $(771,000) in 1994.                                                        

Operating profits of Multi-Arc increased $1.4 million in 1995 which is
attributable to an increase in coating services operating revenues which        
contributed $1.1 million in additional operating profits, principally from      
Multi-Arc (UK) Ltd.  The improved operating income in the coating services      
business is the direct result of higher volume, slightly improved margins, and  
lower depreciation expense.  Operating profits from equipment sales rose        
approximately $570,000 due to higher sales and consistent margins with the      
prior year.  Equity in earnings of foreign affiliates rose $69,000 over prior   
year entirely due to improved results in India.  Operating profit was           
adversely effected by the lower royalty and commission income and increased     
spending of $228,000 on research and development.                               

Selling, general, and administrative expenses rose $767,000 from the  
prior year.  Approximately $582,000 of the increase related to higher           
personnel costs at Multi-Arc due to expansion of its selling and marketing      
efforts.  Multi-Arc's administrative costs also increased $421,000 due to       
additional personnel, higher volume, and higher incentive compensation expense  
related to higher profitability.  Andal's general corporate expenses declined   
$436,000 as the result of lower rent, depreciation, insurance, and legal        
costs, principally related to the prior year's financial restructuring.         

During 1995, the Company sold approximately 7.4% of its interest in   
Multi-Arc to management, foreign licensees, and other investors for cash and    
notes and recognized a gain of $348,000 on the transaction (see Note 4).  In    
addition to this gain, a gain of $396,000 related to the portion of this sale   
to management has been deferred as the sales were financed by non-recourse      
loans.  Another $452,0000 of gain has been deferred relating to sales made to   
foreign investors with deferred payment arrangements.  The minority interest    
in net income of Multi-Arc resulted in a first-time charge of $152,000 for      
1995.                                                                           

In November 1994, Multi-Arc India Ltd. completed an initial public    
offering on the Bombay stock exchange which reduced Multi-Arc's interest in     
India from 40% to 21%; and the Company recorded a pretax gain of $85,000 on     
this transaction (see Note 5).  Investment and other income increased to        
$37,000 from a loss of $756,000 in 1994.  The 1994 amount was adversely         
impacted by the loss of $766,000 on the sale of a substantial portion of the    
Company's interest in Integrated's stock (see Note 7).                          

  Interest expense for 1995 was $1.8 million compared with $1.6 million in
1994.  The increase was a function primarily of higher interest rates.          
Although debt levels have increased from the prior year, such increase          
principally occurred in the fourth quarter.                                     

Operating revenues and operating income attributable to foreign       
operations rose $1.0 million and $494,000, respectively, over 1994 principally  
as a result of a substantial improvement in operations in the United Kingdom.   

Effects of Inflation                                                  

Inflation has a minimal effect on Andal's operations.                 

Liquidity and Capital Resources                                       

Cash decreased $298,000 during 1996 as cash provided by operating     
activities of $2.4 million and financing activities of $277,000 was offset by   
cash used in investing activities of $2.9 million.  Operating cash flows        
resulted primarily from the Company's income from continuing operations before  
income taxes for the year ($5.9 million), net depreciation and amortization     
($2.0 million), a write-down of the Company's investment in Integrated Brands,  
Inc. ($143,000), and the gain on the sale of the 61st Street Property ($6.0     
million).  The cash flow from operations and the net cash flow from financing   
activities which resulted primarily from the refinancing of and additional      
borrowings under the Company's debt agreements with First Union National Bank   
(see Note 12), were used principally to fund the Company's continued capital    
expenditure program and its investments in foreign joint ventures.  Such        
expenditures and investments were approximately $3.6 million in 1996 and $3.2   
million in 1995 and are expected to continue at a comparable level in 1997.     

The Company had a working capital deficit of $2.3 million at September
30, 1996 as compared with a working capital deficit of $1.0 million at          
September 30, 1995.  The increase in the working capital deficit is due         
principally to the reclassification of the outstanding obligation of the 5 1/2% 
convertible debentures to current liabilities, as the debentures mature in      
September 1997.                                                                 

Pursuant to the loan agreement with First Union National Bank, the    
amount of dividends and loans that may be made from Multi-Arc to Andal in 1997  
is restricted to $300,000.  In addition, the Company anticipates collections    
on notes receivable of $300,000 and possible construction claims collections.   
Due to the corporate restructuring associated with the Retirement Agreement     
described in Note 3, the resulting reduction in costs associated with           
maintenance of the Company's former New York office, and the reduction in       
interest costs related to the retirement of shareholder debt, the cash          
requirements of Andal for 1997 are not expected to exceed $425,000.             

At September 30, 1996, the Company had $4.0 million in additional     
borrowing capacity under Multi-Arc's Revolving Credit Facility.  Based on       
eligible receivables and inventories at that date, $2.1 million was available   
to fund working capital requirements.  Additionally, the Company has an unused  
line of credit of $1.5 million which may be used for the purchase of new or     
used equipment.                                                                 

The Company believes that current financial resources, including the  
available borrowing capacity under its various loan agreements and anticipated  
funds from operations, will be adequate to meet cash requirements for capital   
spending and debt repayments for fiscal 1997.  The Company plans to continue    
to use its revolving credit arrangement to finance interim working capital      
needs in the coming year.                                                       

Item 8.   Financial Statements and Supplementary Data                           

See Index to Financial Statements and Schedules at page 27  below.    

Item 9.   Changes in and Disagreements with Accountants on Accounting and       
Financial Disclosure                                        

Not applicable.                                                       

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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, 1996.        

Name                     Age  Positions and Offices with the Company            

Peter D. Flood            53  Chairman of the Board of Directors, Chief         
             Executive Officer,  and President

Walter N. Kreil, Jr.      49  Senior Vice President, Chief Financial Officer,   
and Director        

Andrew J. Frankel         64  Director                                          

Alan N. Cohen             65  Director                                          

  The Company's Directors are elected annually and hold office until their
successors are elected and qualified.                                           

 Peter D. Flood has been Chairman of the Board, Chief Executive Officer,
and President of the Company since September 1996, a Director of the Company    
since December 1985, and the Chief Executive Officer of Multi-Arc since March   
1981.                                                                           

Walter N. Kreil, Jr. was appointed a Director and elected Senior Vice 
President and Chief Financial Officer of the Company in September 1996.  Mr.    
Kreil served as Vice President of the Company from September 1987 through       
August 1996 and serves as Vice President and Chief Financial Officer of Multi-  
Arc.  Mr. Kreil joined the Company as Assistant Vice President and Controller   
in June 1984.                                                                   

Andrew J. Frankel has been a Director of the Company since 1971 and   
served as Chairman of the Board of Directors and Chief Executive Officer of     
the Company from 1971 through August 1996.                                      

 Alan N. Cohen has been a Director of the Company since October 1979 and
served as President of the Company from October 1981 through August 1996.       
Between January 1981 and October 1981, Mr. Cohen served as Vice Chairman of     
the Board of the Company.  Mr. Cohen was a member of the Board of Directors of  
Integrated Brands, Inc. from December 1985 until June 1993.  From December      
1986 until September 1993, Mr. Cohen was Vice Chairman of the Board and         
Treasurer of Celtics, Inc., the general partner of Boston Celtics Limited       
Partnership.                                                                    

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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, 1996.                                                  

SUMMARY COMPENSATION TABLE              

                      Annual Compensation       Long     All Other
                     ----------------------------- Term     Compensation
Name and                                  Other Annual Options/ ($)             
Principal                Salary  Bonuses  Compensation SARs     (401K Plan      
Position            Year  ($)    ($)       (1)         (#)      Contributions)  
------------        ---- ------  -------  ------------ -------- --------------  
Andrew J.           1996 157,000  0       42,739       0             0          
Frankel                                                                         
Chief Executive     1995 244,000  0       33,333       0             0          
Officer through                                                                 
August 1996         1994 144,000  0       27,858       0             0          

Alan N. Cohen       1996 157,000  0       16,000       0             0          
President                                                                       
through August      1995 244,000  0       16,000       0             0          
1996                                                                            
          1994 144,000  0       13,720       0             0

Peter D. Flood      1996 250,000  138,000     (2)      0         4,750          
Chief Executive                                                                 
Officer and         1995 250,000  151,000     (2)  2,500 (3)     4,620          
President from                                                                  
September 1996      1994 250,000   85,000     (2)      0         4,620          
and Chief                                                                       
Executive of                                                                    
Multi-Arc                                                                       

Walter N. Kreil, Jr.1996 142,000   35,000     (2)      0         4,750          
Senior Vice                                                                     
President and       1995 135,200   50,000     (2)    500 (3)     4,620          
Chief Financial                                                                 
Officer since       1994 132,600   24,000     (2)      0         4,620          
September 1996                                                                  
and Chief                                                                       
Financial                                                                       
Officer  of                                                                     
Multi-Arc                                                                       

No other bonuses, restricted stock awards, long term incentive plan   
payouts, or other compensation was awarded or paid to the named executives      
during the periods indicated.                                                   

(1)  Other Annual Compensation includes professional services and     
supplemental life and medical insurance, as follows:                            

             Andrew J. Frankel             Alan N. Cohen

         Professional  Supplemental       Professional
         Services      Insurance          Services
1996      10,000         10,494            10,000 
1995      10,000          5,194            10,000 
1994      10,000          4,007            10,000 

(2)  Amounts were less than 10% of salary.                            

(3)  Options to acquire common stock of Multi-Arc Inc. at $205.13 per 
share.                                                                          

Stock Options                                                                   

No stock options or stock appreciation rights were granted by the     
Company during the fiscal year ended September 30, 1996 to the Chief Executive  
Officer of the Company and all other executive officers whose annual salary     
exceeded $100,000 for the fiscal year ended September 30, 1996.                 

 The following table sets forth information with respect to the exercise
during fiscal 1996 and the value as of September 30, 1996 of unexercised stock  
options and stock appreciation rights for the Chief Executive Officer and all   
other executive officers whose annual salary exceeded $100,000 for the fiscal   
year ended September 30, 1996.                                                  

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END         
OPTION/SAR VALUES                 
                                                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/  ($) Exercisable/
Name           (#)          Realized($)   Unexercisable     Unexercisable       

Andrew J.       0           0                 0/0               0/0             
Frankel                                                                         

Alan N. Cohen   0           0                 0/0               0/0             

Peter D. Flood  0           0                 0/5,000(1)        0/0             
                               500/2,500(2)        0/0

Walter N. Kreil,0           0                 0/750(1)          0/0             
Jr.                                         100/500(2)          0/0             

The Company does not have a long term incentive compensation plan for 
its executives.                                                                 

(1)  Options on Andal Corp. common stock.                             
(2)  Options on Multi-Arc Inc. common stock.                          

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.                             

Employment Agreements                                                           

Mr. Flood is employed by the Company as President and Chief Executive 
Officer under an employment agreement effective as of August 31, 1996 and       
expiring on September 30, 2001 under which he is entitled to receive a base     
salary of $250,000 per year plus incentive compensation equal to 5% of the      
annual pretax income of Multi-Arc.  The Agreement further provides for a        
signing bonus of $250,000, payable $50,000 on or before November 30, 1996 and   
the balance as soon as possible thereafter, depending on the sufficiency of     
the Company's cash flow.  In addition, pursuant to the Agreement, Mr. Flood     
was awarded 7,500 shares of the Company's common stock.                         

 Mr. Kreil is employed by the Company as Senior Vice President and Chief
Financial Officer under an employment agreement effective as of August 31,      
1996 and expiring on September 30, 2001 under which he is entitled to receive   
an initial base salary of $149,350 per year plus participation in the Multi-Arc 
Corporate Incentive Compensation Plan.  The Agreement further provides for      
a signing bonus of $50,000, payable $10,000 on or before November 30, 1996 and  
the balance thereafter, depending on the sufficiency of the Company's cash      
flow.  The Multi-Arc Corporate Management Incentive Plan provides for a bonus   
pool to be divided proportionally, based on normal compensation, among three    
of Multi-Arc's senior executives (other than Mr. Flood).  The pool is           
calculated at 1 1/2% of earnings before interest and taxes up to $1.0 million,  
plus 2% of such earnings between $1.0 and 2.0 million, plus 2 1/2% of such      
earnings over $2.0 million.  In 1996 Mr. Kreil received a bonus of $35,000 in   
accordance with the Plan.                                                       

Repricing of Options/SARs                                                       

 No stock options previously granted to the Company's executive officers
were repriced during the fiscal year ended September 30, 1996.                  

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 were
also, until August 31, 1996, Chief Executive Officer and President of the       
Company, respectively.  On August 27, 1996, they submitted the following        
report:                                                                         

Upon effect of the retirement of Messrs. Frankel and Cohen, 
the Compensation Committee approved the employment of Peter D.        
Flood as Chairman of the Board, Chief Executive Officer, and          
President of Andal and Walter N. Kreil, Jr. as Senior Vice            
President and Chief Financial Officer, in accordance with their       
respective proposed Employment Agreements to be effective August      
31, 1996.                                                             

Respectfully submitted,                                               

Andrew J. Frankel                                                     

Alan N. Cohen                                                         

See Item 11, "Employment Agreements," for a description of the        
Employment Agreements entered into with Messrs. Flood and Kreil.                

PERFORMANCE GRAPH                                                               

The following line graph compares the cumulative total return of the  
Company's common stock to the American Stock Exchange Market Value and          
Industrial Service Company Indices for the period October 1, 1991 to September  
30, 1996.                                                                       

CUMULATIVE TOTAL RETURN                 
Andal Shares vs. Amex Indices                 

Measurement Period  Andal Invested AMEX MV Invested    AMEX Ind. Invested       

9/30/91             $100.00         $100.00            $100.00        
9/30/92                5.68          124.89              96.72        
9/30/93                0.00          152.63             138.39        
9/30/94                1.82          152.11             127.39        
9/30/95                2.05          180.59             156.55        
9/30/96                0.00          189.49             141.34        

Assumes $100 invested on September 30, 1991 in Andal Corp. Common Stock, the    
Amex Market Value Index and the Amex Industrial Service Company Index.          

Item 12.  Security Ownership of Certain Beneficial Owners and Management        

  The following table sets forth information as of November 30, 1996, 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.                                                           

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Name and Address of      Amount and Nature of               Percent             
Beneficial Owner          Beneficial Ownership               of Class           

Frankhill Associates      124,715 shares        (1) (10)     27.9%              
909 Third Avenue                                                                
Ninth Floor                                                                     
New York, NY   10022                                                            

Andrew J. Frankel           1,730               (1)                             
909 Third Avenue          124,715               (2) (10)                        
Ninth Floor                 2,019               (3)                             
New York, NY   10022          534               (4)                             
-------                     
            128,998 shares                     28.8%

Alan N. Cohen Family       47,500 shares                     10.6%              
Company LLC                                                                     
909 Third Avenue                                                                
Ninth Floor                                                                     
New York, NY   10022                                                            

Alan N. Cohen              47,500              (11)                             
909 Third Avenue           27,990               (1) (10)                        
Ninth Floor                 4,250               (5)                             
New York, NY   10022       ------                                               
             79,740 shares                     17.8%

Peter D. Flood             11,664 shares        (1) (12)      2.6%              
c/o Multi-Arc Inc.                                                              
200 Roundhill Drive                                                             
Rockaway, NJ   07866                                                            

Builtland Partners         63,294 shares        (1) (6)      14.1%              
c/o Milstein Properties                                                         
1271 Avenue of the Americas                                                     
New York, NY   10020                                                            

Paul Milstein              99,337 shares        (7) (8)      22.2%              
c/o Milstein Properties                                                         
1271 Avenue of the Americas                                                     
New York, NY   10020                                                            

All officers and directors                                                      
as a group (4 persons)    222,151 shares        (10)         49.6%              

(1)  Direct record and beneficial ownership.                                    

(2)  As a general partner of, or person designated to exercise voting power     
or 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)  Not used.                                                                  

(10) Includes 278 shares issuable upon conversion of debentures.                

(11) As manager of the Alan N. Cohen Family Company, LLC, the record holder     
of these shares.                                                      

(12) Includes 250 shares held jointly with Mr. Flood's wife.                    

Item 13.  Certain Relationships and Related Transactions                        

 See Item 1.  Business--Other--Purchase and sale of the UBC Property for
a discussion of the fiscal 1996 developments concerning the UBC Property and    
the sale of the UBC Property in satisfaction of the UBC Loan.                   

See Item 1.  Business--Other--Management Changes and Relocation of    
Executive Office for a discussion of the August 31, 1996 retirement agreement   
between the Company and Andrew J. Frankel and Alan N. Cohen.                    

See Item 1.  Business--Other--Retirement of Fleet Indebtedness for a  
discussion of the retirement of subject indebtedness in exchange for common     
stock.  As of September 30, 1996, Peter D. Flood owned $96,000 principal        
amount of the Fleet Indebtedness.  Pursuant to the employment agreement         
between the Company and Mr. Flood, the Company has agreed to repay the          
indebtedness, plus interest at 8% per annum, as soon as the cash flow of the    
Company, in the reasonable discretion of the Board of Directors, permits.  See  
Item 10--Directors and Executive Officers of the Company--Employment            
Agreement.                                                                      

 In December 1994, Andal sold, for $500,000, approximately 2 1/2% of the
common stock of Multi-Arc to Multi-Arc's management; and Multi-Arc issued       
$500,000 of convertible subordinated debentures (convertible into 2% of Multi-  
Arc common stock) to such management.  Both the sale of the common stock and    
the issuance of the debentures were funded through non-recourse loans made to   
its management by Multi-Arc using Multi-Arc's revolving credit facility with    
First Union National Bank.  The management loans included $500,000 and          
$100,000, respectively, to Peter D. Flood and Walter N. Kreil, Jr.  These       
loans bear interest at 8.35% and are repayable on December 15, 2004, or upon    
termination of employment.  The loans are secured by common stock and           
debentures of Multi-Arc.  The Notes evidencing these loans are pledged by       
Multi-Arc to First Union National Bank.                                         

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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 27 below.

(a)(2)    Financial Statement Schedules                                         

     See Index to Financial Statements and Schedules at page 27 below.

(b)       Reports on Form 8-K                                                   

The Company filed a report on Form 8-K on August 30, 1996 to
report management changes, the relocation of its executive  
   offices, and the refinancing of Multi-Arc's indebtedness to its
principal bank lender.                                      

(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  
  filed 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).

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).         

4(a) Indenture dated as of September 15, 1972 between the Company and 
    Manufacturers Hanover Trust Company, as Trustee, relating to the
      Company's 5 1/2% convertible subordinated debentures due September
    15, 1997 (incorporated by reference to Exhibit 4(a) to Company's
  Annual Report on Form 10-K for fiscal year ended September 30,
1986).                                                      

4(b) First Supplemental Indenture dated as of January 12, 1982 between
the Company and United States Trust Company of New York, as 
      Trustee, relating to the Company's 5 1/2% convertible subordinated
   debentures due September 15, 1997 (incorporated by reference to
   Exhibit 4(b) to Company's Annual Report on Form 10-K for fiscal
year ended September 30, 1986).                             

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)Option Agreement dated as of August 1, 1982 between Schnurmacher 
     Corp. and the Company (incorporated by reference to Exhibit 10(v)
 to Company's Annual Report on Form 10-K for fiscal year ended
September 30, 1986).                                        

10(c)Lease dated May 11, 1988, containing an Option to Purchase,      
 between Roundhill Associates and the Company (incorporated by
       reference to Exhibit 10(ag) to Company's Annual Report on Form 10-K
for fiscal year ended September 30, 1988).                  

 10(d)Subordination Agreement dated September 30, 1994 of Multi-Arc Inc.
      as debtor and Andal Corp. as subordinated lender in favor of First
      Fidelity Bank, N.A. (incorporated by reference to Exhibit 10(l) to
the Company's Annual Report on Form 10-K for the year ended 
September 30, 1994).                                        
10(e)Security Agreement dated September 30, 1994 by and between First 
      Fidelity Bank, N.A. and Vagle Technology, Inc., Multi-Arc, Inc. (a
    Minnesota corporation), Multi-Arc Inc., Multi-Arc of Ohio, Inc.,
and S. C. I. Coatings Limited (incorporated by reference to 
     Exhibit 10(m) to the Company's Annual Report on Form 10-K for the
year ended September 30, 1994).                             

10(f)Multi-Arc Inc., Andal Corp., and United States Trust Company of  
 New York, Trustee.  Second Supplemental Indenture dated as of
     September 30, 1994 5 1/2% Convertible Subordinated Debentures due
     1997 (incorporated by reference to Exhibit 10(o) to the Company's
      Annual Report on Form 10-K for the year ended September 30, 1994).

10(g)Pledge and Security Agreement dated September 30, 1994 by and    
    among Andal Corp. and First Fidelity Bank, N.A. (incorporated by
     reference to Exhibit 10(p) to the Company's Annual Report on Form
10-K for the year ended September 30, 1994).                

10(h)Form of Multi-Arc Inc. 6% Convertible Subordinated Debenture due 
    December 15, 2004 (incorporated by reference to Exhibit 10(p) to
the Company's Annual Report on Form 10-K for the year ended 
September 30, 1995).                                        

10(i)Form of Multi-Arc Inc. Stockholders Agreement dated June 15, 1995
(incorporated by reference to Exhibit 10(q) to the Company's
      Annual Report on Form 10-K for the year ended September 30, 1995).

10(j)1994 Multi-Arc Inc. Stock Option Plan (incorporated by reference 
    to Exhibit 10(r) to the Company's Annual Report on Form 10-K for
the year ended September 30, 1995).                         

10(k)Loan Agreement dated September 21, 1995 between First Fidelity   
    Bank N. A. and Multi-Arc (UK) Ltd. (incorporated by reference to
     Exhibit 10(s) to the Company's Annual Report on Form 10-K for the
year ended September 30, 1995).                             

 10(l)Overdraft Facility Agreement between First Fidelity Bank N. A. and
 Multi-Arc (UK) Ltd. dated September 21, 1995 (incorporated by
     reference to Exhibit 10(t) to the Company's Annual Report on Form
10-K for the year ended September 30, 1995).                

10(m)61st Street Option Exercise (incorporated by reference to Exhibit
  10(u) to the Company's Annual Report on Form 10-K for the year
ended September 30, 1995).                                  

10(n)Contract of Sale of 61st Street Property dated July 10, 1996     
(incorporated by reference to Exhibit 10(r) to the Company's
     Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1996.                                                   

 10(o)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(p)Employment Agreement between Andal Corp. and Peter D. Flood dated
     as of August 31, 1996 (incorporated by reference to Exhibit 10(b)
to the Company's Current Report on Form 8-K dated August 30,
1996).                                                      

10(q)Consolidated, Modified, and Restated Loan and Security Agreement,
      dated August 27, 1996 by and between First Union National Bank and
Multi-Arc Inc., a Delaware Corporation; Multi-Arc, Inc., a  
Minnesota Corporation; Vagle Technology, Inc., a Michigan   
Corporation; Multi-Arc of Ohio, Inc., an Ohio Corporation;  
  Scientific Coatings of Illinois, Inc., a Michigan Corporation;
Scientific Coatings, Inc., a Michigan Corporation; and SCI  
Coatings Southwest, Inc., a Texas Corporation.              

10(r)Employment Agreement between Andal Corp. and Walter N. Kreil, Jr.
dated as of August 31, 1996.                                

22   Significant Subsidiaries of the Company                          

24(a)Consent of Kelly, Graham, Myska & Partners.                      

24(b)Consent of KPMG Peat Marwick.                                    

27   Financial Data Schedule                                          

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Index to Financial Statements and Schedules                 

Financial Statements                                                   Page     

Report of Independent Auditors on Financial Statements and Schedules     29     

Consolidated Balance Sheet--September 30, 1996 and September 30, 1995   F-1     

Consolidated Statement of Operations--Years ended September 30, 1996,           
1995, and 1994                                                     F-2

Consolidated Statement of Shareholders' Equity (Deficit)                        
--Years Ended September 30, 1996, 1995, and 1994                   F-3

Consolidated Statement of Cash Flows--Years Ended September 30, 1996,           
1995, and 1994                                                     F-4

Notes to Consolidated Financial Statements                              F-6     

Condensed Balance Sheet (Parent Company Only)--September 30, 1996               
and September 30, 1995                                             S-1

Condensed Statement of Operations (Parent Company Only)--Years ended            
September 30, 1996, 1995, and 1994                                 S-2

Condensed Statement of Cash Flows (Parent Company Only)--Years ended            
September 30, 1996, 1995, and 1994                                 S-3

Notes to Condensed Financial Statements (Parent Company Only)           S-4     

All other 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.      

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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/    Peter D. Flood
                    Peter D. Flood
                                        Chairman of the Board of Directors

Dated:  January 30, 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/ Peter D. Flood       Chairman of the Board of            January 30, 1997   
(Peter D. Flood)      Directors, Chief Executive                          
Officer, President, and       
Director                      

Principal Financial Officer:                                                    

/s/ Walter N. Kreil, Jr. Senior Vice President,              January 30, 1997   
(Walter N. Kreil, Jr.) Chief Financial Officer,                             
and Director                  

Directors:                                                                      

/s/ Andrew J. Frankel    Director                            January 30, 1997   
(Andrew J. Frankel)                                                       

/s/ Alan N. Cohen        Director                            January 30, 1997   
(Alan N. Cohen)                                                           

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REPORT OF INDEPENDENT AUDITORS                

Board of Directors and Shareholders                                             
Andal Corp.                                                                     

We have audited the accompanying consolidated balance sheets of Andal Corp.     
and subsidiaries as of September 30, 1996 and 1995, and the related             
consolidated statements of operations, shareholders' equity (deficit) and cash  
flows or each of the three years in the period ended September 30, 1996. Our    
audits also included the financial statement schedule listed in the Index at    
Item 14 (a) (2). These financial statements and schedule are the                
responsibility of the Company's management. Our responsibility is to express    
an opinion on these financial statements and schedule based on our audits. We   
did not audit the financial statements of certain consolidated subsidiaries,    
which statements reflect total revenues constituting 16% in 1994 of the         
related consolidated totals. Those statements were audited by other auditors    
whose reports have been furnished to us and our opinion, insofar as it relates  
to the amounts included for such subsidiaries, is based solely on the reports   
of other auditors.                                                              

We conducted our audits in accordance with generally accepted auditing          
standards. Those standards require that we plan and perform the audit to        
obtain reasonable assurance about whether the financial statements are free of  
material misstatement. An audit includes examining, on a test basis, evidence   
supporting the amounts and disclosures in the financial statements. An audit    
also includes assessing the accounting principles used and significant          
estimates made by management, as well as evaluating the overall financial       
statement presentation. We believe that our audits and the reports of other     
auditors provide a reasonable basis for our opinion.                            

In our opinion, based on our audits and the reports of other auditors, the      
consolidated financial statements referred to above present fairly, in all      
material respects, the consolidated financial position of Andal Corp. and       
subsidiaries at September 30, 1996 and 1995, and the consolidated results of    
their operations and their cash flows for each of the three years in the        
period ended September 30, 1996, in conformity with generally accepted          
accounting principles. Also, in our opinion, the related financial statement    
schedule, when considered in relation to the basic financial statements taken   
as a whole, presents fairly in all material respects the information set forth  
therein.                                                                        

As described in Note 17, in 1994 the Company changed its method of accounting   
for income taxes.                                                               

                     /s/ Ernst & Young LLP
                 Ernst & Young LLP

New York, New York                                                              
January 29, 1997                                                                

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ANDAL CORP. AND SUBSIDIARIES                                                    
CONSOLIDATED BALANCE SHEET                                                      

ASSETS                
                             September 30,
                                    1996            1995
Current assets:                                                                 
Cash                                  $    552,000    $    850,000          
Accounts receivable                      5,252,000       4,998,000          
Inventories                              1,553,000       1,073,000          
Prepaid expenses                           341,000         307,000          
Other current assets                       516,000         906,000          
                             -------------   -------------
Total current assets                  8,214,000       8,134,000       

Investments in affiliates                  1,621,000       1,661,000            
Property and equipment                    12,278,000      10,789,000            
Loans due from Multi-Arc Inc. management   1,000,000       1,000,000            
Deferred taxes                             2,400,000               0            
Other assets                               1,683,000       2,041,000            
                             -------------   -------------
                            $ 27,196,000    $ 23,625,000

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)                

Current liabilities:                                                            
Short term borrowings, including                                            
current portion of long term debt  $  1,338,000    $  1,206,000       
Current portion of convertible                                              
debentures                            1,825,000               0       
Current portion of debt due                                                 
shareholders                             96,000       1,250,000       
Accounts payable                         1,667,000       1,606,000          
Other accrued expenses                   5,619,000       5,106,000          
                             -------------   -------------
Total current liabilities            10,545,000       9,168,000       

Long-term debt                             8,671,000       7,886,000            
Debt due shareholders                              0       6,364,000            
Other deferred income                        925,000       1,430,000            
Convertible subordinated debentures        1,510,000       3,335,000            
Minority interest in Multi-Arc Inc.          690,000         540,000            
Shareholders' equity (deficit):                                                 
Common shares, par value $20 per share,                                     
1,500,000 authorized;                                                 
447,359 issued in 1996                                                
and 370,496 issued in 1995            8,947,000       7,410,000       
Paid-in-capital                         25,995,000      31,625,000          
Deficit                                (30,087,000)    (38,472,000)         
Less 40,637 common shares                                                   
held in treasury in 1995, at cost             0      (5,661,000)      
                             -------------   -------------
Total shareholders' equity                                            
(deficit)                          4,855,000      (5,098,000)   
                             -------------   -------------
                            $ 27,196,000    $ 23,625,000

See accompanying notes.                                                         

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ANDAL CORP. AND SUBSIDIARIES                                                    
CONSOLIDATED STATEMENT OF OPERATIONS                                            

                                  Year Ended September 30,
                                        1996          1995          1994
Operating revenues:                  $31,065,000   $30,015,000   $26,672,000    
Royalties and commissions             446,000       315,000       421,000 
Equity in net income (loss) of                                            
  foreign joint ventures              104,000        53,000       (16,000)
                                  ------------  ------------  ------------
                                  31,615,000    30,383,000    27,077,000
Operating costs and expenses:                                                   
Cost of revenues                   15,740,000    15,545,000    13,466,000 
Depreciation expense                2,099,000     1,907,000     2,234,000 
Selling, general and                                                      
 administrative expenses          12,141,000    10,517,000     9,750,000
                                  ------------  ------------  ------------
                                  29,980,000    27,969,000    25,450,000

Income from operations                 1,635,000     2,414,000     1,627,000    

Other income (expense):                                                         
Gain on sale of 61st street                                               
 property                          6,009,000             0             0
Gain on sale of minority interest                                         
 in Multi-Arc Inc.                         0       348,000             0
Minority interest in net income                                           
 of Multi-Arc Inc.                  (151,000)     (152,000)            0
Gain from initial public offering of                                      
 Multi-Arc India Ltd.                      0        85,000             0
Investment and other income, net      150,000        37,000      (756,000)
Interest expense                   (1,734,000)   (1,799,000)   (1,625,000)
                                  ------------  ------------  ------------
                                    4,274,000    (1,481,000)   (2,381,000)
Income (loss) from continuing                                                   
operations before income taxes      5,909,000       933,000      (754,000)
Benefit (provision) for income taxes   2,242,000       (54,000)      (17,000)   
                                  ------------  ------------  ------------
Income (loss) from continuing                                                   
operations                          8,151,000       879,000      (771,000)
Income (loss) from discontinued                                                 
operations                            234,000     1,007,000      (350,000)
                                  ------------  ------------  ------------
Net income (loss)                    $ 8,385,000   $ 1,886,000   $(1,121,000)   

Income (loss) per common share:                                                 
Income (loss) from continuing                                             
  operations                           $24.00         $2.67        $(2.34)
Income (loss) from discontinued                                           
  operations                              .69          3.05         (1.06)
                                       ------         -----        -------
Net income (loss)                      $24.69         $5.72        $(3.40)
See accompanying notes.               

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ANDAL CORP. AND SUBSIDIARIES          
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)            

                Retained
     Common    Paid-in-      Earnings     Treasury
                   Stock     Capital     (Deficit)        Stock        Total

Balance at                                                                      
Sept. 30, 1993  $7,410,000 $31,625,000 $(39,237,000) $(5,661,000) $(5,863,000)  
Net loss for                                                                    
  1994                 0           0   (1,121,000)           0   (1,121,000)
Balance at                                                                      
Sept. 30, 1994   7,410,000  31,625,000  (40,358,000)  (5,661,000)  (6,984,000)  
Net income for                                                                  
  1995                0           0    1,886,000            0    1,886,000
Balance at                                                                      
Sept. 30, 1995   7,410,000  31,625,000  (38,472,000)  (5,661,000)  (5,098,000)  
Net income for                                                                  
 1996                 0           0    8,385,000            0    8,385,000
Shares issued                                                                   
pursuant to                                                                     
retirement                                                                      
agreement        1,300,000  (1,153,000)           0            0      147,000   
Shares issued                                                                   
pursuant to                                                                     
retirement of debt 900,000     504,000            0            0    1,404,000   
Shares issued                                                                   
pursuant to                                                                     
employment                                                                      
agreement          150,000    (133,000)           0            0       17,000   
Issuance of                                                                     
Treasury Stock                                                                  
in connection                                                                   
with  above                                                                     
transactions      (813,000) (4,848,000)           0    5,661,000            0   
Balance at                                                                      
Sept. 30, 1996  $8,947,000 $25,995,000 $(30,087,000)          $0   $4,855,000   

See accompanying notes.               

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ANDAL CORP. AND SUBSIDIARIES          
CONSOLIDATED STATEMENT OF CASH FLOWS          

                              Year Ended September 30,
                                         1996           1995        1994
Cash provided (used) by operations:                                             
Income (loss) from continuing                                               
  operations before income taxes    $5,909,000    $   933,000   $(754,000)
Adjustments to reconcile income                                             
(loss) from continuing operations                                     
to net cash provided by operations                                    
   Depreciation                     2,099,000      1,907,000   2,234,000
Gain on sale of minority                                          
      interest in Multi-Arc Inc.            0       (348,000)          0
Minority interest in net                                          
      income of Multi-Arc Inc.        151,000        152,000           0
Amortization of patents,                                          
      trademarks, and license rights  224,000        192,000     186,000
Equity in net (income) loss                                       
      of foreign joint ventures      (104,000)       (53,000)     16,000
Write down of investment in                                       
      Integrated                      143,000              0           0
   Deferred income accrued                  0         64,000      40,000
    Amortization of deferred income   (303,000)      (149,000)    (95,000)
   Provision (credit) for bad debts    (3,000)       (16,000)     42,000
Gain on sale of 61st Street                                       
      property                     (6,009,000)             0           0
   Losses on investment transactions        0              0     766,000
Gain from initial public offering of                              
      Multi-Arc India Ltd.                  0        (85,000)          0
   Other, net                          59,000         28,000      39,000

Change in operating assets and                                              
liabilities:                                                          
Decrease (increase) in accounts                                   
      receivable                       55,000       (954,000)  1,127,000
    (Increase) decrease in inventories(542,000)       200,000    (459,000)
   Decrease in other current assets    50,000         76,000      60,000
Increase in accounts payable                                      
      and accrued liabilities         546,000        369,000     634,000
Cash provided (used) by                                           
       discontinued operations         170,000       (168,000)   (247,000)
    Income taxes paid                  (78,000)       (87,000)    (34,000)
                                    -----------    ----------- -----------
Net cash provided by                                              
      operating activities          2,367,000      2,061,000   3,555,000

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ANDAL CORP. AND SUBSIDIARIES                                
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)                                

                                         1996           1995        1994
Cash flows from financing activities:                                           
Proceeds from long-term debt          8,000,000      3,870,000   6,162,000  
Loans to Multi-Arc management                 0     (1,000,000)          0  
Proceeds from sale of common stock                                          
 and debentures of Multi-Arc Inc.           0      1,714,000           0
Deferred financing costs                (97,000)      (126,000)          0  
Reductions of long-term debt         (6,758,000)    (3,024,000) (7,743,000) 
Decrease in debt due within one year   (868,000)      (631,000)   (398,000) 
                                    -----------    ----------- -----------
Net cash provided (used) by                                                 
  financing activities                 277,000        803,000  (1,979,000)

Cash flows from investing activities:                                           
Net proceeds from sale of                                                   
 61st Street property                 529,000              0           0
Reduction of (investment in)                                                
 affiliated companies                       0       (211,000)  1,459,000
Gross additions to property                                                 
  and equipment                     (3,649,000)    (2,964,000) (1,999,000)
Other, net                              178,000         18,000    (370,000) 
                                    -----------    ----------- -----------
Net cash (used) by                                                    
     investing activities           (2,942,000)    (3,157,000)   (910,000)

(Decrease) increase in cash              (298,000)      (293,000)    666,000    
Cash at beginning of year                 850,000      1,143,000     477,000    
                                    -----------    ----------- -----------
Cash at end of year                    $  552,000     $  850,000  $1,143,000    

See accompanying notes.                                                         

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ANDAL CORP. AND SUBSIDIARIES                  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                 

Principles of Consolidation                                           

The consolidated financial statements include the accounts of Andal   
Corp. and its subsidiaries.  Andal's only operating business is Multi-Arc Inc.  
("Multi-Arc") a majority-owned subsidiary engaged in the business of surface    
enhancement.  All significant intercompany transactions and accounts are        
eliminated in consolidation.  Foreign affiliates in which Multi-Arc owns 20%    
to 50% are accounted for using the equity method.                               

Inventories                                                           

Inventories are stated at lower of cost (determined principally by the
first-in, first-out method) or market.                                          

Property and Equipment                                                

Property and equipment are recorded at cost and depreciated over      
estimated useful lives on a straight-line basis.                                

Revenue and Deferred Income                                           

Revenue is recognized when it is earned.  In the case of Multi-Arc    
system sales, the point for revenue recognition normally corresponds to the     
date when the system is shipped to the customer.  To the extent the Company     
sells coating systems or license rights to its joint ventures, a proportionate  
percentage of the profit on these is deferred and subsequently amortized into   
revenue.  Such amortization offsets the related depreciation or license rights  
expense recorded by the corresponding joint venture company.                    

Stock Based Compensation                                              

  The Company accounts for its stock based compensation arrangements under
the provisions of APB 25, "Accounting for Stock Issued to Employees," and       
intends to continue to do so.                                                   

Research and Development Expenses                                     

  Research and development expenditures ($1,426,000 in 1996, $1,628,000 in
1995, and $1,400,000 in 1994) are charged to cost of revenues as incurred.      

Use of Estimates                                                      

The preparation of financial statements in conformity with generally  
accepted accounting principles requires management to make estimates and        
assumptions that affect the amounts reported in the financial statements and    
accompanying notes.  Actual results could differ from those estimates.          

Income (Loss) per Share                                               

Primary income (loss) per common share for all periods was computed   
based on the average number of shares outstanding during each of the            
respective periods.  Fully diluted per share amounts are not shown for the      
periods, as the effects would be anti-dilutive.                                 

  The average number of shares used in computing primary income (loss) per
share was   339,639 in 1996, and 329,859 in each of 1995 and 1994.              

2.   PURCHASE AND SALE OF THE UBC PROPERTY                                      

Prior to May 8, 1996, the Company, directly or through a wholly-owned 
subsidiary, UBC Virginia Corp. ("UBC Corp.) had owned an option (the "Option")  
to purchase a parcel of real estate (the "Property") located on 61st Street     
and First Avenue in New York City, which Option had been carried on the books   
of the Company at nil value for many years.  The original cost of the Option    
was $1.5 million.  UBC Corp. was merged into the Company in March 1996, after   
which time the Option became directly owned by the Company.                     

In 1990, the Option was pledged as security for a $5 million loan,    
hereafter referred to as the "Option Loan," made to the Company by Alan N.      
Cohen, who was then President and a Director of the Company, Paul Milstein,     
who was then a Director of the Company, and Frankhill Associates, a limited     
partnership of which Andrew J. Frankel, who was then Chairman of the Board and  
a Director of the Company, is a general partner (collectively, in such          
capacity, the "Option Lenders").                                                

The Option granted the Company the right to purchase the Property for 
approximately $3 million in cash and was exercisable only after the death of    
the later to die of two of the principals of the corporation that granted the   
Option.  Such death occurred in 1995.  The Company did not have the cash        
required to exercise the Option, and it could not raise it through borrowing    
from unrelated parties or through the sale of assets other than the Option.     
However, under the terms of the Option Loan, the Company was obligated to       
exercise the Option.  Accordingly, the Option was exercised in October 1995;    
and the Company purchased the Property on May 8, 1996.  In order to make the    
purchase, on May 7, 1996, the Company borrowed $3.3 million (the "Demand        
Loan") 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.                                          

 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.               

In addition to the consideration outlined above, the Company was not  
required to pay unpaid interest of $283,000 on the Option Loan and Demand Loan  
and will be entitled to additional consideration if, within one year from the   
date of sale to FAM, all or any portion of the Property is further transferred  
to a bona fide third party or if FAM enters into an agreement to transfer all   
or any portion of the Property to a bona fide third party and such transfer     
ultimately occurs.  In either of such events, the Company will be entitled to   
50% of the amount by which the "Net Proceeds" of the sale of all or any         
portion of the Property exceeds $10 million.  In no event can such additional   
consideration exceed $3 million.  "Net Proceeds" is defined to mean the gross   
sales price attributable to the sale of all or any portion of the Property      
plus the then fair market value of any of the Property retained by FAM in       
connection with a partial sale, less any and all transaction costs, taxes, and  
all other expenses of FAM including, without limitation, brokerage              
commissions, reasonable attorney's fees, and transfer taxes.                    

The Company reported a gain of approximately $6 million from the sale.
(See Note 13.)                                                                  

3.   RETIREMENT AGREEMENT                                                       

On August 31, 1996, Messrs. Andrew J. Frankel, then Chairman of the   
Board of Directors, and Alan N. Cohen, then President of the Company, retired   
pursuant to an agreement which provides that, in exchange for the issuance of   
32,500 common shares of the Company to each of them, they agreed to reimburse   
Andal for the lease obligation of Andal's former executive headquarters office  
in New York City and certain other costs of operation of that office,           
including the salary of Andal employees located there.  The Company agreed to   
maintain, at its own expense, health and life insurance benefits on Andal's     
New York employees and to continue to pay the costs of letter of credit         
guarantees by Mr. Frankel and Mr. Cohen until September 29, 1998, at which      
time Andal will use its best efforts to replace the letters of credit with      
other security.  The Company recorded a charge of $441,000 in connection with   
this Agreement.  In September 1996, Andal's executive office records were       
moved to Multi-Arc's facilities in Rockaway, New Jersey; and that facility now  
serves as executive headquarters of the Company.                                

4.   SALE OF MINORITY INTEREST IN MULTI-ARC INC.                                

In December 1994, Andal sold, for $500,000 approximately 2 1/2% of the
common stock of Multi-Arc to Multi-Arc's management; and Multi-Arc issued       
$500,000 of convertible subordinated debentures (convertible into               
approximately 2% of Multi-Arc common stock) to such management, the proceeds    
of which were remitted to Andal as a return of capital.  Both the sale of the   
common stock and the issuance of the debentures were funded through non-recourse
loans of $1 million made to the management by Multi-Arc utilizing               
Multi-Arc's revolving facility with First Fidelity Bank.  Because of the non-   
recourse nature of the loans, the gain on the sale of Multi-Arc common stock    
of approximately $396,000 has been deferred until such time as the management   
loans are repaid.                                                               

In June and September 1995, Andal sold, for $1,010,000, approximately 
4.9% of the common stock of Multi-Arc to certain foreign licensees and other    
investors; and Multi-Arc sold to such licensees and other investors $1,010,000  
of convertible subordinated debentures (convertible into approximately 3.8% of  
Multi-Arc common stock), the cash proceeds of which were remitted to Andal as   
a return of capital.  These debentures bear interest at 6% and are payable on   
December 15, 2004.  Approximately $450,000 of the common stock sold, and        
$450,000 principal amount of the debentures sold are evidenced by a promissory  
note which require monthly principal payments over three years plus interest    
at 6% per annum.  The unpaid balance of this note was $555,000 at September     
30, 1996.  An additional $153,000 of common stock and $153,000 principal        
amount of the debentures were sold on open account which was paid in October    
1996.  The gain on these sales of Multi-Arc common stock was $800,000, of       
which $452,000 was deferred and will be recognized as the amounts are           
collected.  In 1996, $232,000 of the deferred gain was included in investment   
income.                                                                         

5.   MULTI-ARC JOINT VENTURES                                                   

In 1993, Multi-Arc acquired a 29% interest in Multi-Arc Scientific    
Coatings (S) Pte. Ltd. ("Singapore"), a joint venture which commenced           
operations in August 1993.  Multi-Arc's share of Singapore's net income         
(loss), recorded on the equity method, for the years ended September 30, 1996,  
1995, and 1994 was $(43,000), $(110,000), and $(111,000), respectively.         
During fiscal 1995, the Company invested an additional $247,000 in cash and     
converted a long term receivable of $77,000 into equity.  At September 30,      
1996, Investments in Affiliates include the Company's investment in Singapore   
of $250,000 ($293,000 at September 30, 1995).                                   

Multi-Arc had a 40% equity interest in Multi-Arc India Ltd. ("India") 
which has a fiscal year end of March 31.  In November 1994, India completed an  
initial public offering and was listed on the Bombay Stock Exchange.  As a      
result of this transaction, Multi-Arc's interest in India was reduced to 21%    
and the Company recorded a pretax gain of $85,000.   Multi-Arc's share of       
India's net income (loss), recorded on the equity method, for the years ended   
September 30, 1996, 1995, and 1994 was $147,000, $163,000, and $95,000,         
respectively.  During fiscal 1996, the Company received $49,000 of dividends    
in cash ($36,000 in 1995).  During fiscal 1994, the Company made additional     
equity investments in India of $218,000 in cash and received $30,000 of         
dividends in cash.  At September 30, 1996, Investments in Affiliates includes   
Andal's investment in India of $1,073,000 ($975,000  at September 30, 1995).    

   In October 1995, Multi-Arc (UK) Ltd. acquired a 33% interest in Multi-Arc
Eifeler Beschichtungs Gmbh ("Austria") in exchange for $49,000 in cash and      
guarantees of certain of Austria's bank debt of $360,000.  This investment is   
accounted for under the cost method, as the Company does not exercise           
significant influence over the management and operations of Austria.            

    In October 1996, Multi-Arc (UK) Ltd. acquired a 33% interest in Preci-Coat
S. A., a Switzerland joint venture, for $420,000 in cash and bank guarantees    
of $1.6 million.                                                                

6.   DISCONTINUED OPERATIONS                                                    

The income (loss) from discontinued operations in 1996, 1995, and 1994
is comprised of the following:                                                  

                                       1996            1995         1994
 Gain on divestiture of OMC        $      0        $      0    $  69,000
 Reversal of reserve for income taxes     0         996,000            0
Income (loss) on discontinued                                         
     construction operations         234,000          11,000     (419,000)
                                    --------      ----------    ----------
                                    $234,000      $1,007,000    $(350,000)

On June 30, 1995, an appeals tribunal dismissed a claim against the   
Company by a local taxing authority for income taxes relating to certain of     
its discontinued operations.  Income from discontinued operations for the year  
ended September 30, 1995 includes the reversal of a reserve for income taxes,   
plus accrued interest, in the aggregate amount of $996,000.  The 1995 amount    
also includes income of $141,000 related to settlement of a construction claim  
and legal expenses of $130,000.                                                 

Construction operations consisted of construction subcontracting      
businesses involved in wall, flooring, ceiling installation and plumbing,       
heating, and electrical subcontracting.  The Company commenced a program to     
discontinue these businesses in 1981 which program was completed in 1983.  The  
income (loss) on discontinued construction operations for 1996, 1995, and 1994  
is principally due to legal expenses incurred and settlements on litigation     
related to those businesses.                                                    

7.   INTEGRATED BRANDS, INC.                                                    

In December 1985, Andal purchased 46.5% of the common stock of        
Integrated Brands, Inc. ("Integrated"), formerly Steve's Homemade Ice Cream,    
Inc.  Through a series of transactions, Andal's interest has been reduced to    
3%.  In the fourth quarter of 1996, based on current market conditions, the     
Company recorded a writedown of $143,000 of its investment in Integrated.  At   
September 30, 1996, Investments in Affiliates includes Andal's investment in    
Integrated of $250,000 ($393,000 at September 30, 1995).                        

During 1994, the Company disposed of 129,500 shares of Integrated in  
various transactions for $161,000 in cash and recorded a net gain of $14,000.   
In an additional transaction in August 1994, the Company sold 2,000,000 shares  
of Integrated for $1,500,000 in cash and recorded a loss of $780,000.  All      
proceeds were used to repay debt.                                               

8.   ACCOUNTS RECEIVABLE                                                        

Receivables consist of the following:                                 
                                       September 30,
                                           1996                 1995
    Accounts receivable              $5,347,000           $5,096,000
     Allowance for doubtful accounts     (95,000)             (98,000)
                                      -----------          -----------
                                     $5,252,000           $4,998,000

9.   INVENTORIES                                                                

Inventories consist of the following:                                 

                                       September 30,
                                          1996                  1995
    Raw materials and supplies      $1,126,000           $   820,000
    Work in progress                   427,000               253,000
                                    ----------           -----------
                                    $1,553,000            $1,073,000

10.  PROPERTY AND EQUIPMENT                                                     

Property and equipment consist of the following:                      

                                         September 30,
                                              1996                1995
Building and leasehold                                      
        improvements                  $  2,668,000        $  2,521,000
     Furniture and equipment            27,299,000          24,098,000
                                       -------------       -------------
                                        29,967,000          26,619,000
Less accumulated                                            
         depreciation and amortization  (17,689,000)        (15,830,000)
                                       -------------       -------------
                                      $ 12,278,000        $ 10,789,000

Substantially all property and equipment at September 30, 1996 is     
pledged as collateral pursuant to loan agreements.                              

In addition to property owned, the Company leases various operating   
facilities and equipment.  Rent expense under operating leases was $1,513,000,  
$1,321,000, and $1,305,000,  for the years ended September 30, 1996, 1995, and  
1994, respectively.                                                             

The aggregate minimum rental commitments under operating leases as of 
September 30, 1996 for each of the fiscal years ended September 30 are as       
follows:  1997, $1,385,000; 1998, $1,246,000; 1999, $949,000; 2000, $645,000;   
2001, $369,000 and $715,000 thereafter.                                         

11.  401K PLANS                                                                 

The Company maintains several defined contribution 401K savings plans 
for the benefit of its employees.  Annual contributions to the plans are at     
the discretion of management.  Aggregate expense related to all plans amounted  
to $328,000 in 1996, $294,000 in 1995, and $225,000 in 1994.                    

12.  CREDIT FACILITIES AND LONG TERM DEBT                                       

Long term debt consists of the following:                             

                                 September 30,
                                  1996              1995
First Union National Bank                                             
U. S. -Term loan                $ 7,000,000       $ 5,214,000     
Revolving credit facility         1,000,000         1,500,000     
U. K. - Term loan                 2,009,000         2,370,000     
Other                                       0             8,000       
                            ------------      ------------
                            10,009,000         9,092,000
Less current portion               (1,338,000)       (1,206,000)      
                            ------------      ------------
                          $  8,671,000       $ 7,886,000

On August 27, 1996, Multi-Arc Inc. completed a refinancing of its     
indebtedness to First Union National Bank and obtained a $7 million Term Loan,  
a $1.5 million Equipment Term Line of Credit, and a $5 million Revolving        
Credit Facility.                                                                

  The Term Loan agreement requires repayment of principal in equal monthly
installments over 84 months.  Interest, calculated at a floating rate of LIBOR  
(5.40% at August 31, 1996) plus 1.35% per annum accrues and is also payable     
monthly.  The Term Loan agreement also requires that Multi-Arc hedge its        
floating interest expense for the full term of the loan by utilizing interest   
rate swap agreements.  Accordingly, Multi-Arc has entered into such agreements  
resulting in a fixed rate of approximately 8.15% per annum for the life of the  
loan.                                                                           

  The Equipment Term Line of Credit permits Multi-Arc to borrow up to $1.5
million to purchase new or used equipment (not to exceed 80% of the purchase    
price of new equipment and 50% of the purchase price of used equipment).        
Borrowings under this Term Line of Credit require monthly repayment of          
principal in equal installments over 60 months.  Interest accrues and is        
payable under the same terms and conditions as the Term Loan discussed above.   
As of September 30, 1996, Multi-Arc had not made any borrowings under this      
credit line.                                                                    

The Revolving Credit Facility, which expires on September 1, 1999,    
allows Multi-Arc to borrow up to $5 million for working capital purposes.       
Borrowings under this facility are limited based on specified percentages of    
eligible receivables and inventories and bear interest at .25% per annum below  
the prime rate.  As of September 30, 1996, Multi-Arc had borrowed $1 million    
under this facility and had an additional $2,100,000 available based on         
eligible receivables and inventories at that date.                              

In September 1995, the Company refinanced the debt of its subsidiary, 
Multi-Arc (UK) Ltd., with First Union National Bank.  The new credit            
facilities consist of a five-year term loan in the principal amount of          
1,500,000 pounds sterling repayable in quarterly installments of 54,000 pounds  
sterling commencing in December 1995 and a final installment of 474,000 pounds  
sterling due in September 2000.  Proceeds of the term loan were used to repay   
outstanding indebtedness and to advance an inter-corporate loan to Multi-Arc    
Inc., and for acquisition of new equipment.  In addition to the term loan,      
First Union has extended a 250,000 pounds sterling overdraft facility for       
working capital purposes.  At September 30, 1996, no borrowings had been made   
under this facility.                                                            

See Note 5 for a discussion of certain guarantees of investee         
indebtedness by Multi-Arc (UK) Ltd.                                             

  Andal remains obligated to Chemical Bank in the amount of $829,000 under
an outstanding letter of credit issued by Chemical Bank in connection with an   
appeal bond.  Because of Andal's inability to fund the liability represented    
by the letter of credit, Messrs. Andrew J. Frankel, Paul A. Milstein, and Alan  
N. Cohen each have personally guaranteed one-third of the letter of credit      
liability, for which Andal has agreed to pay to them an aggregate annual        
guarantee fee equal to 2% of the letters of credit outstanding until September  
29, 1998, at which time Andal will use its best efforts to replace the letters  
of credit with other security (see Note 3).                                     

Substantially all of the Company's and Multi-Arc's assets serve as    
collateral for the various term loans and lines of credit with First Union      
National Bank.  The various loan agreements require Multi-Arc to maintain       
compliance with certain financial ratios and other covenants.  As of September  
30, 1996, Multi-Arc was in compliance with all such covenants or has obtained   
waivers of all such covenants for which it was not in compliance.               

The aggregate annual maturities of long term debt during the next five
fiscal years are:  1997, $1,338,000; 1998, $1,338,000; 1999, $2,338,000; 2000,  
$1,995,000; and 2001, $1,000,000.  Interest paid during the fiscal years ended  
September 30, 1996, 1995, and 1994 amounted to $1,375,000, $1,631,000, and      
$1,650,000,  respectively.                                                      

13.  DEBT DUE SHAREHOLDERS                                                      

Debt due shareholders consists of:                                    

                       September 30,
                                1996                1995

UBC Lenders                        $      0         $ 5,571,000       
Fleet Assignees                      96,000           2,043,000       
                             ---------        ------------
                              96,000           7,614,000
Less current portion                (96,000)         (1,250,000)      
                             ---------        ------------
                            $      0         $ 6,364,000

See Note 2 for a discussion of the transaction which gave rise to the 
cancellation of the UBC Lender debt in 1996.                                    

  On August 31, 1996, Andal Corp. retired $1,404,000 of indebtedness owing
to Frankhill Associates, Alan N. Cohen, and Paul Milstein in exchange for       
45,000 shares of the Company's common stock which is reflected as a             
contribution of capital in the accompanying financial statements.  Frankhill    
Associates and Messrs. Cohen and Milstein had purchased the indebtedness from   
the Fleet Bank in 1994.  Subsequently, Peter D. Flood purchased a portion of    
such debt from Frankhill Associates and Messrs. Cohen and Milstein.  During     
the year, the Company had repaid $543,000 of the debt in cash.  At September    
30, 1996, $96,000 of the Fleet Assignee Debt is owing to Mr. Flood.  Pursuant   
to Mr. Flood's employment agreement with the Company, the debt is to be repaid  
with interest at 8% per annum, as soon as the cash flow of the Company, in the  
reasonable discretion of the Board of Directors, permits.                       

14.  CONVERTIBLE SUBORDINATED DEBT                                              

  Convertible subordinated debt at September 30, 1996 and 1995 consists of
$1,825,000 of Andal's 5 1/2% convertible subordinated debentures due in         
September 1997 and $1,510,000 of Multi-Arc's 6% convertible subordinated        
debentures due in 2004 (see Note 4).                                            

Andal's 5 1/2% convertible subordinated debentures are (i) at Andal's 
election, redeemable (with accrued interest) at 100% of the principal amount;   
and (ii) convertible into one common share for each $450.00 of principal        
amount, subject to usual anti-dilution provisions, or a total of 4,056 common   
shares at September 30, 1996.  All sinking fund requirements have been met.     

 The Multi-Arc debentures are convertible into one share of common stock
of Multi-Arc Inc. for each $266.67 of principal at any time after September     
30, 1996.                                                                       

15.  CAPITAL SHARES                                                             

At September 30, 1996, common shares reserved for future issuance were
as follows:                                                                     

Issuable under stock option plans                    15,000 
Issuable upon conversion of convertible                     
    subordinated debentures                          4,056

Messrs. Frankel and Cohen retired on August 31, 1996 pursuant to an   
agreement which provided for the issuance of 32,500 common shares of the        
Company to each of them (see Note 3).                                           

  See Note 13 for a discussion of the 45,000 shares of common stock of the
Company issued in cancellation of the Fleet Assignee debt.                      

On August 31, 1996, the Company issued 7,500 common shares to Peter D.
Flood, pursuant to his Employment Agreement and recorded an expense of          
$17,000.                                                                        

16.  STOCK OPTIONS                                                              

 In 1987, Andal adopted a Stock Option Plan under which options covering
up to 15,000 shares of Andal common stock may be granted to eligible key        
employees.  Options granted under the plan may be either "incentive stock       
options" or non-qualified options.  Under the plan, the purchase price per      
share for stock options granted must equal or exceed the market value of        
Andal's common stock at the time of grant.  All options granted under the plan  
expire no later than five years from the date of grant.  Options may not be     
exercised for a period of 30 months after grant.  After 30 months, 40% of the   
option shares may be exercised; after 42 months, 60% of such shares may be      
exercised; and, after 48 months, all of such shares may be exercised.  The      
options expire 60 months after grant.  The Board of Directors or the            
Compensation Committee thereof may accelerate, in whole or in part, the time    
or times at which such options may be exercised.  In the case of incentive      
stock options, whether granted under this plan or any earlier plan of the       
Company, no more than $100,000 in value of shares (determined on the date of    
grant) may become exercisable by any single optionee during any calendar year.  

The plan also permits the granting of stock appreciation rights either
at the time that an option is granted or a later time under which an optionee   
may, instead of paying the option price and receiving the full number of        
shares covered by the exercised option, receive instead the then excess of the  
value of the shares subject to the option over the option price.  Payment       
under a stock appreciation right may be in shares of stock (at current fair     
market value), or cash, or any combination thereof.                             

No options were converted or exercised under this plan in 1996, 1995, 
and 1994.                                                                       

At September 30, 1996, there were 6,125 shares (6,050 at September 30,
1995) reserved for future grant of options.  At September 30, 1995 and 1994,    
none of the outstanding options were exercisable.  A summary of stock option    
transactions follows:                                                           

      1987 Stock Option Plan

                                                     Average Price per
                       Number of Shares              Share

Options outstanding at                                                
September 30, 1992            11,630                   $ 41.80  
Cancelled during 1993         (2,700)                  $143.52  
Options outstanding at                                                
September 30, 1993             8,930                   $ 11.15  
Canceled during 1994            (100)                  $112.50  
Options outstanding at                                                
September 30, 1994             8,830                   $ 10.00  
Canceled during 1995          (8,830)                  $ 10.00  
Granted during 1995            8,950                   $  2.25  
Options outstanding at                                                
September 30, 1995             8,950                   $  2.25  
Cancelled during 1996            (75)                  $  2.25  
Options outstanding at                                                
September 30, 1996             8,875                   $  2.25  

In December, 1994, Multi-Arc adopted the Multi-Arc Inc. 1994 Incentive
and Non-Statutory Stock Option Plan (the "Multi-Arc Plan") under which options  
covering up to 5,000 shares of Multi-Arc common stock may be granted to         
employees.  Under the Plan, the purchase price per share for stock options      
granted must equal or exceed the market value of Multi-Arc's stock at time of   
grant.  Options may be exercised at the rate of 20% per annum.  The options     
expire ten years after date of grant.                                           

  During 1995, Multi-Arc Inc. granted options for 5,000 shares to eligible
employees at $205.13 per share.  No further shares are available for grant      
under the Multi-Arc Plan.                                                       

17.  INCOME TAXES                                                               

Andal and its subsidiaries file a consolidated federal income tax     
return, and state and local tax returns are generally filed on a combined       
basis.                                                                          

The Company has adopted the provisions of the Financial Accounting    
Standards Board Statement No. 109, "Accounting for Income Taxes," effective     
October 1, 1993.  There was no cumulative effect on the Company's financial     
statements as of October 1, 1993 for adopting Statement No. 109.                

 Under Statement No. 109, the liability method is used in accounting for
income taxes.  Under this method, deferred tax assets and liabilities are       
determined based on differences between financial reporting and tax basis of    
assets and liabilities and are measured using the enacted tax rates and laws    
that will be in effect when the differences are expected to reverse.            

 At September 30, 1996, the Company had net operating loss carryforwards
("NOL's") for federal income tax purposes of approximately $30.3 million which  
expire in varying amounts through 2010.  In addition, the Company's subsidiary  
in the United Kingdom had unrelieved corporation tax losses of approximately    
$1.8 million.                                                                   

Deferred income taxes reflect the net tax effects of temporary        
differences between the carrying amount of assets and liabilities for           
financial reporting purposes and the amounts used for income tax purposes.      
Significant components of the Company's deferred tax assets and liabilities as  
of September 30, 1996 and 1995 are as follows:                                  

                                                1996              1995
Deferred Tax Assets:                                                  
Accruals and Reserves                    $ 1,285,000       $ 3,074,000
Installment Note                                   0           258,000
Deferred Gain on Sale of Subsidiary Stock    229,000           181,000
Future Tax Benefit of NOL Carryforwards   12,739,000        13,329,000
Future Tax Benefit of Credit Carryforwards   822,000           564,000
                                          ------------      ------------
Gross Deferred Tax Assets                 15,075,000        17,406,000
Deferred Tax Liabilities:                                             
Fixed Assets and Intangibles               1,345,000         1,053,000
Foreign Income                                76,000           498,000
Investment in Foreign Joint Ventures          97,000           124,000
                                          ------------      ------------
Deferred Tax Liabilities                   1,518,000         1,675,000
Net Deferred Tax Assets                   13,557,000        15,731,000
 Valuation Allowance                      (11,157,000)      (15,731,000)
                                          ------------      ------------
Net Deferred Taxes                     $   2,400,000       $         0

  The Company has provided a valuation allowance because it is more likely
than not that a substantial portion of the net deferred tax assets will not be  
realized.                                                                       

 The reconciliation of income taxes computed at the U. S. statutory rate
to income tax (expense) benefit for the year ended September 30, 1996, 1995,    
and 1994 is:                                                                    

                                          1996        1995          1994

Tax (expense) benefit at U. S.                                        
      statutory rate               $(2,532,000)  $(317,000)    $ 387,000
 State taxes, net of federal benefit  (320,000)    (46,000)            0
Utilization of federal and state                                      
       net operating losses             353,000     300,000      (551,000)
 Foreign earnings                      164,000      16,000       145,000
 Other items                             3,000      (7,000)        2,000
 Reduction in valuation allowance    4,574,000           0             0
                                    ------------  ----------    ----------
  Income tax (expense) benefit      $ 2,242,000  $  (54,000)   $  (17,000)

18.  LITIGATION                                                                 

The Company is aware of various lawsuits, claims, and administrative  
proceedings which are pending involving it or its subsidiaries.  In the         
opinion of the Company's management, these matters will not result in any       
material adverse effect on the Company's consolidated financial condition.      

19.  QUARTERLY FINANCIAL DATA (UNAUDITED)                                       

  Quarterly results of operations for the fiscal years ended September 30,
1996 and 1995 are summarized in the following table:                            

                        First      Second       Third     Fourth
                       Quarter     Quarter     Quarter     Quarter
            (Thousands of Dollars,
               except per Share Amounts)

1996                                                                            
Operating revenues             $7,569      $7,701      $7,952      $8,393       
Income (loss) from operations     503         615         671        (154)      
Income (loss) from                                                              
continuing operations           42         154         164       7,791    
Net income (loss)                  42         392         164       7,787       
Income (loss) per common share:                                                 
Income (loss) from                                                      
 continuing operations     .13         .47         .50       22.90
Net income (loss)            .13        1.19         .50       22.87  

1995                                                                            
Operating revenues             $6,507      $8,404      $7,753      $7,719       
Income (loss) from operations     277       1,069         542         526       
Income (loss) from                                                              
continuing operations          (81)        595         241         124    
Net income (loss)                (192)        696       1,273         109       
Income (loss) per common share:                                                 
Income (loss) from                                                        
continuing operations       (.24)       1.80         .73         .38  
Net income (loss)           (.58)       2.11        3.86         .33  

  In the fourth quarter of 1996, the Company recorded a $6 million gain on
the sale of the 61st Street property (see Note 2); a charge of $441,000 in      
connection with the Retirement Agreement with Messrs. Frankel and Cohen (see    
Note 3); a write down of $143,000 of its investment in Integrated (see Note     
7); and a deferred tax benefit of $2.4 million (see Note 17).                   

 In the fourth quarter of 1995, the Company recorded additional gains of
$160,000 on the sale of minority interest in Multi-Arc Inc. and additional      
minority interest in the net income of Multi-Arc Inc. of $93,000.               

20.  INDUSTRY SEGMENT INFORMATION                                               

Andal, through its Multi-Arc Inc. subsidiary, is engaged in surface   
enhancement, the business of coating materials, primarily metals.  Multi-Arc    
is also engaged in the design, manufacture, assembly, and sale of proprietary   
coating equipment systems.                                                      

Operating profit (loss) is computed as total revenue less operating   
expenses.  The computation includes other income but excludes interest          
expense, general  corporate overhead, and income taxes.  Identifiable assets    
by industry are those assets that are used in Andal's operations in each        
industry segment.                                                               

The following table sets forth information on the effects of foreign  
operations (principally in the United Kingdom) as of and for the years ended    
September 30, 1996, 1995, and 1994:                                             

                   September 30,
                  1996      1995      1994
                  (Thousands of Dollars)
Revenues                           $6,086    $5,255    $4,268                   
Operating profits                   1,801     1,363       869                   
Identifiable assets                 6,326     6,463     5,352                   
Capital expenditures                  755     1,411       340                   
Depreciation and amortization         467       547       622                   

21.  SUBSEQUENT EVENT (UNAUDITED)                                               

The Company is presently in discussion with a much larger company for 
the sale of the Company's principal operating subsidiary, Multi-Arc Inc.  No    
agreement has been reached on either price or structure of any transaction.     
Important factors which could interfere with the completion of this             
transaction are the ability of the parties to reach an agreement as to price    
and structure or other details of the transaction and satisfactory completion   
of the purchaser's due diligence concerning Multi-Arc's business affairs.       
There can be no assurance that these discussions will result in any             
transaction.                                                                    

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ANDAL CORP.                 
CONDENSED BALANCE SHEET                 
(PARENT COMPANY ONLY--IN $000's)                

ASSETS                

                                      September 30
                                       1996                 1995
Current assets:                                                                 
Cash                                     $     21              $    51      
Accounts and notes receivable                 402                  801      
                                    ---------             --------
Total current assets                       423                  852   

Investment in Integrated Resources, Inc.        250                  393        
Investment in Multi-Arc Inc.                  6,510                4,401        
Deferred income taxes                         2,400                    0        
Other assets                                    365                  774        
                                    ---------             --------
                                   $  9,948              $ 6,420

LIABILITIES AND SHAREHOLDERS' EQUITY                
Current Liabilities:                                                            
Current portion of debt due shareholders $     96              $ 1,250      
Accounts payable                              126                   88      
Accrued expenses                            3,795                2,848      
Due to Multi-Arc Inc.                         460                    0      
                                    ---------             --------
Total current liabilities                 4,477               4,186   

Debt due shareholders                              0               6,364        
Deferred income                                  616                 968        
Shareholders' equity (deficit):                                                 
Common shares, par value $20 per share,                                     
1,500,000 authorized, 370,496 issues      8,947               7,410   
Paid-in-capital                             25,995              31,625      
Deficit                                    (30,087)            (38,472)     
Less 40,637 common shares                                                   
held in treasury in 1995, at cost             0              (5,661)  
                                      --------           ---------
   Total shareholders' equity           4,855              (5,098)
                                      --------           ---------
                                     $ 9,948            $  6,420

ANDAL CORP.                 
CONDENSED STATEMENT OF OPERATIONS                 
(PARENT COMPANY ONLY--IN $000's)                

                                 Year Ended September 30
                                  1996     1995     1994

Operating costs and expenses:                                                   
General and administrative expense        $1,953   $1,333  $ 1,768          
Other income (expense):                                                         
Equity in earnings of Multi-Arc Inc.       1,704    3,192    2,654          
Gain on sale of 61st Street property       6,009        0        0          
Gain on sale of minority interest in                                        
Multi-Arc Inc.                              0      348        0       
Interest expense                            (747)    (833)    (835)         
Investment and other income                  150       37     (756)         
                                 -------  -------  -------
Income (loss) from continuing operations                                        
before income taxes                        5,163    1,411     (705)         
Provision for income taxes                   2,988     (532)     (66)           
                                 -------  -------  -------
Income (loss) from continuing operations     8,151      879     (771)           
Income (loss) from discontinued operations     234    1,007     (350)           
                                 -------  -------  -------
Net income (loss)                           $8,385   $1,886   $(1,121)          

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ANDAL CORP.                 
CONDENSED STATEMENT OF CASH FLOWS                 
(PARENT COMPANY ONLY--IN $000's)                

                                 Year Ended September 30
                                  1996      1995      1994

Net cash (used) by operating activities   $(1,030)  $(1,910)  $(2,346)          
Cash flows from financing activities:                                           
Repayments of intercompany debt               0         0     7,504         
Proceeds from long term debt                  0      (857)        0         
Reductions of long term debt               (543)     (500)   (7,096)        
Capital distributions from Multi-Arc Inc.     0       957     1,000         
Proceeds from sale of debentures and                                        
common stock of Multi-Arc Inc.             0     1,714         0      
Deferred financing costs                    (97)     (126)        0         
                                --------  --------  --------
Net cash provided (used) by                                                     
financing activities                       (640)    1,188     1,408         

Cash flows from investing activities:                                           
Net proceeds from sale of                                                   
61st Street property                     529         0         0      
Reduction of investment in affiliate          0         0     1,661         
Advance from Multi-Arc Inc.                 643         0         0         
Other, net                                  468       238      (250)        
                                --------  --------  --------
Net cash provided from investing activities 1,640       238     1,411           
                                --------  --------  --------
Increase (decrease) in cash                   (30)     (484)      473           
Cash at beginning of year                      51       535        62           
                                --------  --------  --------
Cash at end of year                       $    21   $    51   $   535           

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ANDAL CORP.                 

Notes to Condensed Financial Statements                                         

1.   Basis of Preparation                                                       

In the parent company-only financial statements, the Company's        
investment in subsidiaries is stated at cost plus equity in undistributed       
earnings of subsidiaries since date of acquisition.  The Company's share of     
net income of its unconsolidated subsidiaries is included in consolidated       
income using the equity method.  The parent company-only financial statements   
should be read in conjunction with the Company's consolidated financial         
statements.                                                                     

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SECURITIES AND EXCHANGE COMMISSION                

Washington, D. C.   20549                 

EXHIBITS                

to                

ANNUAL REPORT ON FORM 10-K              

FOR THE FISCAL YEAR ENDED             

SEPTEMBER 30, 1996            

ANDAL CORP.           

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EXHIBIT INDEX                                                                   

EXHIBIT   DESCRIPTION OF EXHIBIT                                                

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       
  filed 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).

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).         

4(a)      Indenture dated as of September 15, 1972 between the Company and      
    Manufacturers Hanover Trust Company, as Trustee, relating to the
      Company's 5 1/2% convertible subordinated debentures due September
    15, 1997 (incorporated by reference to Exhibit 4(a) to Company's
  Annual Report on Form 10-K for fiscal year ended September 30,
1986).                                                      

4(b)      First Supplemental Indenture dated as of January 12, 1982 between     
the Company and United States Trust Company of New York, as 
      Trustee, relating to the Company's 5 1/2% convertible subordinated
   debentures due September 15, 1997 (incorporated by reference to
   Exhibit 4(b) to Company's Annual Report on Form 10-K for fiscal
year ended September 30, 1986).                             

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)     Option Agreement dated as of August 1, 1982 between Schnurmacher      
     Corp. and the Company (incorporated by reference to Exhibit 10(v)
 to Company's Annual Report on Form 10-K for fiscal year ended
September 30, 1986).                                        

10(c)     Lease dated May 11, 1988, containing an Option to Purchase,           
 between Roundhill Associates and the Company (incorporated by
       reference to Exhibit 10(ag) to Company's Annual Report on Form 10-K
for fiscal year ended September 30, 1988).                  

10(d)     Subordination Agreement dated September 30, 1994 of Multi-Arc Inc.    
      as debtor and Andal Corp. as subordinated lender in favor of First
      Fidelity Bank, N.A. (incorporated by reference to Exhibit 10(l) to
the Company's Annual Report on Form 10-K for the year ended 
September 30, 1994).                                        

10(e)     Security Agreement dated September 30, 1994 by and between First      
      Fidelity Bank, N.A. and Vagle Technology, Inc., Multi-Arc, Inc. (a
    Minnesota corporation), Multi-Arc Inc., Multi-Arc of Ohio, Inc.,
and S. C. I. Coatings Limited (incorporated by reference to 
     Exhibit 10(m) to the Company's Annual Report on Form 10-K for the
year ended September 30, 1994).                             

10(f)     Multi-Arc Inc., Andal Corp., and United States Trust Company of       
 New York, Trustee.  Second Supplemental Indenture dated as of
     September 30, 1994 5 1/2% Convertible Subordinated Debentures due
     1997 (incorporated by reference to Exhibit 10(o) to the Company's
      Annual Report on Form 10-K for the year ended September 30, 1994).

10(g)     Pledge and Security Agreement dated September 30, 1994 by and         
    among Andal Corp. and First Fidelity Bank, N.A. (incorporated by
     reference to Exhibit 10(p) to the Company's Annual Report on Form
10-K for the year ended September 30, 1994).                

10(h)     Form of Multi-Arc Inc. 6% Convertible Subordinated Debenture due      
    December 15, 2004 (incorporated by reference to Exhibit 10(p) to
the Company's Annual Report on Form 10-K for the year ended 
September 30, 1995).                                        

10(i)     Form of Multi-Arc Inc. Stockholders Agreement dated June 15, 1995     
(incorporated by reference to Exhibit 10(q) to the Company's
      Annual Report on Form 10-K for the year ended September 30, 1995).

10(j)     1994 Multi-Arc Inc. Stock Option Plan (incorporated by reference      
    to Exhibit 10(r) to the Company's Annual Report on Form 10-K for
the year ended September 30, 1995).                         

10(k)     Loan Agreement dated September 21, 1995 between First Fidelity        
    Bank N. A. and Multi-Arc (UK) Ltd. (incorporated by reference to
     Exhibit 10(s) to the Company's Annual Report on Form 10-K for the
year ended September 30, 1995).                             

10(l)     Overdraft Facility Agreement between First Fidelity Bank N. A. and    
 Multi-Arc (UK) Ltd. dated September 21, 1995 (incorporated by
     reference to Exhibit 10(t) to the Company's Annual Report on Form
10-K for the year ended September 30, 1995).                

10(m)     61st Street Option Exercise (incorporated by reference to Exhibit     
  10(u) to the Company's Annual Report on Form 10-K for the year
ended September 30, 1995).                                  

10(n)     Contract of Sale of 61st Street Property dated July 10, 1996          
(incorporated by reference to Exhibit 10(r) to the Company's
     Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1996.                                                   

10(o)     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(p)     Employment Agreement between Andal Corp. and Peter D. Flood dated     
     as of August 31, 1996 (incorporated by reference to Exhibit 10(b)
to the Company's Current Report on Form 8-K dated August 30,
1996).                                                      

10(q)     Consolidated, Modified, and Restated Loan and Security Agreement,     
      dated August 27, 1996 by and between First Union National Bank and
Multi-Arc Inc., a Delaware Corporation; Multi-Arc, Inc., a  
Minnesota Corporation; Vagle Technology, Inc., a Michigan   
Corporation; Multi-Arc of Ohio, Inc., an Ohio Corporation;  
  Scientific Coatings of Illinois, Inc., a Michigan Corporation;
Scientific Coatings, Inc., a Michigan Corporation; and SCI  
Coatings Southwest, Inc., a Texas Corporation.              

10(r)     Employment Agreement between Andal Corp. and Walter N. Kreil, Jr.     
dated as of August 31, 1996.                                

22        Significant Subsidiaries of the Company                               

24(a)     Consent of Kelly, Graham, Myska & Partners.                           

24(b)     Consent of KPMG Peat Marwick.                                         

27        Financial Data Schedule                                               

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EXHIBIT 10(q)                                                                   

               CONSOLIDATED, MODIFIED and RESTATED
              LOAN AND SECURITY AGREEMENT, dated
                      August 27, 1996 by and between FIRST UNION
                         NATIONAL BANK, a national banking association
                          organized under Acts of Congress, (hereinafter
                          called "Bank"), and MULTI-ARC INC., a Delaware
                   Corporation ("MAI"), MULTI-ARC, INC., a
                     Minnesota Corporation ("MAI-Minn"), VAGLE
                    TECHNOLOGY, INC., a Michigan Corporation
                       ("Vagle"), MULTI-ARC OF OHIO, INC., an Ohio
                Corporation ("MAI-Ohio"), SCIENTIFIC
                  COATINGS OF ILLINOIS, INC., a Michigan
                Corporation ("SCI-Mich"), SCIENTIFIC
                  COATINGS, INC., a Michigan Corporation
                ("SCI"), and SCI COATINGS SOUTHWEST,
                         INC., a Texas Corporation ("SCI-Texas") (MAI,
                        MAI-Minn, Vagle, MAI-Ohio, SCI-Mich, SCI and
                  SCI-Texas hereinafter individually and
            collectively called "Borrower").

RECITALS                

  A.   Bank (formerly known as First Fidelity Bank, National Association),
and SCI-Mich, SCI, and SCI-Texas (the "Original Borrowers") entered into        
a Loan and Security Agreement dated September 30, 1994 as modified (the "1994   
Loan Agreement") which sets forth the terms and conditions of a Six Milhon      
Dollar Term Loan and a Four Million Dollar revolving credit facility by Bank    
to said entities.                                                               

 B.   MAI, Vagle, MAI-Minn and MAI-Ohio executed and delivered to Bank a
Guaranty and Suretyship Agreement dated September 24, 1994, pursuant to         
which said entities guaranteed all the existing and future liabilities of the   
Original Borrowers to Bank.                                                     

  C.   To secure, inter alia, said Guaranty and Suretyship Agreement, MAI,
Vagle, MAI-Minn and MAI-Ohio entered into a Security Agreement with Bank dated  
September 30, 1994 (the "1994 Security Agreement") pursuant to which, inter     
alia, said entities granted to Bank liens on certain of their assets.           

D.   Multi-Arc Inc. a corporation organized under the laws of the     
Province of Ontario, (MAI "Canada") (formerly known as S.C.I. Coatings Limited) 
was also a party to said 1994 Security Agreement, pursuant to which it also,    
inter alia, granted to Bank a lien on certain of its assets to secure, inter    
alia, its guaranty of the liabilities of Vagle to Bank.                         

   E.   The Original Borrowers and each of MAI, Vagle, MAI-Minn and MAI-Ohio
have applied to Bank for credit facilities which would replace the credit       
facilities under the 1994 Loan Agreement and under which each would be a co-    
borrower and which would consist of (i) a term loan of up to Seven Million      
Dollars, which would refinance the outstanding balance of the term loan and     
the revolving credit facility under the 1994 Loan Agreements, and (ii) a        
revolving credit-term loan facility of up to One Million Five Hundred Thousand  
DoIlars to finance the acquisition of items of equipment, and (iii) a           
revolving credit facility of up to Five Million Dollars to finance accounts     
receivable and inventory purchases.                                             

F.   Borrower and Bank have agreed to consolidate the 1994 Security   
Agreement with the 1994 Loan Agreement as to the original Borrowers and MAI,    
Vagle, MAI-Minn and MAI-Ohio (but to have the Security Agreement remain in      
effect as to MAI Canada), and to modify and restate as so modified the          
consolidated agreement so as to set forth the terms and conditions of the new   
credit facilities.                                                              

NOW, THEREFORE, in consideration of these premises and other good and   
valuable consideration, the parties hereto adopt the foregoing recitals         
and agree as follows:                                                           

I                 

DEFINITIONS                 

1.1  "ACCOUNT" or "ACCOUNTS RECEIVABLE" means, in addition to the     
definition of account as contained in the Uniform Commercial Code, the right    
of the Borrower or a Qualified Obligor to receive payment for goods sold or     
leased or for services rendered which are not evidenced by an instrument or     
chattel paper, whether or not it has been earned by performance.                

1.2  "ACCOUNT DEBTOR" means, in addition to the definition of account 
debtor as contained in the Uniform Commercial Code, the Person or Persons       
obligated to Borrower or a Qualified Obligor on an Account, or who is           
represented by the Borrower or a Qualified Obligor to be so obligated.          

   1.3  "ADVANCES" means all loans by Bank to Borrower under this Agreement.

  1.4  "AFFILIATE" means any Person which, directly or indirectly, owns or
controls, on an aggregate basis, including all beneficial ownership and         
ownership or control as a trustee, guardian or other fiduciary, at least five   
(5%) percent of the outstanding capital stock having ordinary voting power to   
elect a majority of the board of directors (irrespective of whether, at the     
time, stock of any other class or classes of such corporation shall have or     
might have voting power by reason of the happening of any contingency) of       
Borrower or any Obligor or any Subsidiary, or is controlled by or is under      
common control with Borrower or any such Person, or any stockholders of         
Borrower or any such Person, or any Subsidiary.  For the purpose of this        
definition, "control" means the possession, directly or indirectly, of the      
power to direct or cause the direction of management and policies, whether      
through the ownership of voting securities, by contract or otherwise.           

1.5  "AGREEMENT"  means this Consolidated, Modified and Restated Loan 
and Security Agreement, as may from time to time be supplemented, amended or    
modified.                                                                       

  1.6  "BANK" means First Union National Bank, its successors and assigns.

1.7  "BANK AFF1LIATE" means First Union Corporation, its successor and
assigns, and any of its direct and indirect Affiliates and Subsidiaries.        

1.8  "BANK LETTERS OF CREDIT" means each and every letter of credit   
issued from time to time by Bank or any Bank Affiliate on behalf of the         
Borrower or on behalf of any third party and as to which Borrower has           
guaranteed the reimbursement obligations of such third party to Bank or Bank    
Affiliate with respect thereto, including but not limited to each letter of     
credit issued under paragraph 2.2 hereof.                                       

  1.9  "BORROWER" means the parties identified on the first page hereof as
Borrower, it be ing the intent of this Agreement that each shall be considered  
individually or collectively as Borrower regardless of which receives the       
proceeds of the loans, advances or financial accommodations hereunder and       
regardless of which is the source of the Collateral hereunder and that each     
Borrower shall be jointly and severally liable for all of the Obligations.      

    1.10 "BORROWING BASE" means the lesser of (A) Five Million ($5,000,000.00)
Dollars, or (B) the sum of (i) the Eligible Loan Value of Eligible Accounts     
plus (ii) the Eligible Loan Value of Eligible Inventory.                        

  1.11 "BUSINESS DAY" means a day other than a Saturday or Sunday or other
day on which Bank is authorized or required to close under the laws of the      
State of New Jersey or applicable Federal Law.                                  

1.12 "CAPITAL EXPENDITURES" means for any period the aggregate of all 
expenditures (including that portion of Capital Leases which is or should be    
capitalized, in accordance with GAAP on the consolidated balance sheet of a     
Person) by such Person during that period for any fixed assets, improvements,   
or replacements, substitutions or additions thereto that have a useful life of  
more than one (1) year including, without limitation, the direct or indirect    
acquisition of such assets by way of increased product charges, offset items    
or otherwise.                                                                   

1.13 "CAPITAL LEASE" as applied to any Person, means any lease of any 
property (whether real, personal or mixed) by that Person as lessee which       
would, in conformity with GAAP be required to be accounted for as a capital     
lease on the balance sheet of that Person.                                      

 1.14 "CASH FLOW" means at any date the EBITDA of a person minus (A) all
Capital Expenditures during the twelve (12) months preceding said date to       
the extent not financed by loans from Bank or a third party or under Capital    
Leases; (B) All dividends and other distributions of capital during such        
twelve (12) months and (C) all taxes paid during such preceding twelve (12)     
months or then due.                                                             

 1.15 "CASH FLOW COVERAGE RATIO" means at any date the ratio of (A) Cash
Flow divided by (B) the sum of (i) all principal paid and/or scheduled to be    
paid during the twelve (12) months preceding said date on all long term         
Indebtedness plus (ii) all interest due during the twelve (12) months           
preceding said date on all lndebtedness plus (iii) all obligations paid or      
scheduled to be paid under Capital Leases during the twelve (12) months         
preceding said date provided, however that for the purpose of this paragraph    
1.15 to the extent the Borrower has hedged the floating interest rate payable   
under any long term lndebtedness by entering into a swap agreement (as defined  
in 11 U.S.C. Section 1Ol) with Bank or other counterparty satisfactory to Bank, 
interest on such Indebtedness shall be based on the synthetic fixed rate        
payable by the fixed rate payor under such swap agreement.                      

1.16 "CHATTEL PAPER" means, in addition to the definition of chattel  
paper as contained in the Uniform Commercial Code, a writing or writings which  
evidence both a money obligation and a security interest in, or a lease of,     
specific Goods. When a transaction is evidenced both by such a security         
agreement or a lease and by an Instrument or series of Instruments, the group   
of writings taken together constitutes Chattel Paper.                           

1.17 "COLLATERAL" means all of those present or future assets, real or
personal, of Borrower or other Obligor in which a security interest in or       
lien on is granted to Bank hereunder or contemplated hereby, or under any       
other present or future agreement by Borrower in favor of Bank or any Bank      
Affiliate.                                                                      

1.18 "CONTINGENT OBLIGATIONS" shall mean, as to any Person, any       
obligation of such Person guaranteeing or in effect guaranteeing any            
Indebtedness, leases, dividends or other obligations ("primary obligations")    
of any other Person (the "primary obligor") in any manner, whether directly     
or indirectly, including, without limitation, any obligation of such Person,    
whether or not contingent, (A) to purchase any such primary obligation or       
any property constituting direct or indirect security therefor, (B) to          
advance or supply funds (i) for the purchase or payment of any such primary     
obligation or (ii) to maintain working capital or equity capital of the         
primary obligor or otherwise to maintain the net worth or solvency of the       
primary obligor, (C) to purchase property, securities or services primarily     
for the purpose of assuring the beneficiary of any such primary obligation of   
the ability of the primary obligor to make payment of such primary obligation,  
(D) for the obligations of a partnership in which such Person is a general      
partner, or (E) otherwise to assure or hold harmless the beneficiary of such    
primary obligation against loss in respect thereof; provided, however, that     
the term Contingent Obligations shall not include the endorsement of            
instruments for deposit or collection in the ordinary course of business. The   
amount of any Contingent Obligation shall be deemed to be an amount equal to    
the stated or determinable amount of the primary obligation in respect of       
which such Contingent Obligation is made or, if not stated or determinable,     
the maximum reasonably anticipated liability in respect thereof as determined   
by Bank in good faith.                                                          

   1.19 "CONVERTED TERM LOAN" means the consolidated and converted term loan
under paragraph 2.3(F) hereof.                                                  

 1.20 "CURRENT ASSETS" means, at any date, all assets of a Person which,
in accordance with GAAP should be classified as current assets of such Person,  
after deducting all reserves properly deductible in respect of such assets in   
accordance with GAAP.                                                           

1.21 "CURRENT LIABILITIES" means, at any date, all indebtedness of a  
Person which, in accordance with GAAP should be classified as current           
liabilities of such Person, provided, however, that all Indebtedness with       
respect to the revolving credit facility under paragraph 2.2 hereof and all     
Indebtedness owing under any Subordinated Debt which is not then due and/or     
past due shall not be considered current liabilities even if same should at     
any point in time be classified as current liabilities under GAAP.              

1.22 "CURRENT RATIO" means, at any date, Current Assets divided by    
Current Liabilities.                                                            

1.23 "DEFAULT" means an event of the nature specified in Article VII  
hereof and which, with the giving of notice or passage of time, or both, would  
become an Event of Default.                                                     

1.24 "DOCUMENT(S)" shall have the meaning set forth in the Uniform    
Commercial Code for such term.                                                  

    1.25 "DUMPING" means the releasing, spilling, emptying, pouring, emitting,
dumping or other discharge of any substance into the envirorunent.              

  1.26 "EBITDA" means at any date the sum of (A) Net lncome, (i) excluding
any extraordinary and nonoperating income, of a Person for the preceding        
twelve (12) months and (ii) any extraordinary and nonoperating losses during    
such twelve (12) months but only in an amount up to any cash extraordinary and  
nonoperating income during such twelve (12) months plus (B) any interest,       
income taxes, depreciation, and amortization for such twelve (12) months to     
the extent they were deducted from gross income to calculate Net Income         
provided however, that for the purpose of this paragraph 1.26, to the extent    
the Borrower has hedged the floating interest rate payable under any long term  
Indebtedness by entering into a swap agreement (as defined in 11 U.S.C.         
Section 101) with Bank or other counterparty satisfactory to Bank, interest     
on such Indebtedness shall be based on the synthetic fixed rate payable by      
the fixed rate payor under such swap agreement.                                 

   1.27 "ELIGIBLE ACCOUNT" means an Account which has been due for less than
sixty (60) days from its due date provided such due date is not greater than    
thirty (30) days from the date of issuance of the invoice, and is, in all \     
other respects, acceptable to Bank, but specifically, without limitation,       
excluding any Ineligible Account.                                               

1.28 "ELIGIBLE INVENTORY" means the raw material and finished goods of
Borrower that are non-obsolete and saleable in the ordinary course of           
Borrower's business, and which are, in all other respects, acceptable to Bank.  

  1.29 "ELIGIBLE LOAN VALUE OF ELIGIBLE ACCOUNTS" means up to eighty (80%)
percent of the face amount of Eligible Accounts, less returns and discounts,    
offsets, contra balances, credits or allowances of any nature, at any time      
issued, owing, granted or outstanding.                                          

   1.30 "ELIGIBLE LOAN VALUE OF ELIGIBLE INVENTORY" means up to thirty (30%)
percent of the lesser of (A) the cost or (B) the wholesale market value,        
calculated on a first in, first out basis, of Eligible Inventory.               

1.31 "ENVIRONMENTAL LAWS" means (A) the Comprehensive Environmental   
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601    
et seq. ("CERCLA"), as amended by the Superfund Amendment and Reauthorization   
Act of 1986; (B) the Resource Conservation and Recovery Act of 1976, as         
amended (42 U.S.C. 6901 et seq.); (C) the Spill Compensation and Control Act    
(N.J.S.A. 58:10-23.11 et seq.), (D) the Industrial Site Recovery Act (N.J.S.A.  
13:IK-6 et seq.); (E) the Underground Storage Tanks Act (N.J.S.A. 58:IOA-21 et  
seq and (F) any and all laws, regulations and executive orders, federal, state  
and local, pertaining to environmental matters, as same may be amended or       
supplemented from time to time.                                                 

1.32 "EQUIPMENT" means, in addition to the definition of equipment    
contained in the Uniform Commercial Code, machinery and equipment of every      
kind, nature and description, as well as trucks, vehicles of every nature and   
description, including but not limited to trailers and the like, handling and   
delivery equipment, cranes and hoisting equipment, fixtures, office machines    
and furniture, whether affixed to realty or not.                                

  1.33 "EQUIPMENT LINE" means the revolving credit facility to finance the
acquisition of Equipment under paragraph 2.3(A) hereof.                         

  1.34 "EQUIPMENT LINE CONVERSION DATE" means that date on which the loans
under paragraph 2.3 of this Agreement are, in accordance with paragraph 2.3(F), 
consolidated and converted into a term loan.                                    

   1.35 "EQUIPMENT LINE CONVERSION EXPIRATION DATE" means the earlier of (a)
September 1, 1997 or such later date as the Bank may agree to in writing in     
its sole discretion, or (b) first day of the first month following the date     
Bank has advanced the entire $1,500,000 of loans contemplated in paragraph      
2.3(A) hereof.                                                                  

 1.36  "ERISA" means the Employee Retirement Income Security Act of 1974
as amended from time to time.                                                   

   1.37 "EVENT OF DEFAULT" means an event of the nature specified in Article
VII hereof                                                                      

   1.38 "EXISTING SUBORDINATED DEBT" means (i) the Indebtedness of MAI under
the 5-1/2% Convertible Subordinated Debentures assumed by MAI and issued under  
that certain Indenture dated as of September 15, 1982 between National Kinney   
Corp. (now known as Andal Corp.) and Manufacturers Hanover Trust Company, as    
original Trustee, as supplemented by a First Supplemental Indenture dated as    
of January 12, 1982 between National Kinney Corp. and United States Trust       
Company of New York, as trustee, and by a Second Supplemental Indenture dated   
as of September 30, 1994 between Andal Corp., Multi-Arc Inc. and United         
States Trust Company of New York (the "Indenture"); and (ii) those certain 6%   
Convertible Subordinated Debentures due December 15, 2004 issued by MAI and     
identified on schedule 1.38 annexed hereto (the "Debentures").                  

  1.39 "EXPIRATION DATE" means the expiration date of the revolving credit
facility provided for and as set forth in paragraph 2.2 hereof or the date of   
termination of said revolving credit facility pursuant to the terms hereof.     

1.40 "FINANCIAL UNDERTAKING" of a Person means (i) any repurcbase     
obigation or liability of such Person or any of its Subsidiaries with respect   
to Accounts or notes receivable sold by such Person or any of its Subsidiaries, 
(ii) any sale and leaseback transaction which does not create a liability on    
the consolidated balance sheet of such Person and its Subsidiaries, if any,     
(iii) any other transaction which is the functional equivalent of or takes the  
place of borrowing but which does not constitute a liability on the             
consolidated balance sheet of such Person and its Subsidiaries, or (iv) any     
obligation under any "swap agreement" (as defined in 11 U.S.C. SectionlOl).     

   1.41 "GAAP" means generally accepted accounting principles in effect from
time to time in the United States of America.                                   

 1.42 "GENERAL lNTANGIBLES" shall mean all rights of Borrower as defined
in the Uniform Cormmercial Code including, hut not limited to, all rights to    
property, choses in action and other rights of Borrower not otherwise           
specifically included elsewhere in this Agreement, further including but not    
limited to all present and future trademarks, trade names, service marks,       
copyrights and patents, tax refunds and all rights under license agreements     
for the use of same, and all rights of Borrower under any and all leases of     
property, both real and personal.                                               

  1.43 "GOODS"  means, in addition to the definition of goods as contained
in the Uniform Commercial Code, all articles of tangible personal property,     
sold, supplied, leased or otherwise disposed of, represented by an Account.     

1.44 "GOVERNMENTAL BODY" means any nation or government, any state or 
other political subdivision thereof, any entity exercising executive,           
legislative, judicial, regulatory or administrative functions of, or            
pertaining to government or any court or arbitrator.                            

  1.45 "GUARANTOR(S)"  means Multi-Arc Management Corp., Multi-Arc Inc. (a
corporation organized under the laws of the province of Ontario), Multi-Arc     
(U.K.) Limited and any future Subsidiary of any Borrower or any Guarantor.      

1.46 "INDEBTEDNESS" means, as to any Person, at a particular time, all
items which, in accordance with GAAP, would be classified as liabilities on a   
balance sheet of such Person as at such time and which constitute, without      
duplication, (A) Indebtedness for borrowed money or the deferred purchase       
price of Property (other than credit extended to such Person for the purchase   
of goods in the ordinary course of business to the extent the same would        
otherwise constitute Indebtedness), (B) indebtedness evidenced by notes,        
bonds, debentures or similar instruments, (C) obligations under leases which,   
in accordance with GAAP, are required to be capitalized on a balance sheet,     
(D) obligations under conditional sales or other title retention agreements,    
(E) indebtedness arising under letter of credit (both documentary and standby)  
and acceptance facilities and the face amount of all letters of credit issued   
for the account of such Person and, without duplication, all drafts drawn       
thereunder to the extent such Person shall not have reimbursed the issuer in    
respect of the issuer's payment of such drafts, (F) all liabilities secured by  
any Lien on any property owned by such Person even though such Person has not   
assumed or otherwise become liable for the payment thereof and liens for taxes, 
assessments or similar charges incurred in the ordinary course of business to   
the extent such liens are Permitted Encumbrances, (G) mandatory obligations of  
such Person to redeem or purchase Stock or to purchase or repay Indebtedness,   
(H) Contingent Obligations of such Person in respect of any of the foregoing,   
and (I) any Financial Undertaking of a Person.                                  

1.47 "INELIGIBLE ACCOUNTS" means those Accounts as to which any of the
following has occurred:                                                         

(A)  a portion of the Goods or services giving rise to the Account are
returned, repossessed, lost or damaged;                                         

(B) the Account Debtor disputes said Account;                         

(C) the termination of existence, insolvency, business failure or     
suspension of business or appointment of a custodian, receiver or trustee of    
any part of the property of, the making of an assignment for the benefit of     
creditors of, calling of a meeting of the creditors of, or the commencement of  
any bankruptcy, liquidation, reorganization or similar proceeding under state   
or federal law against the Account Debtor;                                      

(D) more than twenty-five (25%) percent of the aggregate Accounts due 
from the Account Debtor remains unpaid past the applicable eligibility periods  
set forth in the definition of Eligible Account;                                

(E) the Account is due from an employee, stockholder, Affiliate or    
Subsidiary of Borrower;                                                         

   (F) any of the representations set forth in Paragraph 4.9 are untrue with
respect to said Account;                                                        

 (G) Borrower has failed with respect to said Account to comply with the
requirements of Paragraph 5.12 hereof;                                          

(H) the Account arises out of a contract with any Governmental Body   
unless all filings have been made under the Federal Assignment of Claims Act    
or comparable state or other statute as may be required by the Bank with        
regard to said Account;                                                         

(I) the Goods giving rise to said Account (i) are subject to any "bill
and hold" or similar arrangements, to the extent said Accounts arising from     
"bill and hold" arrangements are in the aggregate, in excess of Three Hundred   
Thousand Dollars ($300,000.00) or (ii) have been sold on approval or            
consignment or sale or return basis, or under a repurchase or similar           
agreement;                                                                      

   (J) the Account Debtor does not meet credit standards acceptable to Bank;

(K) except for Accounts of MAI Canada the Account is not payable in   
United States Dollars or the Account Debtor is located outside the United       
States except those Accounts which are supported by foreign credit insurance    
or Letters of Credit satisfactory to and assigned to Bank;                      

(L) the Account Debtor is located in Minnesota or other jurisdiction  
which requires a Notice of Business Activities Report or similar report to be   
filed by Borrower or a Qualified Obligor, and Borrower or a Qualified Obligor   
has not filed for the then current year the required report or is not           
otherwise authorized to transact business in said jurisdiction;                 

(M) because of the nature of Borrower's or a Qualified Obligor's      
ownership of assets or conduct of business, Borrower or a Qualified Obligor is  
required by applicable law to be authorized to do business in the jurisdiction  
where the Account Debtor is located and Borrower or a Qualified Obligor is not  
so authorized;                                                                  

 (N) the Account is subject to any offset counterclaim or other claim or
defense on the part of the Account Debtor;                                      

 (O)  the Account is subject to a Lien in favor of any Person other than
Bank;                                                                           

(P) the Account is not a good and valid Account, representing an      
undisputed bona fide indebtedness incurred by the Account Debtor therein named, 
for a fixed sum as set forth in the invoice relating thereto with respect to    
an absolute sale and delivery, upon the stated terms, of Goods sold and         
delivered, or services actually rendered, by Borrower or a Qualified Obligor;   

(Q) the Account is otherwise unacceptable to Bank;                    

(R) the Account arises out of a contract or purchase order for which a
surety bond was issued on behalf of Borrower or a Qualified Obligor;            

   (S) a Letter of Credit has been issued to Borrower or a Qualified Obligor
to secure payment of such Account unless (i) the issuer of such Letter of       
Credit is acceptable to Bank, (ii) the original Letter of Credit has been       
delivered to Bank, and (iii) the Letter of Credit has been transferred to Bank  
or the bank issuing the Letter of Credit has been notified in writing of the    
assignment by Borrower or such Qualified Obligor to Bank of the proceeds of     
the Letter of Credit and to make payment of such proceeds to Bank; or           

 (T) a credit insurance policy has been issued in favor of Borrower or a
Qualified Obligor covering the Account unless (i) the issuer of such credit     
insurance policy is acceptable to Bank, and (ii) the Bank is a beneficiary      
under such policy.                                                              

1.48 "INVENTORY" means, in addition to the definition of inventory as 
contained in the Uniform Commercial Code, all Goods held by Borrower or a       
Qualified Obligor for resale or lease or furnished or to be furnished under     
contracts of service, and shall include raw materials, goods and work in        
process and finished goods, and all goods returned by or reclaimed from         
customers.                                                                      

 1.49 "INSTRUMENT" means, in addition to the definition of instrument as
contained in the Uniform Commercial Code, a negotiable instrument or a          
security, or any other writing which evidences a right to the payment of money  
and is not itself a security agreement or lease and is of the type which is,    
in the ordinary course of business, transferred by delivery with any necessary  
endorsement or assignment.                                                      

1.50 "INTEREST PERIOD" means with respect to each Advance under the   
Revolver or Equipment Line which is a Libor Loan, the period commencing on the  
date such Advance commences to he a Libor Loan as elected by the Borrower and   
ending one month thereafter and thereafter, each period commencing on the last  
day of the immediately preceding Interest Period and ending one month           
thereafter, but in no event after the Expiration Date, as to Advances under     
the Revolver, and in no event after the Equipment Line Conversion Expiration    
Date as to Advances under the Equipment Line and with respect to the Term Loan  
under paragraph 2.1 hereof the term "Interest Period" means, initially, the     
period commencing on the date hereof and ending on the Commencement Date, as    
defined in paragraph 2.1, and thereafter, each period commencing on the last    
day of the immediately preceding Interest Period and ending on the first (1st)  
day of each month thereafter, and with respect to the Converted Term Loan       
Interest Period means initially the period commencing on the Equipment Line     
Conversion Date and ending on the first (1st) day of each month thereafter      
and thereafter each period commencing on the last day of the immediately        
preceding Interest Period and ending on the first (1st) day of each month       
thereafter, subject, however, to the following provisions: (i) if any Interest  
Period would otherwise end on a day which is not a New York business day, that  
Interest Period shall be extended to the next succeeding New York business day  
unless the result of such extension would be to carry such Interest Period      
into another calendar month, in which event such Interest Period shall end on   
the immediately preceding New York business day; and (ii) any Interest Period   
that begins on the last New York business day of a calendar month (or on a day  
for which there is no numerically corresponding day in the calendar month at    
the end of such Interest Period) shall end on the last New York business day    
of a calendar month.                                                            

1.51 "INVESTMENT OBLIGATIONS" means any of the following:  (A)        
Obligations of or guaranteed by the United States of America; (B) Obligations   
issued or guaranteed by any instrumentality or agency of the United States of   
America, whether now existing or hereafter organized; (C) Obligations issued    
or guaranteed by any state of the United States or the District of Columbia;    
(D) Repurchase agreements fully secured by obligations of a kind specified in   
(A), (B) or (C) above; (F) Interest-bearing accounts, certificates of deposit,  
bankers acceptances or commercial paper of Bank or any Bank Affiliate and       
investments in the Evergreen Funds; (F) Certificates of deposit of United       
States banks having a ratio of Tier 1 capital of not less than six percent      
(6%) and then in an amount not exceeding 10% of the issuing bank's unimpaired   
capital and surplus. "Tier I capital" shall be defined from time to time        
pursuant to regulations published by the Office of the Comptroller of the       
Currency and the Federal Deposit Insurance Corporation.                         

1.52 "LETTER OF CREDIT" means a letter of credit issued in favor of   
Borrower to secure payment of the sale of goods or of any Account or other      
obligation due or to become due to Borrower.                                    

   1.53 "LIBOR" means, with respect to each day during each Interest Period,
the rate (rounded to the next higher 1/100 of 1%) for U.S. dollar deposits of   
a one month maturity as reported on Telerate page 3750 as of 11:00 a.m.,        
London time, on the second London business day before the relevant Interest     
Period begins (or if not so reported, then as determined by the Bank from       
another recognized source or interbank quotation), adjusted for reserves by     
dividing that rate by 1.00 minus the Libor Reserve.  Notwithstanding the        
foregoing, if the Borrower has hedged the Libor based rate by entering into an  
interest rate swap agreement with Bank, Libor shall be rounded five decimal     
places in accordance with the 1991 ISDA Definitions published by the            
International Swaps and Deriviates Association, Inc.                            

1.54 "LIBOR LOAN" means each Advance on which interest thereon is in  
accordance with the terms of this Agreement, based on Libor.                    

1.55 "LIBOR MARGIN" means for each Interest Period applicable to Libor
Loans, a rate per annum equal to (A) one and thirty-five one hundredths of one  
percent (1.35%) with respect to the Term Loan and the Converted Term Loan and   
(B) one and sixty one hundredths of one percent (1.60%) with respect to         
Advances under the Equipment Line and (C) one and ten one hundredths of one     
percent (1.10%) with respect to Advances under the Revolver.                    

1.56 "LIBOR RESERVE" means tile maximum percentage reserve requirement
(rounded to the next higher 1/100 of 1% and expressed as a decimal) in effect   
for any day during the Interest Period under the Federal Reserve Board's        
Regulation D for Eurocurrency liabilities as defined therein.                   

   1.57 "LIEN" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory    
or other), or preference, priority, or other security agreement, or             
preferential arrangement, charge, or encumbrance of any kind or nature          
whatsoever (including, without limitation, any coilditional sale or other       
title retention agreement, any financing lease having substantially the same    
economic cffect as any of the foregoing) and the filing of any financing        
statement under the Uniform Commercial Code (or comparable law) of any          
jurisdiction to evidence any of the foregoing.                                  

  1.58 "LOAN DOCUMENTS" means this Agreement, the 1994 Loan Agreement, all
notes, mortgages or other documents executed and delivered by Borrower or any   
Obligor hereunder and thereunder, and any amendments, renewals, modifications   
or supplements thereto, or substitutions therefor from time to time.            

  1.59  "LONDON BUSINESS DAY" means a day on which commercial banks are open
for dealings in U.S. Dollar deposits in the London (England, U.K.) interbank    
market.                                                                         

1.60  "MAI NOTE" means that certain promissory note in the principal sum
of $6,000,000.00 by MAI to Vagle dated September 30, 1994, and all amendments,  
modifications and extensions thereof and renewals and substitutions thereof.    

  1.61 "MANAGEMENT NOTE" means those certain promissory notes to the order
of MAI identified on schedule 1.61 annexed hereto.                              

  1.62 "MATERIAL ADVERSE CHANGE" means, as to a Person, a material adverse
change in the financial condition, operations, business, prospects or property  
of such Person.                                                                 

 1.63  "MATERIAL ADVERSE EFFECT" means, as to a Person, a material adverse
effect on the financial condition, operations, business, prospects or property  
of such Person.                                                                 

1.64 "NATURAL RESOURCES" means each and all of the atmosphere, alr,   
waters, earth, land, minerals, flora, fauna, fish, shellfish, wildlife,         
biota and/or other natural resources.                                           

  1.65  "NET INCOME" means the net after tax income of a Person determined
in accordance wiLil GAAP.                                                       

1.66 "OBLIGATION" or "OBLIGATIONS" means any and all loans, advances, 
Bank Letters of Credit, Bankers Acceptances and other financial accommodations  
made by Bank or any Bank Affiliate prior to, on and after the date of this      
Agreement to, or on the account of Borrower, and any and all interest, fees,    
late fees, attorney's fees and costs, commissions, obligations, liabilities,    
indebtedness, charges and expenses, direct or indirect, primary, secondary,     
contingent, joint or several which are due or to become due or that may         
hereafter be contracted or acquired of Borrower to Bank or any Bank Affiliate,  
no matter how or when arising and whether under any present or future Loan      
Agreement or other agreement or instrument between Borrower and Bank or any     
Bank Affiliate, including "swap agreements" (as detined in 11 U.S.C. Section    
101) or otherwise, and the amount due or to become due upon any notes,          
reimbursement agreement or other obligations given to, or received by, Bank or  
any Bank Affiliate or on account of any of the foregoing and the performance    
and fulfillment by Borrower and each Obligor of all the terms, conditions,      
promises, covenants and provisions contained in the Loan Documents, or in any   
future agreement or instrument between Borrower or any Obligor and Bank or any  
Bank Affiliate including without limitation the obligations of Guarantors to    
Bank.                                                                           

  1.67 "OBLIGOR" means the Borrower hereunder, all sureties and guarantors
and, if any debt due to Bank hereunder is evidenced by a note or other          
instrument, the makers and endorsers thereof.                                   

  1.68 "PAYMENT DATE" means (A) with respect to Prime Rate Loans the first
day of each month, and (B) with respect to Libor Loans the last day of the      
Interest Period.                                                                

 1.69 "PERMITTED ENCUMBRANCES" means (A) Liens for taxes, assessments or
governmental charges or levies on property of Borrower if the same shall not    
at the time be delinquent or thereafter can be paid without penalty, or are     
being diligently contested in good faith and by appropriate proceedings and     
against which Borrower has established adequate reserves, (B) Liens imposed by  
law, such as carriers, warehousemen and mechanics Liens, and Liens incurred in  
connection with construction or other similar Liens arising in the ordinary     
course of business provided same are not at the time due and payable, (C)       
Liens arising out of pledge or deposits under workers compensation law,         
unemployment insurance, old age pension or other social security or retirement  
benefit or similar legislation, (D) Liens arising from judgments or awards      
with respect to which Borrower shall be diligently and in good faith            
prosecuting an appeal or proceedings for review and shall have secured a stay   
of execution pending such appeal or review, (E) Liens in favor of Bank or any   
Bank Affiliate, (F) Existing liens on specific items of Equipment identified    
on schedule 1.69 annexed hereto securing existing Indebtedness set forth on     
said schedule, and (G) Future purchase money security interests in hereafter    
acquired items of Equipment provided same secure Permitted Indebtedness under   
paragraph 1 .70(H) below.                                                       

  1.70 "PERMITTED INDERTEDNESS" means (A) indebtedness to Bank or any Bank
Affiliate, and (B) Subordinated Debt consented to in writing by Bank or         
permitted by the terms hereof, (C) the existing Indebtedness identified on      
schedule 1.70 annexed hereto, (D) Indebtedness of any Borrower to any other     
Borrower or any Guarantor, or Indebtedness of any Guarantor to any other        
Guarantor or Indebtedness of any Guarantor to any Borrower, (E) the             
Indebtedness of MAI under the MAI Note, (F) the Indebtedness of Vagle under     
the Vagle Note, (G) the Existing Subordinated Debt, (H) the Indebtedness of     
MAI to Andal Corp. in accordance with the Second Supplemental Indenture dated   
September 30, 1994 between Andal Corp., MAI and United States Trust Company of  
New York, as trustee, provided such Indebtedness does not require any payment   
thereof earlier than the dates the payments on the Existing Subordinated Debt   
would have been due absent conversion and provided further such Indebtedness    
is Subordinated Debt, and (I) purchase money indebtedness up to $100,000.00     
per annum, on a non cumulative basis with respect to the acquisition of items   
of Equipment.                                                                   

1.71 "PERSON"  means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,    
institution, entity, party or government (whether national, federal, state,     
county, city, municipal or otherwise, including, without limitation, any        
instrumentality, division, agency, body or department thereof).                 

1.72  "PLAN" means an employee benefit plan or other plan maintained for
employees of Borrower and covered by Title IV of ERISA.                         

1.73 "PRIME RATE" means the rate of interest established by Bank from 
time to time as its reference rate in making loans but which does not reflect   
the rate of interest charged to any particular Person and is not tied to any    
external rate of interest or index.  The rate of interest charged hereunder     
shall change automatically and immediately as of the date of each change in     
the Prime Rate without notice to Borrower.                                      

 1.74 "PRIME RATE LOANS" means each Advance on which interest thereon is
in accordance with the terms of this Agreement based on the Prime Rate.         

 1.75 "PRIME RATE MARGIN" means a rate per annum equal to one quarter of
one (.25%) percent.                                                             

 1.76 "REVOLVER" means the revolving credit facility under paragraph 2.2
hereof.                                                                         

   1.77 "REPORTABLE EVENT" has the meaning assigned to such term in Title IV
of ERISA, or regulations issued thereunder other than a Reportable Event not    
subject to the provision for a thirty (30) day notice to the Pension Benefit    
Guaranty Corporation under such regulations.                                    

  1.78  "QUALIFIED OBLIGOR" means MAI-Canada and any entity hereafter formed
and which is a Subsidiary of Borrower or any Guarantor and which operates a     
business in a jurisdiction in the United States of America and which business   
is of the same nature as the business currently operated by Borrower and which  
entity has executed and delivered to Bank a guaranty of all Obligations of      
Borrower to Bank and a security agreement in favor of Bank granting to Bank a   
first priority and exclusive security interest in all of its assets together    
with such resolutions, UCC-1 financing statements and other documents and       
instruments as Bank may reasonably request, such guaranty, security agreement   
and other documents and instruments to be in form and substance satisfactory    
to Bank and such entity has complied with and continues to comply with the      
covenants provided for herein applicable to a Qualified Obligor.                

  1.79 "SUBORDINATED DEBT" means all Indebtedness of a Person permitted by
this Agreement or any other Loan Document and which is subordinated to payment  
in full of all Obligations of such Person to Bank pursuant to a debt            
subordination agreement in form and substance satisfactory to Bank.             

1.80 "SUBSIDIARY" means any corporation of which more than fifty (50%)
percent of the outstanding capital stock having ordinary voting power to elect  
a majority of the board of directors of such corporation (irrespective of       
whether, at the time, stock of any other class or classes of such corporation   
shall have or might have voting power by reason of the happening of any         
contingency) is at the time, directly or indirectly, owned by Borrower or any   
Obligor or one or more Subsidiaries.                                            

1.81 "TANGIBlE CAPTAL FUNDS" means the Tangible Net Worth of a Person 
plus the outstanding principal amount of all Subordinated Debt of such Person.  

1.82 "TANGIBLE NET WORTH" means Total Assets, less (without limitation
and without duplication of deductions) the sum of (A) Total Liabilities of a    
Person, (B) any reserves established by a Person for anticipated losses or      
expenses, (C) the amount, if any, of all intangible items including any         
leasehold rights, the amount of any investment in any Affiliate or other        
entity including a Subsidiary, good will (including any amounts, however        
designated on the balance sheet, representing the cost of acquisition of        
business and investments in excess of underlying tangible assets), unamortized  
debt discount, marketing expenses and customer and/or mailing lists (other      
than trademarks, trademark rights, trade name rights, copyrights, patents,      
patent rights and licenses),and (D) all amounts due from employees,             
stockholders, Affiliates and Subsidiaries.                                      

1.83 "TERM LOAN" means the Seven Million Dollar ($7,000,000.00) term  
loan under paragraph 2.1 hereof.                                                

1.84 "TOTAL ASSETS" means, at any date, the amount shown on the books 
and records of a Person, determined in accordance with GAAP, of all property,   
both real and personal, of a Person.                                            

1.85 "TOTAL LIABILITIES"  means, at any date, the amount of all       
liabilities which, in accordance with GAAP should be included in determining    
total liabi]ities as shown on a liability side of a balance sheet of a Person   
at such date.                                                                   

1.86 "UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code as   
adopted and in effect under the laws of the State of New Jersey.                

   1.87 "VAGLE NOTE" means that certain promissory note in the principal sum
of $6,000,000.00 by Vagle Technology, Inc. to SCI-Michigan, SCI and SCI-Texas   
dated September 20,1994 and all amendments, modifications and extensions        
thereof and renewals and substitutions thereof.                                 

1.88 "WORKING CAPITAL" means Current Assets minus Current Liabilities.

1.89 "INTERPRETATION AND CONSTRUCTION"                                

      (a)  The terms "hereby," "hereof," "hereto," "herein," "hereunder"
and any similar terms, as used in this Agreement, refer to this Agreement in    
its entirety and not any particular Article or paragraph, and the term          
"hereafter" means after, and the term "heretofore" means before, the date of    
delivery of this Agreement;                                                     

        (b) Words importing a particular gender mean and include every other
gender, and words importing the singular number mean and include the plural     
number and vice versa.                                                          

II                

LOANS                 

2.1  TERM LOAN                                                        

(A) TheLoan. Bank will, under this Agreement and approximately        
simultaneously with the execution hereof, loan to Borrower the sum of Seven     
Million Dollars ($7,000,000.00) to be evidenced by a promissory note in the     
form of Exhibit 2.1 annexed hereto. The principal balance of the Term Loan      
shall be repayable in eighty-three (83) consecutive monthly installments of     
principal of Eighty-Three Thousand Three Hundred Thirty-Three and 34/100        
Dollars ($83,333.34) each, commencing on October 1, 1996, and continuing on     
the same day of each month thereafter through and including August 1, 2003,     
and a final installment of principal of the entire unpaid principal balance     
and all accrued and unpaid interest, due and payable on September 1, 2003.      
Interest only on the outstanding principal balance from the date hereof to      
September 1, 1996 (the "Commenencement Date") shall be due and payable on the   
Commencement Date. Thereafter, interest shall be due and payable on the last    
day of each Interest Period.                                                    

  (B) Interest Rate. Interest will be charged on the outstanding principal
balance of the Term Loan from the date hereof until the full amount of          
principal of the Term Loan has been paid at a rate equal to LIBOR pius one and  
thirty-five one hundredths percent (1.35%) per annum ("LIBOR-Based Rate"), as   
determined by the Bank prior to the commencement of each Interest Period. The   
Libor-Based Rate shall remain in effect, subject to the provisions hereof,      
from and including the first day of the Interest Period to and excluding the    
last day of the Interest Period for which it is determined.                     

 (C) Prepayment. The Term Loan may he prepaid, in whole or in part, only
on the last day of an Interest Period; provided, however, that any partial      
prepayments shall be in a principal amount of not less than $250,000.00 or      
multiples thereof. Any prepayment shall include accrued and unpaid interest to  
the date of prepayment on the principal amount prepaid and all other sums due   
and payable hereunder and under the Note. All prepayments shall be applied to   
the principal installments on the Term Loan in their inverse order of maturity. 
No prepayment shall affect Borrowers obligations under any swap.                

2.2  REVOLVING CREDIT FACILITY                                        

(A) Facility. So long as no Default nor Event of Default exists, Bank 
shall, from time to time hereafter, through September 1, 1999 or such later     
date as Bank may agree to in writing (the "Expiration Date"), lend to, or make  
financial accommodations by way of Bank Letters of Credit on behalf of and for  
the benefit of, Borrower, such amounts as the Borrower may request, based upon  
the Eligible Loan Value of Eligible Accounts Receivable and the Eligible Loan   
Value of Eligible Inventory as may exist from time to time, but not to exceed   
the Borrowing Base, and as may be reported by Borrower to Bank on a borrowing   
base report in the form of Exhibit 2.2 which is to be submitted by Borrower to  
Bank on a monthly basis and within twenty (20) days of end of each month.  All  
documentary letters of credit to be issued hereunder shall expire no more than  
One Hundred Twenty (120) days from their date of issuance and all standby       
letters of credit shall expire no more than one )1) year from their date of     
issuance, but not beyond the Expiration Date.  Each month Bank may render to    
Borrower a statement of the status of the loans provided for herein, which      
Borrower hereby agrees shall be deemed to be an account stated and correct      
and acceptable to and binding on Borrower unless Bank shall receive a           
corrected statement of exceptions from Borrower within thirty (30) days after   
the monthly statements have been rendered to Borrower. Borrower shall pay to    
Bank a fee of one (1%) percent on a per annum basis of the principal amount of  
all standby letters of credit issued under this Paragraph 2.2. For all          
documentary letters of credit issued hereunder Borrower shall pay an issuance   
fee in accordance with Bank's standard fee schedule in effect from time to      
time.  Borrower shall execute and deliver to Bank the Banks standard letter of  
credit application and reimbursement agreement for each Bank Letter of Credit   
to be issued hereunder together with such other documents as may be required    
from time to time by Bank for the issuance of Bank Letters of Credit.  All      
such loans and financial accommodations shall be payable on the Expiration      
Date or as otherwise set forth in this Agreement and shall be evidenced by a    
promissory note in the form of Exhibit 2.2 annexed hereto.  If, on the          
Expiration Date, there are any outstanding Bank Letters of Credit, Borrower     
shall, in addition to paying and satisfying in full the outstanding loans       
under this paragraph, pay to Bank an amount equal to the aggregate outstanding  
balance of all such Bank Letters of Credit and which shall automatically be     
subject to a Lien in favor of Bank to secure all Obligations to Bank including  
with respect to said Bank Letters of Credit.  Any sums paid to Bank shall be    
applied first to the Obligations of Borrower to Bank other than with respect    
to said Bank Letters of Credit, in such order as Bank may determine, and last   
to the Obligations with respect to the Bank Letters of Credit.                  
Notwithstanding the expiration of the term, the rights of Bank hereunder and    
the obligations of Borrower hereunder, including any Obligations with respect   
to loans and other financial accommodations made after the Expiration Date,     
further including but not limlted to the grant of security interests in and     
Liens on the Collateral as set forth in Article Ill hereof, shall remain in     
full force and effect until all of the Obligations of Borrower to Bank and      
each Bank Affiliate are satisfied in full.                                      

(B)  Interest on Advances.                                            

        (i)  The Borrower agrees to notify the Bank orally or in writing, by
11:00a.m. local time, at least two (2) Business Days (with respect to Libor     
Loans) prior to each date it requests interest on the Advances under the        
Revolver, or a portion thereof, to be based on Libor. Each such notice shall    
be irrevocable and confirmed immediately by delivery to the Bank of a Libor     
rate request. Each Libor rate request shall specify:                            

           (a) the date from which interest is to accrue based on Libor,
which shall be a London Business Day; and                                       

             (b) the aggregate amount of Advances on which interest is to be
based on Libor;                                                                 

       (ii)  No more than three (3) Interest Periods with respect to LIBOR
Loans shall be outstanding at any time.                                         

   (iii)   All Libor Loans shall be in the principal amount of Two
Hundred Fifty Thousand and 00/100 ($250,000.00) Dollars or an integral          
multiple thereof.                                                               

     (iv)  On all Advances as to which Borrower has not, in accordance
with the foregoing, selected to have interest based on Libor, interest shall    
be based on the Prime Rate as set forth in subparagraph (C)(i) below.           

(C). Interest Rate and Payment Dates                                  

(i)  Each Prime Rate Loan shall bear interest on the daily  
outstanding principal amount thereof for each day such Prime Rate Loan is       
outstanding at a rate per annum equal to the Prime Rate in effect from time to  
time minus the Prime Rate Margin.  Such interest shall be payable in arrears    
on each Payment Date.                                                           

     (ii) Each Libor Loan shall bear interest for each Interest Period
applicable thereto, on the daily outstanding principal amount thereof, at a     
rate per annum equal to Libor plus the applicable Libor Margin.  Interest       
shall be payable in arrears for each Interest Period on each Payment Date.      

       (iii) If all or a portion of the principal amount of any Liber Loan
shall not be paid at the end of the applicable Interest Period or not           
continued as a Libor Loan as set forth below, such Advance shall be converted   
to a Prime Rate Loan at the end of the last Interest Period therefor.           

(D)  Conversion and Continuation Options.                             

        (i) The Borrower may elect from time to time to convert a Libor Loan
to a Prime Rate Loan by giving the Bank at least one (1) Business Day's prior   
irrevocable notice of such election, provided that conversion of a Libor Loan   
to a Prime Rate Loan shall only be made on the last day of an Interest Period   
with respect thereto. The Borrower may elect from time to time to convert a     
Prime Rate Loan to a Libor Loan, in each case by giving the Bank by 11:00 a.m.  
local time at least two (2) Business Days' prior irrevocable notice of such     
election.  Each notice to be given by the Borrower pursuant to this paragraph,  
shall be confirmed by delivery to the Bank of a written notice, which shall     
specify:                                                                        

 (a) the date on which such rate conversion shall take effect;
    (b) the aggregate amount of the Advances to be converted on such
date;                                                                           

      (c) whether the Advances to be converted are Libor Loans, or Prime
Rate Loans; and                                                                 

      (d) whether the Advances, after conversion, will be Libor Loans or
Prime Rate Loans; and                                                           

All or any part of the outstanding principal of a Libor Loan, or a Prime
Rate Loan, may be converted as provided herein, provided that partial           
conversions shall be in an aggregate principal amount of a minimum of Two       
Hundred Fifty Thousand ($250,000.00) Dollars or an integral multiple thereof.   

        (ii)    A Libor Loan may be continued as such upon the expiration of
an Interest Period with respect thereto by compliance by the Borrower with the  
notice provisions contained in this paragraph, provided that a Libor Loan may   
not be continued as such when any Event of Default has occurred and is          
continuing, but shall be automatically converted to a Prime Rate Loan on the    
last day of the subject Interest Period.                                        

    (iii)    If the Borrower shall fail to give notice to convert or
continue a Libor Loan in the manner required by paragraphs (i) or (ii) above,   
the Borrower shall be deemed to have elected to convert the Libor Loan to a     
Prirne Rate Loan on the last day of the Interest Period applicable thereto;     

  (E)  Prepayment. Prime Rate Loans may be prepaid in whole or in part, in
multiples of $50,000.00, at any time without premium or penalty.  Libor Loans   
may be prepaid, in whole or in part, only on the last day of an Interest        
Period; provided, however, that any partial prepayments shall be in a           
principal amount of not less than $250,000.00, or multiples thereof. Any        
prepayment shall include accrued and unpaid interest to the date of prepayment  
on the principal amount prepaid and all other sums due and payable hereunder.   
All payments received on the Advances may be applied in such order as the Bank  
in its sole discretion shall determine.                                         

   (F)   Procedures For Advances Under the Revolver.  Borrower shall provide
Bank with at least one (1) Business Day's oral notice of the requested Advance, 
(or two (2) Business Days with respect to Libor Loans) specifying the date      
(the "Loan Date") and amount, which oral notice shall be promptly confirmed in  
writing by Borrower by a Notice of Borrowing under Revolving Credit in the      
form of exhibit 2.2(F) annexed hereto. Bank shall, on or after 1:00 P.M. (New   
York time) of the Loan Date, make the amount of the requested loan available    
to Borrower, provided all conditions precedent to such loan have been met or    
satisfied.                                                                      

2.3  "EQUIPMENT LINE" (A) Loans At the request of Borrower Bank shall 
from time to time hereafter through the earlier of the Equipment Line           
Conversion Date or the Equipment Line Conversion Expiration Date make loans to  
Borrower up to the aggregate principal sum of One Million Five Hundred          
Thousand ($1,500,000.00) Dollars.  The proceeds of thie loans shall be used by  
Borrower solely to purchase items of new or used Equipment.  As a condition     
precedent to each loan, each of the following shall exist:                      

(i)    No Default nor Event of Default shall exist;         

       (ii)   Each representation and warranty of Borrower herein shall be
true and accurate as of the date of each loan and other financial               
accommodation;                                                                  

       (iii)  Borrower shall deliver to Bank such documents, certificates,
bills of sale or title evidencing that the Equipment has been delivered to,     
and accepted by Borrower, that such Equipment is owned by Borrower free and     
clear of any Liens, claims and encumbrances, and establishing the purchase      
price thereof and the location thereof;                                         

   (iv)   With respect to loans to be used to acquire items of new
Equipment each loan shall not exceed eighty (80%) percent of the purchase       
price of the Equipment for which the loan is requested;                         

    (v)    With respect to loans to be used to acquire items of used
Equipment each such loan shall not exceed fifty (50%) percent of the purchase   
price of the Equipment for which the loan is requested.                         

        (vi)   Borrower shall deliver to Bank such documents and instruments
as Bank and its counsel may deem necessary to perfect Bank's interest in the    
Collateral, including, but not limited to, UCC-1 financing statements;          

         (vii)  Bank shall be in receipt of such UCC and other search results,
information and documents as are necessary, in its opinion, to ensure that its  
interest in the item of Equipment will be a first priority and exclusive        
security interest, and                                                          

      (viii) Borrower shall execute and deliver to Bank a duly completed
Notice of Borrowing under Equipment Line in the form of Exhibits 2.3.           

The loans hereunder shall be evidenced by a promissory note in the form of      
exhibit 2.3(A) annexed hereto. Absent conversion to a term loan as set forth    
below, the outstanding principal balance of all such loans and all accrued and  
unpaid interest shall be due and payable on the Equipment Line Conversion       
Expiration Date.                                                                

(13) Interest on Advances.                                            

        (i)  The Borrower agrees to notify the Bank orally or in writing, by
11:00 am. local time, at least two (2) Business Days (with respect to Libor     
Loans) prior to each date it requests interest on the Advances under the        
Equipment Line, or a portion thereof, to be based on Libor. Each such notice    
shall be irrevocable and confirmed immediately by delivery to the Bank of a     
Libor rate request. Each Libor rate request shall specify:                      

            (a)  the date from which interest is to accrue based on Libor,
which shall be a London Business Day; and                                       

           (b)  the aggregate amount of Advances on which interest is to
be based on Libor;                                                              

      (ii) No more than three (3) Interest Periods with respect to LIBOR
Loans shall be outstanding at any time.                                         

   (iii)   All Libor Loans shall be in the principal amount of Two
Hundred Fifty Thousand and 00/100 ($250,000.00) Dollars or an integral          
multiple thereof.                                                               

      (iv)   On all Advances as to which Borrower has not, in accordance
with the foregoing, selected to have interest based on Libor, interest shall    
be based on the Prime Rate as set forth in subparagraph (C)(i) below.           

(C). Interest Rate and Payment Dates                                  

 (i)  Each Prime Rate Loan under the Equipment Line shall bear
interest on the daily outstanding principal amount thereof for each day such    
Prime Rate Loan is outstanding at a rate per annum equal to the Prime Rate in   
effect from time to time. Such interest shall be payable in arrears on each     
Payment Date.                                                                   

        (ii)    Each Libor Loan shall bear interest for each Interest Period
applicable thereto, on the daily outstanding principal amount thereof, at a     
rate per annum equal to Libor plus the applicable Libor Margin. Interest shall  
be payable in arrears for each Interest Period on each Payment Date.            

     (iii)    If all or a portion of the principal amount of any Libor
Loan shall not be paid at the end of the applicable Interest Period or not      
continued as Libor Loan as set forth below, such Advance shall be converted to  
a Prime Rate Loan at the end of the last Interest Period therefor.              

(D)   Conversion and Continuation Options.                            

    (i)  The Borrower may elect from time to time to convert a Libor
Loan to a Prime Rate Loan by giving the Bank at least one (1) Business Day's    
prior irrevocable notice of such election, provided that conversion of a Libor  
Loan to a Prime Rate Loan shall only be made on the last day of an Interest     
Period with respect thereto. The Borrower may elect from time to time to        
convert a Prime Rate Loan to a Libor Loan, in each case by giving the Bank by   
11:00 am. local time at least two (2) Business Days' prior irrevocable notice   
of such election.  Each notice to be given by the Borrower pursuant to this     
paragraph, shall be confirmed by delivery to the Bank of a written notice,      
which shall specify:                                                            

  (a)  the date on which such rate conversion shall take effect;

     (b)  the aggregate amount of the Advances to be converted on such
date;                                                                           

       (c)  whether the Advances to be converted are Libor Loans, or Prime
Rate Loans; and                                                                 

       (d)  whether the Advances, after conversion, will be Libor Loans or
Prime Rate Loans; and                                                           

  All or any part of the outstanding principal of a Libor Loan, or a Prime
Rate Loan, may be converted as provided herein, provided that partial           
conversions shall be in an aggregate principal amount of a minimum of Two       
Hundred Fifty Thousand ($250,000.00) Dollars or an integral multiple thereof.   

        (ii)    A Libor Loan may be continued as such upon the expiration of
an Interest Period with respect thereto by compliance by the Borrower with the  
notice provisions contained in this paragraph, provided that a Libor Loan may   
not be continued as such when any Event of Default has occurred and is          
continuing, but shall be automatically converted to a Prime Rate Loan on the    
last day of the subject Interest Period.                                        

    (iii)    If the Borrower shall fail to give notice to convert or
continue a Libor Loan in the manner required by paragraphs (i) or (ii) above,   
the Borrower shall be deemed to have elected to convert the Libor Loan to a     
Prime Rate Loan on the last day of the Interest Period applicable thereto;      

 (E)    Prepayment. Prime Rate Loans may be prepaid in whole or in part,
in multiples of $50,000.00, at any time without premium or penalty. Libor       
Loans may be prepaid, in whole or in part, only on the last day of an Interest  
Period; provided, however, that any partial prepayments shall be in a           
principal amount of not less than $250,000.00, or multiples thereof. Any        
prepayment shall include accrued and unpaid interest to the date of prepayment  
on the principal amount prepaid and all other sums due and payable hereunder.   
All payments received on the Advances may be applied in such order as the Bank  
in its sole discretion shall determine.                                         

(F)     Converted Term Loan (i) Provided (a) no Default nor Event of  
Default exists, (b) the Borrower furnishes to Bank at least two (2) Business    
Days notice of its election to convert all of the loans under Paragraph 2.3(A)  
to a term loan specifying the Equipment Line Conversion Date, which date shall  
be the first day of a month and shall not be later than the Equipment Line      
Conversion Expiration Date, and (c) the Borrower executes and delivers to       
Bank a duly completed promissory note in the form of Exhibit 2.3(F) hereto,     
(d) the Borrower pays to Bank a conversion fee of one quarter of one percent    
(1/4%) of the principal amount of Advances under the Equipment Line to be       
converted to a term loan and (e) Borrower has hedged the floating interest      
rate on said Converted Term Loan by entering into a swap agreement as required  
by paragraph 5.18 hereof, the outstanding principal balance of all loans under  
Paragraph 2.3(A) shall on the Equipment Line Conversion Date be consolidated    
and converted to a term loan, the principal sum of which shall be payable in    
equal consecutive monthly installments of principal, each equal to 1/60th of    
the sum of the amount so consolidated and converted to a term loan except for   
the final installment which shall be the unpaid principal balance. The first    
such installment shall be payable on the first day of the first month           
following the Equipment Line Conversion Date, and said installments shall       
continue on the same day of each month thereafter.                              

   (ii) Interest Rate. Interest will be charged on the outstanding principal
balance of the Converted Term Loan from the Equipment Line Conversion Date      
until the full amount of principal of the Converted Term Loan has been paid at  
a rate equal to LIBOR plus one and thirty-five one hundredths percent (1.35%)   
per annum ("LIBOR-Based Rate"), as determined by the Bank prior to the          
commencement of each Interest Period. The Libor-Based Rate shall remain in      
effect, subject to the provisions hereof, from and including the first day of   
the Interest Period to and excluding the last day of the Interest period for    
which is determined. Said interest shall be payable on the last day of each     
Interest Period.                                                                

  (iii) Prepayment. The Converted Term Loan may be prepaid, in whole or in
part, only on the last day of an Interest Period, provided, however, that any   
partial prepayments shall be in a priucipal amount of not less than $250,000.00 
or multiples thereof. Any prepayment shall include accrued and unpaid interest  
to the date of prepayment on the principal amount prepald and all other sums    
due and payable hereunder and under the Note. All prepayments shall be applied  
to the principal installments on the Converted Term Loan in their inverse       
order of maturity. No prepayment shall affect Borrowers obligations under any   
swap.                                                                           

 2.4  CERTAIN PROVISIONS AS TO ALL LIBOR LOANS (A) Indemnification.  The
Borrower shall indemnify the Bank against the Bank's loss or expense in         
employing deposits as a consequence of (i) the Borrower's failure to make any   
payment when due under the Advances, or (ii) any prepayment of a Libor Loan on  
a date other than the last day of the applicable Interest Period                
("Indemnified Loss or Expense").                                                

      (B) Additional Costs. If, at any time, a new, or a revision in any
existing law or interpretation or administration (including reversals) thereof  
by any government authority, central bank or comparable agency imposes,         
increases or modifies any reserve or similar requirement against assets,        
deposits or credit extended by the Bank, or subjects the Bank to any tax, duty  
or other charge (except tax on the Bank's net income), and any of the           
foregoing increases the cost to the Bank of maintaining its commitment or       
reduce the amount of any sum received or receivable by the Bank under the       
Advances, within 15 days after demand by the Bank, the Borrower agrees to pay   
the Bank such additional amounts as will compensate the Bank for such           
increased costs or reductions ("Additional Costs").                             

 (C) Match Funding. The amount of such (i) Indemnified Loss or
Expense, or (ii) Additional Costs outlined above shall be determined, in the    
Bank's sole discretion, based upon the assumption that the Bank funded 100% of  
that portion of the Advances to which the Libor-based rate applies in the       
applicable London interbank market.                                             

      (D) Unavailability of Interest Rate. If, at any time, (i) the Bank
shall detennine that, by reason of circumstances affecting foreign exchange     
and interbank markets generally, Libor deposits in the applicable amounts are   
not being offered to the Bank; or (ii) a new, or a revision in any existing     
law or interpretation or administration (including reversals) thereof by any    
government authority, central bank or comparable agency shall make it unlawful  
or impossible for the Bank to honor its obligations under the Advances, then    
(A) the Bank's obligation, if any, to make or maintain a Libor Loan shall be    
suspended, and (B) the applicable Libor-based rate shall, for the remainder of  
the term of the Loan, immediately be converted to the Prime Rate plus the       
Prime Rate Margin.                                                              

  2.5  PAYMENT AND COMPUTATION  (A)    Business Day.  Whenever any payment
to be made hereunder or under any note issued hereunder shall be stated to be   
due on other than a Business Day, such payment may be made on the next          
succeeding Business Day, unless such Business Day falls in the next succeeding  
calendar month, in which case, such payment shall be made on the next           
preceding Business Day. Any such alteration of time shall, in such case, be     
included in the computation of payment of interest. All payments (including     
prepayments) made by Borrower on account of principal of or interest on the     
loans hereunder shall be made without set-off or counterclaim and shall be      
made prior to 3:00 p.m. (New York City time) on the date such payment is due,   
to Bank, in each case in lawful money of the United States of America and in    
immediately available funds. The failure of Borrower to make any such payment   
by 3:00 p.m. (New York City time) on such due date shall not constitute a       
Default or Event of Default hereunder, provided that such payment is made on    
such due date, but any such payment received by Bank on any Business Day after  
3:00 p.m. (New York City time) shall be deemed to have been received on the     
immediately succeeding Business Day for the purpose of calculating any          
interest payable in respect thereof.                                            

        (B)  Debiting of Account. The Borrower agrees to maintain an account
at the Bank continuously until the Obligations owing hereunder are paid in full.
That account is account #2030161642993 (the "Deposit Account").  The Bank may,  
and the Borrower authorizes the Bank to, debit the Deposit Account for the      
amount of any payment as and when such payment becomes due hereunder.           
Notwithstanding the foregoing, the Bank and any Affiliate may, and the          
Borrower authorizes the Bank and any Bank Affiliate to, debit any account and/  
or certificate of deposit maintained by the Borrower with the Bank or any Bank  
Affiliate for the amount of any payment, as and when such payment becomes due   
hereunder, whether such payment is for accrued interest, principal or expense,  
even if debiting such account results in a loss or reduction of interest to \   
the Borrower or the imposition of a penalty applicable to the early withdrawal  
of time deposits.  Such authorization shall not affect the Borrower's           
obligation to pay when due all amounts payable hereunder, whether or not there  
are sufficient funds in any accounts of the Borrower.  The Borrower agrees to   
fund the Deposit Account from time to time in amounts sufficient to make the    
payments hereunder as and when they become due.  The foregoing rights of the    
Bank and each Bank Affiliate to debit the Borrower's accounts shall be in       
addition to, and not in limitation of, any rights of set-off which the Bank     
and/or any Bank Affiliate may have hereunder or under any Loan Document.        

      (C)  Computation. Interest and any fees or compensation based upon a
per annum rate shall be calculated on the basis of a 360 day year for the       
actual number of days elapsed.                                                  

2.6  FEES                                                             

  (A)  Revolver Commitment Fee. On the first Business Day after the end of
each calendar quarter hereafter, Borrower shall pay to Bank a commitment fee    
equal to one quarter of one (1/4%) percent on a per annum basis, of the amount  
by which the average daily outstanding balance of the loans and Bank Letters    
of Credit under the Revolver are less than the maximum dollar amount of the     
Revolver as may be reduced from time to time under subparagraph (B) hereof.     

   (B)  Reduction of Revolver Commitment.  Borrower shall have the right, at
any time and from time to time, to reduce or terminate the Revolver upon not    
less than five (5) Business Days' prior written notice to Bank, which notice    
shall specify the effective date thereof and the amount of such reduction.      
Any partial reduction shall be in whole multiples of Two Hundred Fifty          
Thousand and 00/100 ($250,000.00) Dollars, and shall be irrevocable and         
effective only upon receipt by Bank. If the outstanding amount of the loans     
and other financial accomodations under the Revolver is greater than the        
remaining amount of the maximum dollar amount of said Revolver, Borrower shall, 
on the effective date of such reduction or termination, prepay the outstanding  
loans by an amount necessary so as to have the outstanding amount of the loans  
not exceed the remaining amount of the maximum amount of said Revolver.         

(C)  Facility Fee. Contemporaneous with the execution hereof
Borrower shall pay to Bank a facility fee of $50,000.00.                        

       (D)  Equipment Line Commitment Fee. On the first Business Day after
the end of each calendar quarter hereafter, through the Equipment Line          
Conversion Date, and on the Equipment Line Conversion Date, Borrower shall pay  
to Bank a commitment fee equal to one quarter of one (1/4%) percent on a per    
annum basis, of the daily undisbursed portion of the maximum dollar amount of   
the Equipment Line.                                                             

       (E)  Late Charge. If any payment hereunder is not paid in full when
the same is due, the Bank may collect from the Borrower a fee on such unpaid    
amount equal to five percent (5%) of such amount.                               

2.7  MANDATORY PREPAYMENT OF REVOLVER. If on any day the sum of the   
aggregate outstanding principal balance of the loans and other financial        
accommodations under the Revolver shall exceed the Borrowing Base, Borrower     
shall, on such day, prepay such loans and other financial accommodations by     
an amount equal to such excess. Any mandatory prepayment under this paragraph   
shall be applied first to Prime Rate Loans, and second to Libor Loans, and as   
to Libor Loans, if more than one (1) Interest Period is in effect, then to      
such Libor Loans in the order of the Interest Periods with the shortest         
remaining number of days.                                                       

  2.8  CONDITIONS TO INITIAL LOAN.  The obligation of Bank to execute this
Agreement and to make the initial loan or other financial accommodations        
hereunder is subject to the satisfaction of the following conditions            
precedent:                                                                      

      (A)    Documents. Bank shall have received the duly executed notes
conforming to the requirements hereof, and not less than four (4) copies of     
this Agreement, each executed on behalf of Borrower and/or by its duly          
authorized officers.                                                            

        (B)  Deliveries by Borrower. Borrower shall have delivered or caused
to be delivered to the Bank or the Bank shall have received, the following      
items, which shall be in form and substance reasonably satisfactory to the      
Bank and its counsel:                                                           

             (i)    Legal Opinion of Counsel to Borrower. Opinion of Dillon,
Bitar & Luther, counsel to Borrower and the Guarantors provided for herein,     
dated the date hereof and addressed to Bank, substantially in the form of       
Exhibit "2.8(b)(i)" hereto,                                                     

      (ii) Corporate Proceedings. Resolutions of the Boards of
Directors of Borrower and all Guarantors certified on the date hereof by the    
Secretary or an Assistant Secretary of Borrower and such Guarantors             
authorizing (a) the execution, delivery and performance of this Agreement, and  
all of the other Loan Documents to which it is a party; (b) the consummation    
of the transactions contemplated hereby and thereby; and (c) the borrowings     
and other matters contemplated in the Loan Documents.  Such certificate shall   
state that the resolutions set forth therein have not been amended, modified,   
revoked or rescinded as of the date of such certificate and are in full force   
and effect as of the closing date.                                              

             (iii) lncumbency Certificate. A certificate of the Secretary or
an Assistant Secretary of Borrower and all Guarantors, dated the date hereof,   
as to the incumbency and signature of the officers executing each of the Loan   
Documents and any other document to be delivered pursuant to any of such        
documents, together with evidence of the incumbency of such Secretary or        
Assistant Secretary.                                                            

       (iv) Officer's Certificate. A certificate of Borrower signed by its
president or chief financial officer stating that to the best of his            
knowledge after diligent investigation: (a) as of the date hereof and giving    
effect to any loan no Default or Event of Default exists hereunder; and (b)     
all of Borrower's representations and warranties contained in this Agreement    
and the other Loan Documents are presently true and correct in all material     
respects.                                                                       

    (v)  Consents, Licenses, Approvals, etc. Copies of all consents,
licenses and approvals required in connection with the execution, delivery,     
performance, validity and enforceability of this Agreement, the note and other  
Loan Documents, and such consents, licenses and approvals shall be in full      
force and effect and be reasonably satisfactory in form and substance to Bank   
and its counsel.                                                                

        (vi) Searches. Copies, in form and substance reasonably satisfactory
to Bank, of written or other advice relating to such corporate status,          
financing statement, tax lien, judgment and other searches as Bank may          
reasonably require.                                                             

     (vii) Other Documents. All other documents provided for herein or
which Bank may request or require.                                              

   (viii) Additional Information.  Such additional information and
materials which Bank shall have reasonably requested.                           

       (ix) Supporting Documents. On or before the date hereof, (a) a copy
of the Certificate of Incorporation of Borrower and any Guarantor, certified    
by the Secretary of State of its state of incorporation; (b) a certificate of   
such Secretary of State, dated as of a recent date, as to the good standing of  
Borrower and any Guarantor and attaching the charter documents of Borrower and  
any Guarantor on file in the office of such Secretary of State; and (c) a       
certificate of the Secretary or an Assistant Secretary of Borrower and any      
Guarantor dated the Closing Date and certifying with respect to Borrower and    
any Guarantor (I) that attached thereto is a true and complete copy of the By-  
laws of Borrower and any Guarantor, as in effect on the date of such            
certification, and (II) that the Certificate of Incorporation of Borrower and   
any Guarantor has not been amended since the date of the last amendment         
thereto indicated on the certificate of the Secretary of State furnished        
pursuant to clause (A) above.                                                   

     (x) Fees. Borrower shall have paid all of the reasonable fees and
expenses of Bank's counsel which are occasioned in connection with the          
preparation of this Agreement, and all other Loan Documents and the closing of  
the transactions contemplated hereby and thereby.                               

       (xi) Insurance.  Evidence of the insurance required to be in effect
as set forth in this Agreement.                                                 

      (xii) Hedge. Borrower shall have hedged the floating interest rate
on the Term Loan by entering into a swap agreement as required by paragraph     
5.18 hereof.                                                                    

       (xiii) Commitment Letter. All conditions precedent set forth in the
Bank's commitinent letter dated July 31,1996 have been satisfied or waived in   
writing by Bank.                                                                

 2.9  CONDITIONS TO ALL LOANS The obligation of Bank to make any loan or
other financial accommodation hereunder is subject to fulfillment of the        
following additional conditions precedent, to the reasonable satisfaction of    
counsel to Bank:                                                                

(a)  Representations and Warranties. The representations and
warranties made by Borrower and any Obligor herein or in any other of the Loan  
Documents or which are contained in any certificate, document or financial or   
other statement furnished at any time under or in connection herewith shall be  
correct in all material respects on and as of the date of each loan or other    
financial accommodation hereunder, after giving effect to such loan or other    
financial accommodation hereunder, as if made on and as of such date.           

      (b)  No Default.  No Event of Default has occurred, and no Default
has arisen and is continuing on the date the loan or other financial            
accommodation hereunder is to be made, after giving effect to the such loan or  
other financial accommodation hereunder.                                        

      (c)  Litigation.  No suit, action, investigation, inquiry or other
proceeding by any govennrnental authority or other Person or any other legal    
or administrative proceeding shall be pending or threatened which (i)           
questions the validity or legality of the transactions contemplated by this     
Agreement, or (ii) seeks damages in connection therewith and which, in the      
reasonable judgment of Bank, (x) involves a significant risk of a preliminary   
or permanent injunction or other order by a state or federal court which would  
prevent, or require rescission of, the transactions contemplated by this        
Agreement, or (y) in the case of any action or proceeding which seeks monetary  
damages involves a significant risk of resulting in substantial financial       
liability to Borrower, any guarantor and/or Bank.                               

        (d)  Material Adverse Change. No event shall have occurred since the
date of the most recent financial statements of Obligors furnished to Bank      
which resulted in a Material Adverse Change of any Obligor or had a Material    
Adverse Effect on any Obligor.                                                  

       (e)  Legal Matters. All legal matters incident to the making of the
loans and other financial accommodations shall be satisfactory to counsel to    
Bank, in the reasonable exercise of its judgment.                               

2.10 REGULATORY CAPITAL REOUIREMENTS If any existing or future law or 
regulation or the interpretation thereof by any court or administrative or      
governmental authority charged with the administration thereof, or compliance   
by Bank with any request or directive (whether or not having the force of law)  
of any such authority, results in any increases after the date hereof in any    
capital maintenance, capital ratio or similar requirement against loan          
commitments made by Bank and the result thereof is to impose upon Bank or       
increase any capital requirement applicable to Bank as a result of the making   
or maintenance of the revolving credit available hereunder (which imposition    
of or increase in capital requirement may be determined by Bank's reasonable    
allocation of the aggregate of such capital impositions or increases) then,     
upon demand by Bank, Borrower shall immediately pay to Bank from time to time   
as specified by Bank a commitment fee which shall be sufficient to compensate   
Bank for such imposition of or increase in capital requirements together with   
interest on each such amount from the date demanded until payment in full       
thereof at the rate provided in this Agreement with respect to commitment fees  
not paid when due.  A certificate setting forth in reasonable detail the        
amount necessary to compensate Bank as a result of an imposition of or          
increase in capital requirements submitted by Bank to Borrower shall be         
conclusive, absent manifest error or bad faith, as to the amount thereof. For   
purposes of this Paragraph 2.10, in calculating the amount necessary to         
compensate for any imposition of or increase in capital requirements, Bank      
shall be deemed to be entitled to a rate of return on capital (after federal,   
state and local taxes) of fifteen percent per annum.                            

  2.11 EXCESS LOANS In the event Bank shall advance an amount in excess of
the aggregate amount of all loans and other financial accommodations set forth  
in this Agreement or if Borrower should directly or indirectly become indebted  
to Bank in an amount which, together with all advances made pursuant to this    
Agreement, is in excess of the aggregate amount set forth in this Agreement,    
such advances or such Indebtedness shall nevertheless be covered by the terms   
of this Agreement.                                                              

III                 

COLLATERAL                

3.1  CROSS COLLATERAL All of the Collateral heretofore, herein or     
hereafter given or assigned to Bank hereunder shall secure payment of all       
Obligations, as defined herein, of Borrower to Bank and each Bank Affiliate.    

3.2  ACCOUNTS RECEIVABLE Borrower hereby creates in favor of Bank and 
hereby grants to Bank a security interest in all Accounts, as defined herein,   
presently owned by Borrower or hereafter acquired.                              

   3.3  EQUIPMENT Borrower hereby creates in favor of Bank and hereby grants
to Bank a security interest in all of Borrower's Equipment, as such term is     
defined herein, whether presently owned by Borrower or hereafter acquired, and  
wherever located.                                                               

   3.4  INVENTORY Borrower hereby creates in favor of Bank and hereby grants
to Bank a security interest in all of Borrower's Inventory, as defined herein,  
whether presently owned by Borrower or hereafter acquired and wherever located. 

3.5  GENERAL INTANGIBLES Borrower hereby creates in favor of Bank and 
hereby grants to Bank a security interest in all of Borrower's General          
Intangibles, as herein defined, whether presently owned by Borrower or          
hereafter acquired.                                                             

3.6  DEPOSIT ACCOUNTS Borrower hereby creates in favor of Bank, hereby
assigns to Bank and hereby grants to Bank a security interest in the balance    
of every deposit account, now or hereafter existing, of Borrower with Bank,     
and all money, Instruments, securities, documents, Chattel Paper, credits,      
claims, and other property of Borrower now or hereafter in the possession or    
custody of Bank or any of its agents.                                           

3.7  CHATTEL PAPER Borrower hereby creates in favor of Bank and hereby
grants to Bank a security interest in all of Borrower's Chattel Paper, as       
defined herein, whether presently owned by Borrower or hereafter acquired,      
including but not limited to all such Chattel Paper now or hereafter left in    
the possession of Bank for any purpose, further including but not limited to    
for collection.                                                                 

3.8  INSTRUMENTS MAI NOTE, MANAGEMENT NOTES AND VAGLE NOTE            
Borrower                                                                        
hereby creates in favor of Bank and hereby grants to Bank a security interest   
in all of Borrower's Instruments, including without limitation the MAI Note     
the Management Notes and the Vagle Note, as eacb of said terms are defined      
herein, whether presently owned by Borrower or hereafter acquired, including    
but not limited to all such Instruments now or hereafter left in the            
possession of Bank for any purpose, further including but not limited to for    
collection.                                                                     

   3.9  DOCUMENTS Borrower hereby Creates in favor of Bank and hereby grants
to Bank a security interest in all of Borrower's Documents, as defined herein,  
whether presently owned by Borrower or hereafter acquired, including but not    
limited to all such Documents now or hereafter left in the possession of Bank   
for any purpose.                                                                

  3.10 SECURITY FOR ACCOUNTS Borrower hereby assigns to and grants to Bank
a security interest in all rights of Borrower in, to and under all guarantees   
and security Borrower may now or hereafter acquire of any Accounts and other    
Collateral, including but not limited to any Letters of Credit securing any     
Accounts, any credit insurance policies covering any Account and the proceeds   
of any such guarantees and other security.                                      

3.11 PROCEEDS AND RECORDS Borrower hereby creates in favor of Bank and
hereby grants to Bank a security interest in (A) all books and records,         
including, without limitation, customer lists, credit files, computer programs, 
print-outs and other computer materials and records of Borrower pertaining to   
all of the Collateral; and (B) all of the products and proceeds of all of the   
foregoing Collateral (including all proceeds of insurance policies covering     
the Collateral); as well as all accessions, additions, substitutions,           
replacements and increments as to the assets in (A) and (B).                    

3.12 CONTINUING PERFECTION Borrower agrees to immediately turn over to
Bank the original of any Letter of Credit and if such Letter of Credit is       
transferable, to transfer such Letter of Credit to Bank, and if such Letter of  
Credit is not transferable, to notify, in writing, the issuer of any such       
Letter of Credit of the assignment by Borrower to Bank of Borrowers right to    
the proceeds thereof and to make payment of such proceeds directly to Bank.     
Borrower will perform any and all steps requested by Bank to create and         
maintain in Bank's favor a first and exclusive and valid lien on or security    
interest in the Collateral or pledges of Collateral, including, without         
limitation, the execution, delivery, filing and recording of financing          
statements and continuation statements, supplemental security agreements,       
notes and any other documents necessary, in the opinion of Bank, to protect     
its interest in the Collateral. Bank and its designated officer are hereby      
appointed Borrower's attorney-in-fact to do all acts and things which Bank      
may deem necessary to perfect and continue perfected the security interests     
and Liens provided for in this Agreement, including, but not limited to,        
executing financing statements on behalf of Borrower. Neither the Bank nor its  
attorneys, officers, employees, or agents shall be liable for acts, omissions,  
any error in judgment, or mistake in fact in its/their capacity as attorney-in- 
fact. This power, being coupled with an interest, is irrevocable until the      
Obligations have been fully satisfied. At the Bank's sole option, and without   
the Borrower's consent, the Bank may file a carbon, photographic, or other      
reproduction of this Agreement or any financing statement executed pursuant     
hereto as a financing statement in any jurisdiction so permitting. The Bank is  
expressly authorized to file financing statements without the Borrower's        
signature.                                                                      

IV                

REPRESENTATIONS AND WARRANTIES                

 To induce Bank to enter into this Agreement and to make loans and other
financial accommodations hereunder, Borrower represents and warrants to Bank    
that:                                                                           

4.1  GOOD STANDING Exhibit "A" sets forth:                            

      (A)  the jurisdiction of incorporation of Borrower and in which it
is in good standing;                                                            

   (B)  all other jurisdictions in which Borrower is authorized to
transact business in all of which it is in good standing;                       

        (C)  any changes since January 1, 1992 in the structure of Borrower,
such as mergers, consolidations and the like;                                   

(D)  any name changes since January 1, 1992 of Borrower;    

      (E)  all trade names or trade styles under which Borrower conducts
business or issue invoices;                                                     

       (F)  all Subsidiaries and Affiliates of Borrower and the percentage
of stock or other ownership interest thereof owned by Borrower or Affiliates    
of Borrower,                                                                    

(G)  all stockholders of Borrower.                          

4.2  CORPORATE AUTHORITY Borrower, and all Affiliates and Subsidiaries
have requisite power and authority to own their property and to carry on their  
business as now conducted, and are in good standing and authorized to do        
business in each jurisdiction in which the failure so to do would have a        
Material Adverse Effect on Borrower or such Affiliate or Subsidiary. Borrower   
and all Guarantors have the corporate power to execute, deliver and carry out   
this Agreement and all other Loan Documents to which they are a party and       
their Boards of Directors have duly authorized and approved the terms of the    
loans and other financial accommodations described herein and the taking of     
any and all action contemplated herein and therein, and this Agreement and all  
other Loan Documents to which Borrower or any Obligor are a party constitute    
the valid and binding obligaltons of them, enforceable in accordance with       
their terms. No consent or approval of, or exemption by, shareholders, any      
Governmental Body or any other Person is required to authorize, or is           
otherwise required in connection with the execution, delivery and performance   
of, the Loan Documents to which it is a party, or is required as a condition    
to the validity or enforceability of the Loan Documents to which it is a party. 

4.3  COMPLIANCE WITH LAW (A) Borrower and all other Obligors are in   
compliance with all laws, rules and regulations to which they are subject and   
have all licenses, certificates, permits and franchises and other governmental  
authorization necessary to own their properties and to conduct their            
businesses.                                                                     

        (B)    The execution of this Agreement, and each other Loan Document
and the performance by Borrower and other Obligors of their obligations         
hereunder and thereunder, do not, at the date of execution hereof, violate any  
existing law or regulation or any writ or decree of any court or Governmental   
Body or the charter or bylaws of Borrower or any Obligor or any agreement or    
undertaking to which either is a party or by which they are bound.              

   4.4  NO LITIGATION There are no judgments against Borrower or any Obligor
as of the date of this Agreement and except as disclosed on Exhibit 4.4         
annexed hereto no material litigation or administrative proceeding before any   
Governmental Body is presently pending, or to the knowledge of Borrower,        
threatened, against Borrower or any Obligor or any of their property.           

   4.5  NO FINANCIAL CHANGE (A) There has been no Material Adverse Change in
the condition of Borrower and Guarantors since their last financial statements  
and reports dated June 30,1996 furnished to Bank and the information contained  
in said statements and reports is true and correctly reflects the financial     
condition of Borrower and Guarantors as of the dates of the statements and      
reports, and such statements and reports have been prepared in accordance with  
GAAP and do not contain any material misstatement of fact or omit to state any  
facts necessary to make the statements contained therein not misleading.        

       (B) Borrower has no Contingent Obligations or Financial Undertaking
other than as disclosed in its financial statements dated June 30, 1996         
heretofore furnished to Bank.                                                   

  4.6  TAX COMPLIANCE Borrower and each Obligor has filed, or caused to be
filed, all tax returns required to be filed and has paid all taxes shown to be  
due and payable on said return or on any assessment made against it.            

4.7  GOOD TITLE AND ABSENCE OF LIENS On the date of this Agreement    
Borrower and each Guarantor has good and marketable title to all of its         
properties and assets, real, personal and mixed, and none of said properties    
or assets is subject to any Lien, except for Permitted Encumbrances.            

4.8  PLACE OF RECORDS, CHIEF EXECUTIVE OFFICE, INVENTORY AND          
EQUIPMENT                                                                       
AND OTHER COLLATERAL (A) Borrower's chief executive office, and the office      
where Borrower keeps its records concerning its Accounts, and all locations of  
its Inventory and Equipment, and all other business locations of Borrower are   
presently at the locations set forth on Exhibit "A". (B) Except as set forth    
on Exhibit "A", within four (4) months of the date of this Agreement, none of   
Borrower's assets have been moved from any jurisdiction or other locations      
than the present locations of assets set forth on Exhibit "A" under item        
4.8(A)(v) except for Inventory or Equipment purchased by Borrower in the        
ordinary course of business from persons or entities customarily selling such   
Inventory or Equipment. (C) As of the date hereof no Inventory is, except as    
set forth on Exhibit "A", stored with a bailee, warehouseman or similar party.  
(D) As of the date of this Agreement, Borrower does not hold any Goods          
belonging to third parties or in which other parties have an interest,          
including any Goods sold on a bill and hold basis, except as set forth on       
Exhibit "A". (E) Borrower does not presently purchase or otherwise hold,        
purchase or otherwise hold Goods on a consignment basis except as set forth on  
Exhibit "A". (F) Except as set forth on Exhibit "A", none of Borrower's         
Inventory is of a nature that contains any labels, trademarks, trade names, or  
other identifying characteristics which are the properties of third parties,    
and the use of which by Borrower would violate the rights of such third         
parties or under license, royalty or similar agreements with any third          
parties. (G) Except as set forth on Exhibit "A", no persons hold any Goods of   
Borrower. (H) Except as set forth on Exhibit "A", Borrower has not purchased    
any Inventory or Equipment except in the ordinary course of business for value  
and from persons customarily in the business of selling such Inventory or       
Equipment. (I) Except as set forth on Exhibit "A", Borrower does not hold any   
Instrument or Chattel Paper connected with any Account. (J) Except as set       
forth on Exhibit "A", Borrower does not own any trademarks, trade names,        
patents or copyrights. (K) No surety bonds have been issued on behalf of        
Borrower with respect to any contracts or purchase orders out of which          
Accounts Receivable have arisen or are expected to arise.                       

4.9  WARRANTIES AS TO ACCOUNTS Except as otherwise provided in the    
assignment of Accounts, if any, given to Bank, or invoice or other writing,     
Borrower warrants that as to all Accounts reported to Bank; (A) each Account    
is a valid subsisting Account as defined herein; (B) each Account represents    
a bona fide prrformed transaction; (C) the amount shown on Borrower's books     
and on any invoice or statement delivered to Bank is owing to Borrower; (D) no  
partial payment has been made; (E) no set-off or counterclaim exists as to any  
such Account and no agreement has been made under which any deductions or       
discount may be claimed except regular discounts in the usual course of         
business, but only if disclosed on the face of the invoice; (F) the Account     
Debtor has not disputed the Account or otherwise asserted any defense, set-off  
or counterclaim; (G) that to the extent required by law Borrower is authorized  
to do business and in good standing in any state in which any such Account      
must be enforced; (H) each Eligible Account is a valid subsisting Eligible      
Account as defined herein; (I) all agings of Accounts submitted to Bank are     
true and accurate; (J) no surety bond was required or given on behalf of        
Borrower in connection with any contracts or purchase orders under which the    
Account arose.                                                                  

4.10 ERISA (A) No Reportable Event or accumulated funding deficiencies
(as defined in ERISA) or failure of compliance with ERISA or the Internal       
Revenue Code of 1986, as amended, has occurred and is continuing with respect   
to any Plan; (B) Borrower has complied with the provisions of ERISA and the     
Internal Revenue Code of 1986, as amended, with respect to each Plan. No        
material liability to the Pension Benefit Guaranty Corporation (or any          
successor thereto under ERISA) has been incurred by the Borrower with respect   
to any such plan. The Borrower has no actual or anticipated liability under     
Section 4971 of the Internal Revenue Code ("Code") (relating to tax on failure  
to meet the minimum funding standard of Section 412 of the Code) with respect   
to any employee benefit plan to which it contributes but which is not           
maintained or established by it.                                                

4.11 LICENSES AND PERMITS AND LAWS Borrower and all Obligors hold all 
necessary licenses and permits for the operation of their businesses,           
including all permits required under Environmental Laws and Borrower has        
complied with all laws, rules and regulations applicable to its business,       
including but not limited to the Fair Labor Standards Act, 29 U.S.C. Section    
215(a)(1) and the Occupational Safety and Health Act, as amended, 29 USC        
Section 651 et seq. All such licenses and permits are in good standing and are  
not under any outstanding citation issued by any governmental authority, and    
no litigation has been instituted nor (to the best knowledge of Borrower) have  
any claims been made by any third parties relating to the licenses and permits  
issued by any Goverurnental Body for the operation of their businesses, and no  
such citation, litigation or claim, to the best knowledge of Borrower, is       
contemplated by any Governmental Body or any third persons nor, to the best     
knowledge of Borrower, does there exist any basis for any such citation,        
litigation or claim by any of the authorities or any Person.                    

  4.12 ENVIRONMENTAL STATUS As to all properties owned, leased or operated
by Borrower and to all operations of Borrower's business:                       

        (A)  there is no pending or threatened proceeding affecting Borrower
with respect to any Environmental Law;                                          

        (B) Borrower has not been identified as a responsible or potentially
responsible party under CERCLA and has not received notification that any       
hazardous substance or contaminant has been found at any site;                  

     (C) none of such properties are listed or proposed for listing on
the National Priorities List under CERCLA;                                      

  (D) no Hazardous Substanoe or Hazardous Waste (as such term is
defined in Envirnnmental Laws) have been disposed of or otherwise released or   
discharged on such properties;                                                  

    (E) no underground storage tanks exist on the properties and the
removal of any such tanks from the properties was undertaken in compliance      
with the Underground Storage Tank Act, and                                      

    (F) no friable asbestos, or any substance containing asbestos or
PCB's have been installed in or exists on such properties.                      

       (G)  to the best of the Borrower's knowledge, after due inquiry and
investigation, no lien has attached to any revenues or any real or personal     
property owned by the Borrower in any jurisdiction, arising from an             
intentional or unintentional action or omission of the Borrower or any          
previous owner and/or operator of said real property, resulting from the        
Dumping of hazardous substances or wastes into the atmosphere or waters or      
onto lands, any of which may have damaged any Natural Resources;                

      (H)  the Borrower has not received a summons, citation, directive,
letter, or other communication, written or oral, from any jurisdiction, or      
political sub-division or any agency or instrumentality thereof, concerning     
any intentional or unintentional action or omission on the Borrower's part      
resulting in the Dumping of hazardous substances into the atmosphere or waters, 
or onto the lands in any jurisdiction, any of which has resulted in damage to   
the Natural Resources;                                                          

 4.13 REAFFIRMATION Each and every request for a loan or other financial
accommodation hereunder shall be deemed as an affirmation by Borrower that no   
Default nor Event of Default exists hereunder and that the representations and  
warranties contained in this Article IV are true and accurate as of the date    
of each such request (notwithstanding that some of the terms hereof speak as    
of the date of this Agreement) and that Borrower is in compliance with all      
applicable laws, rules and regulations.                                         

 4.14 PROCEEDS OF LOAN Borrower is not engaged principally, or as one of
its important activities, in the business of extending credit for the purpose   
of purchasing or carrying any margin stock within the meaning of Regulation U   
of the Board of Governors of the Federal Reserve System, as amended. No part    
of the proceeds of the loans will be used, directly or indirectly, for a        
purpose which violates any law, rule or regulation of any Governmental Body,    
including without limitation the provisions of Regulations G, T, U or X of the  
Board of Governors of the Federal Reserve System, as amended. Borrower          
represents that the proceeds of the loan(s) provided for herein shall be used   
in the following manner: The proceeds of the Term Loan shall be used to         
refinance existing Indebtedness owing to Bank; the proceeds of the Equipment    
Line shall be used to finance the purchase of items of Equipment; the proceeds  
of the Revolver will be used to finance accounts receivable and inventory       
purchases. No proceeds of any loan or other financial accommodations hereunder  
shall be used to purchase or carry any margin stock (within the meaning of      
Regulation U issued by the Board of Governors of the Federal Reserve System)    
or to extend credit to others for the purpose of purchasing or carrying any     
margin stock.                                                                   

   4.15 BORROWER AND OBLIGOR Borrower and Guarantors are operated as part of
one consolidated business entity and are directly dependent upon each other     
for and in connection with their respective business activities and their       
respective financial resources. Borrower and each Guarantor will receive a      
direct economic and financial benefit from the Obligations incurred under this  
Agreement by Borrower, and the incurrence of such Obligations is in the best    
interests of Borrower and each of the Guarantors.                               

 4.16 SOLVENCY The fair value of the business and assets of Borrower and
Guarantors (including, without limitation, contingent, unmatured and            
unliquidated claims arising out of all rights of indemnity, contribution,       
reimbursement or any similar right, or any claim of subrogation arising in      
respect of any guaranty, as such claims may arise or mature, that Borrower and  
Guarantors may have against each of Borrower and Guarantors) will be in excess  
of the amount that will be required to pay its liabilities (including, without  
limitation, contingent, subordinated, unmatured and unliquidated liabilities    
on existing debts, as such liabilities may become absolute and matured), in     
each case after giving effect to the transactions contemplated by this          
Agreement and the use of proceeds therefrom. Neither Borrower nor any           
Guarantors, after giving effect to the transactions contemplated by this        
Agreement and the use of proceeds therefrom, will be engaged in any business    
or transaction, or about to engage in any business or transaction, for which    
such Person has an unreasonably small capital (within the meaning of the        
Uniform Fraudulent Transfer Act, as adopted in the State of New Jersey and      
Section 548 of the Federal Bankruptcy Code), and neither Borrower nor any       
Guarantor has any intent to                                                     

    (A)  hinder, delay or defraud any entity to which it is, or will
become, on or after the date hereof, indebted, or                               

       (B)  to incur debts that would be beyond its ability to pay as they
mature.                                                                         

   4.17 DEFAULTS. Neither Borrower nor any Guarantor is in default under any
agreement to which the Borrower or such Guarantor is a party or by which the    
Borrower or any of its property is bound, or under any indenture or instrument  
evidencing any Indebtedness of the Borrower or such Guarantor, and neither the  
Borrower's nor any Guarantor's execution or perforrnance under the Loan         
Documents will create a default or any Lien under any such agreement,           
indenture or instrument other than a Lien in favor of the Bank;                 

4.18 BURDENSOME AGREEMENTS Exhibit 4.18 annexed hereto identifies all 
agreements, contracts and similar instruments to which Borrower is a party or   
by which Borrower is bound and which could have a Material Adverse Effect on    
Borrower, and Borrower has furnished to Bank true, accurate and complete        
copies of such agreements. Borrower is not in default of any agreement and      
other instruments identified on Exhibit 4.18 nor has any Person notified        
Borrower that Borrower is in default of any such agreement.                     

4.19 VAGLE NOTE (A) Each Original Borrower represents that:           

 (a)  It is the owner, free and clear of all liens, claims and
encumbrances, of the Vagle Note;                                                

        (b)  The Vagle Note has been duly authorized, executed and delivered
by Vagle and constitutes the valid, binding and enforceable obligations of      
Vagle and has not been amended, modified or otherwise altered and remain in     
full force and effect;                                                          

  (c)  As of the date hereof, there is $6,000,000.00 owing under
the Vagle Note; and                                                             

       (d)  Other than the original of the Vagle Note previously delivered
to Bank, there are no other executed originals thereof.                         

4.20 MAI NOTE (A) Vagle represents that:                              

 (a)  It is the owner, free and clear of all liens, claims and
encumbrances, of the MAI Note;                                                  

   (b)  The MAI Note has been duly authorized, executed and delivered by MAI
and constitutes the valid, binding and enforceable obligations of MAI; and has  
not been amended, modified or otherwise altered and remain in full force and    
effect;                                                                         

  (c)  As of the date hereof, there is $6,OOO,000.OO owing under the Vagle
Note; and                                                                       

(d)  Other than the original of the Vagle Note previously delivered to
Bank, there are no other executed originals thereof.                            

4.21 EXISTING SUBORDINATED DEBT (A) The Indebtedeess of MAI to Bank is
Senior Indebtedness under the Indenture constituting a portion of the Existing  
Subordinated Debt.                                                              

        (B)  MAI has furnished to Bank true, accurate and complete copies of
the Indenture, and all supplements and amendments thereto.                      

  (C)  As of the date hereof the aggregate outstanding principal
amount of the Indebtedness under the Indenture is One Million Eight Hundred     
Twenty-five Thousand and 00/100 ($1,825,000.00)                                 

  (D)  As of the date hereof the aggregate outstanding principal
amount of the Debentures is One Million Five Hundred Ten Thousand Dollars       
($1,510,000.00).                                                                

        (E)  No event of default exists under the Existing Subordinated Debt
or any event which with the giving of notice or passage of time or both would   
become an event of default thereunder.                                          

V                 

AFFIRMATIVE COVENANTS OF BORROWER                                 

  5.1  AUDIT AND OTHER REPORTS (A) Borrower agrees that within ninety (90)
days of the end of each fiscal year, it will furnish Bank with detailed         
audited financial statements, including a balance sheet, profit and loss        
statement, cash flow statement and surplus reconciliation, certified on an      
unqualified basis, by an independent certified public accountant satisfactory   
to Bank; (B) Borrower will also furnish monthly similar statements uncertified  
except for a certification by an officer of Borrower as to their correctness    
within twenty (20) days of the end of each month. All such statements shall be  
on a consolidated and consolidating basis of Borrower and all Qualified         
Obligors and in accordance with GAAP; (C) simultaneous with the submission of   
the annual statements required under "A" above and the monthly financial        
statement as of the end of each fiscal quarter under "B" above, Borrower shall  
cause to be submitted to Bank a certificate of the chief financial officer of   
Borrower in the form of exhibit 5.1 annexed hereto setting forth the            
calculations of the financial tests described in paragraph 6.2 hereof and       
stating whether or not, to the best of said officer's knowledge, after          
diligent inquiry a Default or Event of Default exists, and if such exists,      
specify the nature thereof and the steps Borrower is taking to remedy same;     
(D) promptly after the furnishing thereof to third parties, Borrower shall      
furnish to Bank copies of any statements, reports, proxy material,              
registration statement and prospectus furnished to any holder of any            
securities of Borrower or filed with any regulatory agency or agencies; (E)     
promptly, but no later than five (5) days after a responsible officer of        
Borrower shall become aware of (i) a Default or Event of Default hereunder,     
(ii) a Reportable Event or "prohibited transaction" as such term is defined in  
ERISA, (iii) litigation against Borrower or any Subsidiary or Andal Corp. in    
excess of $100,000.00 not fully covered by insurance (iv) Peter Flood or        
Walter Kreil ceasing to be actively engaged as chief executive officer and      
chief fmancial officer respectively of Borrower or (v) the termination or       
threatened termination of or claim of breach by Borrower or any Subsidiary of   
any material contract, agreement or obligation, or of any claim of patent       
infringement, Borrower shall furnish to Bank a written notice specifying the    
existence thereof and the action Borrower or any Subsidiary is taking or        
proposes to take with respect thereto; (F) Borrower will furnish to Bank        
prompt written notice if: (1) any Indebtedness of Borrower or any Subsidiary    
is declared or shall become due and payable prior to its stated maturity, or    
called and not paid when due or (ii) a default shall have occurred under any    
note or the holder of any such note, or other evidence of Indebtedness,         
certificate of security evidencing any such Indebtedness or any obligee with    
respect to any Indebtedness of Borrower or any Subsidiary has the right to      
declare any such Indebtedness due and payable prior to its stated maturity as   
a result of such default; (G) Borrower also agrees to furnish to Bank (i) with  
reasonable promptness a copy of any "management letter" or similar report       
furnished to it by its accountants and such other data and information          
concerning it and its Subsidiaries as from time to time may be requested by     
Bank and (ii) a copy of its federal tax return promptly, but no later than      
five (5) days, after the filing of same.                                        

5.2  INSURANCE Borrower agrees to keep all of the tangible Collateral 
assigned hereunder insured, at its own cost and expense, for the benefit of     
Bank, and in such amounts, in such companies, and against such risks as may be  
acceptable to Bank, and deliver the policies evidencing such insurance to Bank. 
If Borrower fails to take the action called for herein, Bank may, in its        
discretion obtain insurance covering Bank's interest in the Collateral and the  
amount of the premium for said insurance shall be added to the Obligations of   
Borrower to Bank.  All policies of insurance on the Collateral shall be in      
form and with insurers recognized as adequate by prudent business persons and   
all such policies shall be in such amounts as may be satisfactory to Bank.      
Borrower shall deliver to Bank the original (or certified copy) of each policy  
of insurance and evidence of payment of all premiums therefor. Such policies    
of insurance shall contain an endorsement, in form and substance satisfactory   
to Bank, showing loss payable to Bank. Such endorsement or an independent       
instrument furnished to Bank, shall provide that the insurance companies will   
give Bank at least thirty (30) days prior written notice before any such        
policy or policies of insurance shall be altered or canceled and that no act    
or default of Borrower or any other person shall affect the right of Bank to    
recover under such policy or policies of insurance in case of loss or damage.   
Borrower hereby directs all insurers under such policies of insurance to pay    
all proceeds payable thereunder directly to Bank. Borrower irrevocably makes,   
constitutes and appoints Bank (and all officers, employees or agents            
designated by Bank) as Borrower's true and lawful attorney (and agent-in-fact)  
for the purpose of making, settling and adjusting claims under such policies    
of insurance (provided that until an Event of Default exists, Bank shall        
consult with Borrower prior to finally making, settling or adjusting chums      
under such policies of insurance), endorsing the name of Borrower on any check, 
draft, instrument or other item of payment for the proceeds of such policies    
of insurance and for making all determinations and decisions with respect to    
such policies of insurance. In the event Borrower, at any time or times         
hereafter, shall fail to obtain or maintain any of the policies of insurance    
required above or to pay any premium in whole or in part relating thereto,      
then Bank, without waiving or releasing any obligation or default by Borrower   
hereunder, may (but shall be under no obligation to do so) at any time or       
times thereafter obtain and maintain such policies of insurance and pay such    
premium and take any other action with respect thereto which Bank deems         
advisable. All sums so disbursed by Bank, including reasonable attorneys' fees, 
court costs, expenses and other charges related thereto, shall be payable, on   
demand, by Borrower to Bank and shall be additional Obligations hereunder       
secured by the Collateral. Borrower also agrees to at all times maintain        
insurance, both hazard and liability, against such risks and in such amounts    
as reasonably prudent to companies similarly situated as Borrower would         
maintain and to furnish to Bank from time to time evidence that such insurance  
is in full force and effect.                                                    

5.3  PAYMENT OF EXPENSES Borrower will pay any and all expenses,      
including reasonable counsel fees and disbursements, filing and recording fees, 
and all other charges and expenses incurred or to be incurred by Bank in        
connection with the preparation and execution and recording of this Agreement   
and all other Loan Documents, and the loans and advances made under this        
Agreement and all amendments and modifications hereto and in defending or       
prosecuting any actions or proceedings arising out of or relating to Bank's     
transactions with Borrower including but not limited to any proceedings in any  
proceeding under the Bankruptcy Code relating to Borrower or any other          
Obligor.                                                                        

   5.4  LIFE INSURANCE Borrower agrees to collaterally assign to Bank a life
insurance policy on the life of Peter Flood in the amount of $750,000.00 and    
on the life of Walter Kreil in the amount of $500,000.00. Borrower is to keep   
said policies in full force and effect, and pay all premiums as they fall due.  
If Borrower shall fail to do so, Bank may, in its discretion, pay any premiums  
due on said policies and add any amount to the Obligations of Borrower to Bank. 
It shall be the obligation of Borrower to notify Bank of its failure to pay     
any premium when it becomes due.                                                

   5.5 GUARANTY Borrower will cause Multi-Arc Management Corp. and Multi-Arc
(U.K.) Ltd. to execute and deliver to Bank, and remain in full force and        
effect, Guaranty Agreements, in such form as prescribed by Bank, wherein said   
parties shall jointly and severally guarantee the payment of all Obligations    
of Borrower to Bank. Borrower will also (i) cause each future Subsidiary of     
any Borrower or Guarantor, to execute and deliver to Bank, and remain in full   
force and effect, Guaranty Agreements, in such form as prescribed by Bank,      
wherein said Persons shall jointly and severally guarantee the payment of all   
Obligations of Borrower to Bank, (ii) cause Canada to execute and deliver to    
Bank, and remain in full force and effect a guaranty agreement, in such form    
as prescribed by Bank, of all obligations of Vagle to Bank and (iii) cause      
each of such Persons to enter into a security agreement and/or pledge           
agreement or other agreements, instruments, documents and the like, as Bank or  
its counsel may require, in favor of and in form satisfactory to Bank,          
granting to Bank a Lien on all assets of such Persons and as Bank or its        
counsel may request to perfect such Liens.                                      

 5.6  LANDLORD'S WAIVER Borrower shall use its best efforts to cause the
landlord of all premises where any of the Collateral provided for herein may    
be located to execute and deliver to Bank a Landlord's Waiver and               
Subordination in such form as may be acceptable to Bank.                        

 5.7  GOOD WORKING CONDITION Borrower and each Subsidiary shall maintain
all of their property in good working condition, ordinary wear and tear         
excepted.                                                                       

   5.8  REPORTS OF COLLATERAL Borrower shall, within twenty (20) days of the
end of each month, deliver to Bank (i) an aging of its, and each Qualified      
Obligors, Accounts, and (ii) report of its, and each Qualified Obligors,        
Inventory, and (iii) an aging of its, and each Qualified Obligors, accounts     
payable in such form as may be acceptable to Bank and (iv) a Borrowing Base     
report in the form of exhibit 2.2 annexed hereto.                               

5.9  DEBT SUBORDINATION AGREEMENT Borrower shall cause Andal Corp. to 
execute and deliver to Bank, and remain in full force and effect, a debt        
subordination agreement in form and substance satisfactory to Bank.             

5.10 OBSERVANCE OF LEGAL REOUIREMENT, LICENSES AND PERMITS AND        
PROTECTION OF COLLATERAL.                                                       

        (A)  Borrower and each Obligor shall comply in all material respects
with any and all laws, legislation, rules and regulations in effect as of the   
date hereof and subsequent thereto, including but not limited to all state,     
local and federal laws, legislation, rules and regulations relating to          
employee pension and benefit funds, the payment of taxes, assessments, and      
other governmental charges, zoning, and the use, occupancy, transfer or         
encumbrancing of the Collateral and all Environmental Laws.  Borrower agrees    
to comply with all reasonable conditions required by Bank designed to protect   
Bank and the Collateral from effect of all Environmental Laws, ERISA and such   
other laws, legislation, rules and regulations as are in, or may come into,     
effect and apply to Borrower and each Obligor, Bank, the transactions           
contemplated hereby or the Collateral or any occupants or users thereof,        
whether as lessees, tenants, licensees or otherwise. Borrower agrees to pay     
any costs required to comply with any of the above conditions.                  

 (B) Borrower and each Obligor shall observe and comply in all
material respects with all laws (including ERISA), ordinances, orders,          
judgments, rules, regulations, certifications, franchises, permits, 1icenses,   
directions and requirements of all Governmental Bodies, which now or at any     
time hereafter may be applicable to Borrower and each Obligor and the           
operation of its business, a violation of which might have a Material Adverse   
Effect on Borrower, except such thereof as shall be contested in good faith     
and by appropriate proceedings diligently conducted by Borrower or such         
Obligor, provided that such reserve or other appropriate provision as shall be  
required by the accountants for Borrower in accordance with GAAP, shall have    
been made therefor.                                                             

      (C)  Borrower and all Obligors will continue to hold all necessary
licenses and permits for the operations of their business.                      

5.11     INSPECTION (A) Bank (by any of its officers, employees and   
agents) shall have the right, at any time or times during Borrower's usual      
business hours, to inspect the Collateral, all records related thereto (and to  
make extracts from such records) and the premises upon which any of the         
Collateral is located, to discuss Borrower's and each Obligor's affairs and     
finances with the accountants for Borrower and with any other person and to     
verify the amount, quality, quantity, value and condition of, or any other      
matter relating to, the Collateral; (B) The Bank shall have the right, at any   
time and from time to time, to have conducted, by its qualified agents or       
contractors such environmental inspections, audits and testing as Bank shall    
deem necessary or advisable. The cost of any such inspections, audits and       
testing conducted by the Bank shall be borne by the Bank. The Borrower shall,   
and shall cause each lessee of the property to, cooperate with such inspection  
efforts; such cooperation shall include, without limitation, supplying such     
information concerning the operations conducted and Hazardous Substances or     
Hazardous Wastes located at the property.                                       

5.12 COLLATERAL REOUIREMENTS Unless Bank notifies Borrower in writing 
that it dispenses with any one or more of the following requirements, Borrower  
will (A) give Bank such financial statements, reports, lists of Account         
Debtors and other data concerning its and each Qualified Obligors Accounts,     
contracts and collections and the other Collateral, or any other matters which  
Bank may, from time to time specify; (B) permit Bank or its nominee to examine  
all of Borrower's and each Qualified Obligors records at any time and to make   
extracts therefrom; (C) notify Bank immediately in writing if any of its or     
any Qualified Obligor's Accounts arise out of contracts between Borrower and    
the United States or any department, agency or instrumentality thereof, or any  
other governmental body and take all steps necessary to protect Bank under the  
Federal Assignrnent of Claims Act or other applicable state or local statutes   
or ordinances; (D) deliver to Bank, appropriately endorsed, any Instrument or   
Chattel Paper connected with any Account; (F) mark its and each Qualified       
Obligors records of its Accounts in any manner satisfactory to Bank to          
indicate the interest of Bank; (F) collect its and cause each Qualified         
Obligors to collect Accounts in the ordinary course of business and prior to a  
Default sell its and their Inventory only in the ordinary course of business    
for value to buyers in the ordinary course of business; (G) without the prior   
written consent of Bank, not sell or transfer after a Default any of its or     
their Inventory; (H) keep accurate and complete records of its and cause        
Qualified Obligor's Accounts and Inventory; (I) promptly notify Bank in         
writing of any trademarks, trade names, patents or copyrights which it or any   
Qualified Obligor may hereafter own or obtain a license to use or under which   
it or any Qualified Obligor's may issue invoices; and (J) furnish to Bank       
copies of any credit insurance policies covering any Accounts Receivable of     
Borrower and take such actions as may be required so as to have Bank a          
beneficiary thereof.                                                            

  5.13 CONTROL OF ACCOUNTS (A) Bank shall have the right at any time after
the occurrence of an Event of Default, without notice, to notify Account        
Debtors to make payments to Bank, to endorse all items of payment which may     
come into its hands payable to Borrower, to take control of any cash or non-    
cash proceeds of Accounts and of any returned or repossessed goods; to          
compromise extend or renew any Account or deal with it as it may deem           
advisable, and to make exchanges, substitutions or surrenders of Collateral,    
to notify the postal authorities, to deliver all mail, correspondence or        
parcels addressed to Borrower to Bank at such address as Bank may choose. (B)   
Borrower herewith appoints Bank or its designee as Attorney-in-Fact to endorse  
Borrower's name on any checks, notes, acceptances, drafts or any other          
Instrument or document requirfng said endorsement and to sign Borrower's name   
on any invoice or bills of lading relating to any Account, or drafts against    
its customers, or schedules or confirmatory assignment on Accounts, or notices  
of assignment, financing statements under the Uniform Commercial Code, and      
other public records, and in verification of Accounts and in notices to         
Account Debtors. (C) Bank shall have no obligation to preserve any rights       
against any Person obligated on any Account, Chattel Paper, Instrument or       
other item of Collateral.                                                       

  5.14 CHANGE OF LOCATIONS Borrower will furnish Bank with at least thirty
(30) days prior written notice of any change in location of or addition to its  
or any Qualified Obligors chief executive office, the office where it or any    
Qualified Obligor keeps its records concerning its Accounts, its location of    
Inventory, Equipment and other assets, and other business locations.            

 5.15 ENVIRONMENTAL LIENS. In the event that there shall be filed a Lien
against any property of the Borrower or any Qualified Obligors by any           
jurisdiction, political sub-division, agency or instrumentality thereof         
arising from an intentional or unintentional act or omission of the Borrower    
or any Qualified Obligors, resulting in the Dumping of hazardous substances or  
wastes into the atmosphere or waters or onto lands then, within thirty (30)     
days from the date that the Borrower or any Qualified Obligors is given notice  
that the Lien has been placed against such property. or within such shorter     
period of time in the event that such jurisdiction, political sub-division,     
agency, or instrumentality thereof has commenced steps to cause such property   
to be sold pursuant to the Lien, either (i) pay the claim and remove the Lien   
from the applicable property or (ii) furnish to such jurisdiction political     
subdivision, agency or instrumentality thereof that imposed the Lien with one   
of the following:  (a) a bond satisfactory to such jurisdiction, political      
sub-division, agency, or instuumentality thereof that imposed the Lien in the   
amount of the claim out of which the Lien arises, (b) a cash deposit in the     
amount of the claim out of which the Lien arises or (c) other security          
reasonably satisfactory to such jurisdiction, political sub-division, agency,   
or instrumentality thereof in an amount sufficient to discharge the claim out   
of which the Lien arises;                                                       

5.16 REMOVAL OF HAZARDOUS SUBSTANCES. Should the Borrower or any      
Qualified Obligor cause or permit any intentional or unintentional act or       
omission resulting in the Dumping of hazardous substances or wastes into the    
atmosphere or waters, or onto the lands resulting in damage to the Natural      
Resources without having obtained a permit issued by the appropriate            
governmental authorities, the Borrower shall promptly clean up same in          
accordance with all applicable federal, state, and local orders, statutes,      
laws, ordinances, rules and regulations;                                        

 5.17.     NATURE OF BUSINESS. Borrower and each Qualified Obligor shall
continue to engage in business of the same general type as now conducted by     
Borrower and each Qualified Obligor and preserve, renew and keep in full force  
and effect its corporate existence and all licenses, permits, rights and        
privileges necessary or desirable for the normal conduct of such business,      

5.18.     REOUIRED HEDGE. Borrower shall hedge the floating interest  
expense for the full term of the Term Loan and the Converted Term Loan by       
maintaining with Bank or other counterparty acceptable to Bank an interest      
rate swap agreements in a notional amount equal at all time to the outstanding  
principal balance of said loans, and containing such other terms and            
conditions as shall be reasonably acceptable to Bank.                           

   5.19 PLEDGE OF STOCK. Borrower and each Guarantor shall from time to time
execute and deliver to Bank a pledge and security agreement, in form and        
substance satisfactory to Bank, wherein said parties pledge to Bank a first     
priority and exclusive security interest all capital stock or similar equity    
interest owned by Borrower or any such Guarantor, in any Subsidiary.  Borrower  
shall cause Andal Corp. to execute and deliver to Bank a pledge and security    
agreement wherein Andal Corp. pledges to Bank a first priority and exclusive    
security interest in all stock of MAI owned by Andal Corp.                      

   5.20 ANDAL COLLATERAL. Borrower shall cause Andal Corp. to pledge to MAI,
pursuant to a pledge agreement in form satisfactory to Bank, that certain note  
by Eifeler Werkzeuge, Gmbh in the principal sum of S900,O00.00 dated June 15,   
1995 and 352,700 shares of the common stock of Integrated Brands, Inc., to      
secure the loans by MAI to Andal Corp. permitted under paragraph 6.l(E), (F)    
and (G) below.                                                                  

  5.21 UK MANAGEMENT FEE. Borrower shall cause Multi-Arc (U.K.) Limited to
pay to MAI a monthly management fee of $25,000.00 on account of management      
services performed by MAI for Multi-Arc (U.K.) Limited.                         

VI                

NEGATIVE COVENANTS OF BORROWER                

   6.1  LOANS AND ADVANCES AND INVESTMENTS Borrower will not, and will cause
each Guarantor to not without prior written consent of Bank, make any loans or  
advances to or investment in any Person except for (A) Investment Obligations;  
(B) Loan by any Borrower or any Guarantor to any other Borrower or Guarantor;   
(C) the loans evidenced by the MAI Note and the Vagle Note; (D) the loans       
evidenced by the Management Notes; B) loans by MAI to Andal Corp. up to the     
principal sum of $300,000.00 contemporaneous with the initial funding of the    
loans provided for herein to be applied by Andal Corp. on account of the        
existing deferred compensation owed to Alan Cohen and Andrew J. Frankel, (F)    
loans by MAI to Andal Corp. of up to $295,000.00 contemporaneous with the       
initial funding of the loans provided for herein, to be applied by Andal Corp.  
on account of the "Fleet Debt" owed to Alan Cohen, Andrew J. Frankel, Paul      
Milstein and Peter Flood, and (G) a loan by MAI to Andal Corp. of $50,000.00    
contemporaneous with the initial funding of the loans provided for herein, to   
be applied by Andal Corp. on account of the Bonus Payment owing to Peter Flood  
under that certain Employment Agreement dated August 31,1996.                   

6.2  FINANCIAL COVENANTS                                              

     (A)  Tangible Capital Funds. Borrower will not allow the Tangible
Capital Funds of Borrower and each Qualified Obligor to be less than:           

       (i)  $7,500,000.00 from the date hereof through September
29,1998, and                            

(ii) $8,500,000.00 from September 30, 1998 on.    

     (B)   Current Ratio. Borrower will not allow the Current Ratio of
Borrower and the Qualified Obligors, on a consolidated basis, to be less than   
1.5 to 1.0.                                                                     

        (C)  Cash Flow Coverage Ratio. Borrower will not allow the Cash Flow
Coverage Ratio of Borrower and the Qualified Obligors, on a consolidated basis, 
calculated at the end of each fiscal quarter, to be less                        

           (i) 1.1 to 1.0 through the fiscal quarter ending September30,
1996, and                                 

          (ii) 1.2 to 1.0 as of the fiscal quarter ending December 31,
 1996, and each fiscal quarter thereafter.

       (D)  Capital Expenditures. Borrower and all Qualified Obligors will
not in any fiscal year make Capital Expenditures in excess of $4,000,000.00 in  
the aggregate, on a non-cumulative basis.                                       

       (E)   Working Capital.  Borrower will not allow the Working Capital
of Borrower and the Qualified Obligors on a consolidated basis, to be less      
than $2,000,000.00.                                                             

   (F)   Debt Ratio.  Borrower will not allow the ratio of (i) the
Total Liabilities of Borrower and Qualified Obligors, on a consolidated basis,  
minus Subordinated Debt to (ii) their Tangible Capital Funds, to exceed 1.8 to  
1.0 from the date hereof through September 29,1998, and 1.50 to 1.0 from        
September 30, 1998 on.                                                          

     Compliance with the foregoing covenants shall be calculated as of
the end of each fiscal quarter.                                                 

  6.3  LIENS Borrower will not allow or suffer any Lien to exist on any of
its or any Qualified Obligor's assets except for Permitted Encumbrances.        

6.4  LIMITATION ON INDEBTEDNESS Borrower and each Guarantor will not, 
without the prior written consent of Bank, create, incur, assume or suffer to   
exist any Indebtedness except Permitted Indebtedness.                           

  6.5  CERTIFICATE OF INCORPORATION AND BY-LAWS Borrower will not amend or
otherwise modify its Certificate of Incorporation or By-Laws.                   

6.6  TRANSACTIONS AMONG AFFILIATES Except as otherwise expressly set  
forth herein, Borrower will not (A) become a party to any transaction with an   
Affiliate of Borrower unless the terms and conditions relating to such          
transaction are as favorable to Borrower as would be obtainable at the time in  
a comparable arms-length transaction with a Person other than an Affiliate or   
(B) pay or incur any obligation to pay any management, service, consulting or   
similar fees to any Affiliate or pay any operating or other expenses of Andal   
Corp. other than a monthly management fee of not more than $25,000.00 to Andal  
Corp.                                                                           

6.7  SPECIAL COVENANTS AS TO ASSETS Borrower covenants that until     
satisfaction in full of all Obligations of Borrower to Bank and until           
termination of this Agreement: (A) no Inventory shall be stored with a bailee,  
warehouseman or similar party without Bank's prior written consent and, if      
Bank gives such consent, Borrower will concurrently therewith cause any such    
bailee, warehouseman or similar party to issue and deliver to Bank, in form     
and substance acceptable to Bank, warehouse receipts therefor in Bank's name.   
(B) Borrower will not hold any Goods belonging to third parties or in which     
other parties have an interest, including any Goods sold on a bill and hold     
basis, except as set forth on Exhibit "A". (C) Borrower will not purchase or    
otherwise hold Goods on a consignment basis except as set forth on Exhibit "A". 
(D) Except as set forth on Exhibit "A", none of Borrower's Inventory will be    
of a nature that contains any labels, trademarks, trade names, or other         
identifying characteristics which are the property of third parties and the     
use of which by Borrower is in violation of the rights of such third parties    
or a violation of any license, royalty or similar agreements with any third     
parties. (E) Except as set forth on Exhibit "A", Borrower will not allow any    
Goods of Borrower to be held by any Person in the future without the prior      
written consent of Bank. (F) Except upon prior written notice to Bank,          
Borrower will not in the future purchase any Inventory or Equipment except in   
the ordinary course of business from Persons customarily in the business of     
selling such Inventory or Equipment. (G) Borrower will not, without prior       
written consent of Bank, remove the Collateral from its present location,       
except for the removal of Inventory upon its sale; (H) Borrower will not sell   
or transfer any Inventory to any Affiliate or Subsidiary. (I) Borrower will     
not sell, lease or transfer any of its Equipment or other assets without the    
prior written consent of Bank except for sales of Inventory in the ordinary     
course of business to good faith purchasers for value. (J) Borrower will not    
cause any surety bonds to be issued on its behalf in connection with any        
contracts or purchase orders except upon not less than ten (10) days prior      
written notice to Bank.                                                         

6.8  PREPAYMENTS OF INDEBTEDNESS  Borrower will not and will not allow
any Guarantor to prepay or obligate itself to prepay in whole or in part, any   
Indebtedness (other than any Indebtedness due hereunder).                       

6.9  FISCAL YEAR Borrower will not change its fiscal year.            

6.10 ISSUANCE OF ADDITIONAL CAPITAL STOCK Borrower will not issue any 
additional stock or other equity interest of Borrower or options or warrants    
for the issuance of stock or other equity interest of Borrower other than the   
issuance of common stock to its existing stockholders and except in accordance  
with the Convertible Subordinated Debentures constituting a portion of the      
existing Subordinated Debt.                                                     

 6.11 CHANGE IN ACCOUNTING PRINCIPLES Borrower will not change or permit
any change in accounting principlcs applied to Borrower, except as required by  
GAAP.                                                                           

6.12 SALE AND LEASEBACK Borrower will not, and will not allow any     
Guarantor to enter into any arrangement with any Person providing for the       
leasing by Borrower or such Qualilied Obligor of property which has been or is  
to be sold or transferred by Borrower or such Qualified Obligor to such Person  
or to any other Person to whom funds have been or are to be advanced by such    
Person on the security of such property or rental obligations of Borrower or    
such Qualified Obligor.                                                         

6.13 MAINTAIN CORPORATE EXISTENCE AND NATURE OF BUSINESS (A) Borrower 
will not, and will not allow any Guarantor, to allow its corporate existence    
to be other than in good standing and will not, without the prior written       
consent of Bank, dissolve or liquidate, or merge or consolidate with or         
acquire or affiliate with any other business entity or form any Subsidiary      
except upon compliance with paragraph 5.5 hereof.                               

       (B) Borrower will not, and will now allow any Qualified Obligor, to
change its name without furnishing to Bank at least ten (10) days prior         
written notice thereof.                                                         

  (C)  Borrower will not utilize any trade name not set forth on
Exhibit "A" without furnishing to Bank at least ten (10) days prior written     
notice thereof.                                                                 

    (D)  Borrower will not allow any Qualified Obligor to change the
nature of its business.                                                         

   6.14 DIVIDENDS; REDEMPTION'S Borrower will not, without the prior written
consent of Bank, pay or declare any cash or property dividends, nor otherwise   
make a distribution of capital or income, nor redeem, retire or repurchase any  
stock of Borrower, provided that so long as no Default or Event of Default      
exists each Borrower other than MAI may declare and pay dividends to its        
parent corporation.                                                             

  6.15 DISPOSAL OF ASSETS Borrower will not allow any Qualified Obligor to
sell, lease, transfer or otherwise dispose of (A) any of the Collateral or (B)  
any of its other assets except in the ordinary course of business to third      
parties unaffiliated with Borrower in arms length transactions. Borrower will   
not and will not allow any Qualified Obligor to sell, discount or otherwise     
dispose of any of its notes or Accounts Receivable or other obligations owing   
to Borrower or such Qualified Obligor except for the purpose of collection in   
the ordinary course of business.                                                

  6.16 HAZARDOUS SUBSTANCES Borrower will not cause or permit or allow any
Obligor to cause or permit to exist a Dumping of hazardous substances or        
wastes into the atmosphere or waters or onto lands resulting in damage to the   
Natural Resources unless the Dumping is pursuant to and in compliance with the  
conditions of a permit issued by the appropriate federal, state, or local       
governmental authorities.                                                       

  6.17 SPECIAL COVENANTS AS TO VAGLE NOTE Each Original Borrower covenants
that:                                                                           

     (A)  Before or after an Event of Default hereunder, Bank shall be
entitled to receive directly from Vagle any prepayments under the Vagle Note    
and after the occurrence of an Event of Default all payments under the Vagle    
Note;                                                                           

  (B)  Bank shall not be required to take any steps necessary to
preserve any rights against any parties under the Vagle Note;                   

   (C)  It will not, with the prior wrilten consent of Bank, amend
modify or terminate the Vagle Note or waive compliance with any of the terms    
thereof, or exercise any other rights thereunder;                               

        (D)  It will not interfere with Bank's exercise of the rights of the
Original Borrowers under the Vagle Note.                                        

6.18 SPECIAL COVENANTS AS TO MAI NOTE Vagle covenants that:           

     (A)  Before or after an Event of Default hereunder, Bank shall be
entifled to receive directly from MAI any prepayments under the MAI Note and    
after the occurrence of an Event of Default all payments under the MAI Note;    

  (B)  Bank shall not be required to take any steps necessary to
preserve any rights against any parties under the MAI Note;                     

   (C)  It will not, with the prior written consent of Bank, amend
modify or terminate the MAI Note or waive compliance with any of the terms      
thereof, or exercise any other rights thereunder;                               

   (D) It will not interfere with Bank's exercise of the rights of
Vagle under the MAI Note.                                                       

VII                 

EVENTS OF DEFAULT                 

The occurrence of any of the following shall constitute an Event of     
Default:                                                                        

   7.1  NON-PAYMENT Failure on the part of any Obligor to pay any Obligation
to Bank or any Bank Affiliate when due.                                         

 7.2  NON-PERFORMANCE Failure on the part of any Obligor to perform when
such perfermance is due any term, covenant or condition contained in any Loan   
Document or any other agreement now existing or hereafter entered into with     
Bank or any Bank Affiliate, including without limitation any swap agreement     
(as defined in 11 U.S.C. Section 101) or in any document executed in            
connection with any such agreements and with respect to nonperformance with     
the paragraphs 5.l(A)(B) and (C), 5.3, 5.4, 5.6, 5.7, 5.8, 5.10, 5.12, 5.15,    
and 5.16 hereof, such performance is not cured within ten (10) days of the      
date such performance was due.                                                  

 7.3  MISREPRESENTATION Any representation, covenant or warranty made by
any Obligor in this Agreement, or any Loan Document, or in connection with any  
instrument of guaranty or security furnished to Bank or any Bank Affiliate      
shall have proved to have been inaccurate in any substantial or material        
respect as of the date or dates with respect to which it is deemed to have      
been made.                                                                      

  7.4  OTHER LIEN Borrower or any Obligor shall have caused or permitted a
security interest or Lien, perfected or otherwise, other than the security      
interest and Liens specifically provided for or permitted hereunder, to be      
created in any of its assets, or shall have failed to take any action           
requested by Bank to perfect or protect the security interests and Liens        
provided for herein.                                                            

7.5  INSOLVENCY Any Obligor shall have applied for or consented to the
appointment of a custodian, receiver, trustee or liquidator of all or a         
substantial part of its assets; a custodian shall have been appointed with or   
without consent of any Obligor; any Obligor is generally not paying its debts   
as they become due; has made a general assignment for the benefit of creditors; 
has been adjudicated insolvent; or has filed a voluntary petition in            
bankruptcy, or a petition or an answer seeking reorganization or an             
arrangement with creditors or to take advantage of any insolvency law, or an    
answer admitting the material allegations of a petition in any bankruptcy,      
reorganization or insolvency proceeding; or taken corporate action for the      
purpose of effecting any of the foregoing; or an order, judgment or decree      
shall have been entered, without the application, approval or consent of any    
Obligor by any court of competent jurisdiction approving a petition seeking     
reorganization of any Obligor, or appointing a receiver, trustee, custodian or  
liquidator of any Obligor, or a substantial part of its assets and such order,  
judgment or decree shall have continued unstayed and in effect for any period   
of forty-five (45) consecutive days; or a petition in bankruptcy shall have     
been filed against any Obligor and shall not have been dismissed for a period   
of thirty (30) consecutive days, or if an Order for Relief has been entered     
under the Bankruptcy Code, or if any Obligor shall have suspended the           
transaction of its usual business.                                              

 7.6  JUDGMENT OR LIEN Entry of a judgment, issuance of any garnishment,
attachment or distraint, the filing of any lien or of any governmental          
attachment against any property of Borrower or any Obligor which entry,         
issuance, attachment or filing shall have continued unstayed and in effect for  
a period of thirty (30) consecutive days.                                       

   7.7  NONCOMPLIANCE WITH LEASES OR LAWS Failure of Borrower or any Obligor
to comply with the terms and conditions of any lease covering the premises      
where any of its assets are located, including the Collateral, or with any      
orders, ordinances, laws or statutes of any city, state or other governmental   
department having jurisdiction with respect to such premises or the conduct of  
business thereon.                                                               

7.8  ADVERSE CHANGE A Material Adverse Change has occurred of any     
Obligor.                                                                        

   7.9  MISREPRESENTATION OF FACT  The determination by Bank that a material
misrepresentation of fact has been made by any Obligor in any writing           
supplementary or ancillary hereto.                                              

7.10  TRANSFER OF OWNERSHIP The sale or transfer, without the prior     
written consent of Bank, of any of the capital stock of Borrower, or without    
the prior written consent of Bank, the issuance of any additional capital       
stock of Borrower except as permitted under paragraph 6.10 hereof.              

7.11  CHANGE IN MANAGEMENT If Peter Flood or Walter Kreil cease to be 
actively engaged in the management of Borrower as chief executive officer and   
chief financial officer respectively absent the written consent of the Bank to  
the contrary in the good faith exercise of its discretion.                      

   7.12 ERISA If (A) any Reportable Event occurs and shall be continuing for
thirty (30) days after notice from Bank to Borrower, or (B) any Plan shall be   
terminated, or (C) the Plan administrator of any Plan shall file with the       
Pension Benefit Guaranty Corporation ("PBGC") a notice of intention to          
terminate such Plan, or (D) the PBGC shall institute proceedings to terminate   
any Plan or appoint a trustee to administer any Plan, and, if in any of the     
cases set forth in (A) through (D) above, Bank reasonably determines in good    
faith that any Plan will be terminated and that the amount of the unfunded      
guaranteed benefits (within the meaning of Title IV of ERISA) resulting upon    
termination of such Plan would have a material adverse effect on the financial  
condition and properties or operation of Borrower if a lien against the assets  
of Borrower were to result under ERISA.                                         

 7.13 DEFAULT IN OBLIGATIONS TO THIRD PARTIES Borrower or any Obligor is
in default beyond any applicable grace or cure period of any material           
obligation to any third party.                                                  

7.14 LICENSES If any license or permit necessary for the continued    
operation of Borrower's or any Obligor's customary business is revoked,         
suspended, terminated or not renewed.                                           

7.15 TRANSFER OF ASSETS. Any Obligor transfers or sells all or        
substantially all of its assets, without the prior written consent of Bank.     

7.16 TERMINATION OF GUARANTY. Any guarantor of the Obligations of     
Borrower to Bank revokes or terminates his (its) guaranty of the Obligations.   

7.17  LOAN DOCUMENTS. Any Loan Document ceases to be in full force and
effect or the validity or enforceability thereof is contested by any Obligor    
or any representative thereof.                                                  

VIII                

CONSEOUENCE OF EVFNT OF DEFAULT                                   

In case any Event of Default shall have occurred, then and in every such
Event of Default, Bank may take any or all of the following actions, at the     
same time or at different times and in such order as the Bank may determine,    
provided that upon the occurrence of an Event of Default under paragraph 7.5    
hereof the credit facilities under this Agreement shall automatically           
terminate and all Obligations shall automatically be immediately due and        
payable.                                                                        

   8.1  ACCELERATION Declare all loans, sums and Obligations owing Bank from
Borrower under this Agreement or any other agreement or loan between Bank and   
Borrower and Bank Affiliate to be forthwith due and payable, whereupon all      
such sums shall forthwith become due and payable, without presentment, demand,  
protest or other notice of any kind, all of which are hereby expressly waived   
by Borrower. If there are any outstanding Bank Letters of Credit, Borrower      
shall, in addition to paying and satisfying in full all other Obligations to    
Bank, pay to Bank an amount equal to the aggregate outstanding balance of all   
such Bank Letters of Credit and which shall automatically be subject to a Lien  
in favor of Bank to secure all Obligations to Bank with respect to said Bank    
Letters of Credit. Any sums paid to Bank shall be applied first to the          
Obligations of Borrower to Bank other than with respect to said Bank Letters    
of Credit, in such order as Bank may determine and last to the Obligations      
with respect to the Bank Letters of Credit.                                     

8.2  POSSESSION Proceed with or without judicial process to take      
possession of all or any part of the Collateral provided for herein not         
already in the possession of Bank and Borrower agrees that upon receipt of      
notice of Bank's intention to take possession of all or any part of said        
Collateral, Borrower will do everything reasonably necessary to assemble the    
Collateral and make same available to Bank at a place to be designated by Bank. 
Borrower hereby waives any and all rights it may have, by statute,              
constitution or otherwise to notice or a bearing to determine the probable      
cause of Bank to obtain possession, by Court proceedings or otherwise, of the   
Collateral provided for in this or in any other agreement with Bank.            

8.3  METHODS OF SALE So long as Bank acts in a commercially reasonable
manner, assign, transfer and deliver at any time or from time to time the       
whole or any portion of the Collateral or any rights or interest therein in     
accordance with the Uniform Commercial Code, and without limiting the scope of  
Bank's rights thereunder, Bank may sell the Collateral at public or private     
sale, or in any other manner, at such price or prices as Bank may deem best,    
and either for cash or credit, or for future delivery, at the option of Bank,   
in bulk or in parcels and with or without having the Collateral at the sale or  
other disposition. Bank shall have the right to be the purchaser at any public  
sale. Bank shall have the right to conduct such sales on Borrower's premises    
or elsewhere and shall have the right to use Borrower's premises without        
charge for such sales for such time or times as Bank may see fit. Bank is       
hereby granted license or other right to use, without charge, Borrower's        
labels, patents, copyrights, rights of use of any name, trade secrets, trade    
names, trademarks and advertising matter, or any property of a similar nature,  
as it pertains to the Collateral, in advertising for sale and selling any       
Collateral and Borrower's rights under all licenses and franchise agreements    
shall inure to Bank's benefit. Borrower agrees that a reasonable means of       
disposition of Accounts shall be for Bank to hold and liquidate any and all     
Accounts. In the event of a sale of the Collateral, or any other disposition    
thereof, Bank shall apply all proceeds first to all costs and expenses of       
disposition, including attorneys' fees, and then to interest, then to the       
principal component of the Obligations of Borrower to Bank in such order as     
Bank deems appropriate.                                                         

8.4  RETENTION OF COLLATERAL Elect, subject to Section 9-505(2) of the
Uniform Commercial Code, to retain the Collateral or any part thereof in        
satisfaction of all Obligations due from Borrower to Bank upon notice of such   
proposed election to Borrower and any other party as may be required by the     
Uniform Commercial Code.                                                        

   8.5  SET-OFF Bank shall have the right immediately, and without notice or
other action to set-off against any of the Obligor's Obligations to Bank any    
sum owed by Bank in any capacity to any Obligor whether due or not, and Bank    
shall be deemed to have exercised such right of set-off and to have made a      
charge against any such sum immediately upon the occurrence of such Event of    
Default, even though the actual book entries may be made at some time           
subsequent thereto.                                                             

8.6  ATTORNEYS' FEES AND EXPENSES Add to the Obligations of Borrower, 
Bank's reasonable expenses to obtain or enforce payment of any Obligations      
hereunder or in connection with any insolvency proceedings of Borrower or any   
Obligor and the enforcement or liquidation of any debt hereunder shall include  
reasonable attorneys' fees plus other legal expenses incurred by Bank.          

   8.7  DEFAULT INTEREST Increase the rate of interest under any Obligations
to a rate of four (4%) percent in excess of the rate otherwise in effect under  
the Obligations. Unless otherwise agreed by Bank, this increase in interest     
rate shall he retroactive to the date of the first occurrence of an Event of    
Default.                                                                        

8.8  BANK'S PERFORMANCE OF BORROWER'S OBLIGATION If Borrower fails to 
comply with any of the covenants or perform any of its obligations set forth    
herein or in any other Loan Document, Bank may, but shall have no obligation    
to, perform any such obligations or undertake any act to cause such covenant    
to be complied with, including, but not limited to, discharging any Lien on     
any asset other than Pertntitted Encumbrances. Any and all sums, and all costs  
and expenses incurred by Bank in so performing or causing compliance, shall be  
payable on demand together with interest at the default rate provided for in    
paragraph 8.7 hereof from the date of any such payment by Bank until the date   
paid by Borrower. Any such performance by Bank shall not cure any Default or    
Event of Default by Borrower.                                                   

8.9  OTHER REMEDIES Exercise any other remedies under the Uniform     
Commercial Code or other applicable law, or any other Loan Document, including  
but not limited to proceeding to enforce its right by suit in equity, action    
at law or other appropriate proceeding, whether for payment or the specific     
performance of the covenants or agreements contained in this Agreement or any   
other Loan Document.                                                            

IX                

MISCELLANEOUS                 

9.1  NO WAIVER Borrower agrees that no delay on the part of Bank in   
exercising any power or right hereunder or any other Loan Document shall        
operate as a waiver of any such power or right, nor act as a consent to any     
departure by Borrower from any of the terms or conditions hereof or thereof,    
preclude other or further exercise thereof, or the exercise of any other power  
or right. No waiver whatsoever shall be valid unless in writing signed by Bank  
and then only to the extent set forth therein.                                  

9.2  MODIFICATION OR AMENDMENT This Agreement and every other Loan    
Document cannot be changed orally and cannot be changed by an executory         
agreement unless such agreement is in writing and signed by all parties hereto  
by their duly authorized officers.                                              

9.3  CERTAIN WAIVER(S) (A) Borrower waives presentment, dishonor and  
notice of dishonor, protest and notice of protest of all commercial papers at   
any time held by Bank on which Borrower is in any way liable.                   

      (B) Borrower waives any right, if any, it may have to require Bank
to proceed against any Collateral or any other Obligor before proceeding        
against Borrower in enforcing any of its rights or remedies, and waives any     
right, if any, to claim a fair market value credit with respect to any          
Collateral whether before or after the sale or other disposition of any         
Collateral.                                                                     

   9.4  ONE INSTRUMENT The provisions of this Agreement shall be in addition
to those of any notes or other evidence of the Obligations held by Bank         
relating to this particular transaction, all of which shall be construed as     
one instrument.                                                                 

9.5  LAW OF NEW JERSEY This Agreement and all other Loan Documents and
the rights of the parties hereto and thereto shall be governed by the internal  
laws of the State of New Jersey without regard to conflict of laws.             

   9.6 JURISDICTION Borrower hereby irrevocably consents to the jurisdiction
of the Courts of the State of New Jersey or any Federal Court in such State in  
connection with any action or proceeding arising out of or related to this      
Agreement or any other Loan Document. In any such litigation, Borrower waives   
personal service of any Summons, complaint or other process and agrees that     
service may be made by certified or registered mail to it, at the address       
provided herein. The Borrower agrees that any action brought by Borrower shall  
be commenced and maintained only in a court in the Federal judicial district    
or county in which the Bank has its principal place of business in New Jersey.  

9.7  SUCCESSORS OR ASSIGNS: JOINT AND SEVERAL LIABILITY This Agreement
and all other Loan Documents shall be binding upon and shalt inure to the       
benefit of the parties hereto, their respective successors and assigns,         
provided, however, that Borrower shall not have any right to assign any of its  
rights hereunder or under any other Loan Documents. The obligations of each     
Borrower hereunder and under each other Loan Document shall be joint and        
several.                                                                        

   9.8  RIGHTS CUMULATIVE The rights and remedies herein expressed or in any
other Loan Document to be vested in or conferred upon Bank shall be cumulative  
and shall be in addition to and not in substitution for or in derogation of     
the rights and remedies conferred upon secured creditors by the Uniform         
Commercial Code or any other applicable law.                                    

   9.9  NOTIFICATION OF DISPOSITION OF COLLATERAL Any notification of a sale
or other disposition of the Collateral will be sufficient if given in the       
manner set forth in Paragraph 9.10 hereof not less than five (5) days prior to  
the day on which such sales or other disposition will be made, and such         
notification shall be deemed reasonable notice.                                 

  9.10 ADDRESSES OF NOTICES Any written notice required or permitted to be
given by this Agreement shall be given or made in writing, including telecopy,  
and shall be, as elected by the party giving such notice, served personally by  
messenger or courier service, telecopied (followed up by a mailing), or mailed  
in the United States by prepaid, registered or certified mail, return receipt   
requested, to the following:                                                    

If to Borrower:                    Multi-Arc Inc.                               
         200 Roundhill Drive
        Rockaway, NJ 07866
         FAX:  (201)625-2244

with a copy (except for            Dillon, Bitar & Luther                       
routine notices with respect       53 Maple Avenue                              
to Borrowings bereunder and        Moristown, NJ 07963                          
the like) to:                      ATTN:  Mary A. Powers, Esq.                  
          FAX:  (201) 292-2960

Ifto Bank:                         FIRST UNION NATIONAL BANK                    
      550 Broad Street
              Newark, New Jersey 07102
            Att:  Theodore Bossert
          Fax:  (201) 565-3908

with a copy (except for            STRYKER, TAMS & DILL                         
routine notices with               Two Penn Plaza East                          
respect to borrowings              Newark, New Jersey 07105                     
hereunder and the like) to         Attn:  Alan D. Wiener                        
         Fax:  (201)491-9692

Any notice given in accordance with the provisions of this paragraph shall be   
deemed effective, if hand delivered, on the date of such delivery, or on the    
date telecommunicated if telecopied, or if mailed, on the date upon which the   
return receipt is signed or delivery refused or the notice is designated by     
the postal authorities as not deliverable, as the case may be.  Each party may  
give notice to each of the other parties of a change of its address for the     
purpose of giving notice under this paragraph which, thereafter until changed   
by like notice, shall be the address of such party for purposes of this         
Agreement.                                                                      

9.11  TITLES The titles and headings indicated herein are inserted for
convenience only and shall not be considered a part of this Agreement or in     
any way limit the construction or interpretation of this Agreement.             

 9.12  DISCLOSURE Bank is hereby authorized to disclose any financial or
other information it may have about Borrower to any present or future           
participant or prospective participant, any regulatory body or agency having    
jurisdiction over Bank, or to any Person which succeeds to all or any part of   
Bank's Interest herein.                                                         

 9.13 SALE, ASSIGNMENT OR PARTICIPATIONS. The Bank may from time to time
sell or assign, in whole or in part, or grant participations in some or all of  
the Loan Documents and/or the Obligations evidenced hereby.  The holder of any  
such sale, assignment or participation, if the applicable agreement between     
the Bank and such holder so provides, (i) shall be entitled to all of the       
rights, obligations and benefits of the Bank and (ii) shall be deemed to hold   
and may exercise the rights of setoff or banker's lien with respect to any and  
all obligations of such holder to the Borrower, in each case as fully as        
though the Borrower were directly indebted to such holder. The Bank may in its  
discretion, give notice to the Borrower of such sale, assignment or             
participation; however, the failure to give such notice shall not affect any    
of the Bank's or such holder's rights hereunder.  The Borrower authorizes the   
Bank to provide information concerning the Borrower to any prospective          
purchaser, assignee or participant.  The information provided may include, but  
is not limited to, amounts, terms, balances, payment history, return item       
history and any financial or other information about the Borrower. The          
Borrower agrees to indemnify, defend, release the Bank, and hold the Bank       
harmless, at the Borrower's cost and expense, from and against any and all      
lawsuits, claims, actions, proceedings, or suits against the Bank or against    
the Borrower and the Bank, arising out of or relating to the Bank's reporting   
or disclosure of such information.                                              

9.14 INTEREST LIMITATION It is the intention of Bank and Borrower to  
conform strictly to the Laws of the State of New Jersey or the laws of such     
other jurisdiction which may be found to apply to the subject transaction       
relating to the maximum rate of interest which may be lawfully contracted for   
or charged.  Nothing contained in this Agreement or any other Loan Document     
shall be construed to mean that Borrower has contracted to pay or is obligated  
to pay any sum or sums to Bank in excess of those which may lawfully be         
charged or contracted for under applicable law of the State of New Jersey or    
other applicable law. If any provision of this Agreement or ally of the other   
Loan Documents shall require payment of any sum or sums of interest in excess   
of the maximum Permitted rate which may be lawfully contracted for or charged,  
then Borrower and Bank agree that such result is as a consequence of their      
inadvertence and/or mistake, and the interest charge for which Borrower is      
liable under this instrument shall be recomputed for the sole and limited       
purpose of determining the extent of the obligations and liabilities of         
Borrower to Bank so that the interest charges for which Borrower is liable      
shall not exceed the maxinium permitted rate which is determined to be          
applicable. Additionally, any sums of interest which are collected by Bank      
from Borrower or other source in connection with the loan evidenced hereby      
which are in excess of the maximum permitted rate shall, for the sole and       
limited purpose of determining the extent of the obligations and liabilities    
of Borrower to Bank, be credited against the amount of principal for which      
Borrower is liable to Bank after giving effect to any recomputation and         
adjustment required pursuant to the foregoing provisions of this section, or    
if such outstanding principal balance and interest are paid in full, any such   
excess shall be remitted by Bank to Borrower.                                   

    9.15  INDEMNIFICATION Borrower hereby agrees to and does hereby indemnify,
protect, defend and save harmless Bank and any member, officer, director,       
official, agent, employee and attorney of Bank, and its respective heirs,       
successors and assigns (collectively, the "Indemnified Parties"), from and      
against any and all losses, damages, expenses or liabilities of any kind or     
nature and from any suits, claims or demands, including reasonable counsel      
fees incurred in investigating or defending such claim, suffered by any of      
them and caused by, relating to, arising out of, resulting from, or in any way  
connected with the Loan Documents and the transactions contemplated therein or  
the Collateral (unless caused by the gross negligence or willful misconduct of  
the Indemnified Parties) including, without limitation: (i) losses, damages,    
expenses or liabilities sustained by Bank in connection with any environmental  
cleanup or other remedy required or mandated by any environmental law; (ii)     
any untrue statement of a material fact contained in information submitted to   
Bank by Borrower and/or any Obligor or the omission of any material fact        
necessary to be stated therein in order to make such statement not misleading   
or incomplete; (iii) the failure of Borrower and/or any Obligor to perform any  
obligations herein required to be performed by Borrower and/or any Obligor;     
and (iv) the ownership, construction, occupancy, operations, use and            
maintenance of any of Borrower's and/or the Obligor's properties. The           
provisions of this paragraph shall survive termination of this Agreement and    
the other Loan Documents.                                                       

9.16 SEVERABILITY AND CONSISTENCY The illegality, unenforceability or 
inconsistency of any provisions of this Agreement or any instrument or          
agreement required hereunder shall not in any way affect or impair the          
legality, enforceability or consistency of the remaining provisions of this     
Agreement or any instrument or agreement required hereunder. The Loan           
Documents are intended to be consistent.  However, in the event of any          
inconsistencies among any of the Loan Documents, such inconsistency shall not   
affect the validity or enforceability of Loan Document. The Borrower agrees     
that in the event of any inconsistency or ambiguity in any of the Loan          
Documents, the Loan Documents shall not be construed against any one party but  
shall be interpreted consistent with the Bank's policies and procedures.        

   9.17 INTEGRATION; NO THIRD PARTY BENEFICIARY This Agreement and the other
Loan Documents constitute the sole agreement of the parties with respect to     
the subject matter hereof and thereof and supersede all oral negotiations and   
prior writings with respect to the subject matter hereof and thereof. The       
Borrower and the Bank do not intend any of the benefits of this Agreement to    
inure to any third party and no third party shall have any status, right, or    
entitlement under this Agreemeut.                                               

9.18 JUDICIAL  PROCEEDINGS: WAIVERS  THE BORROWER AND THE BANK        
ACKNOWLEDGE AND AGREE THAT (i) ANY SUIT, ACTION OR PROCEEDING, WHETHER CLAIM    
OR COUNTERCLAIM, BROUGHT OR INSTITUTED BY THE BANK OR THE BORROWER OR ANY       
SUCCESSOR OR ASSIGN OF THE BANK OR THE BORROWER, OR ON WITH RESPECT TO THIS     
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE DEALINGS OF THE PARTIES WITH        
RESPECT HERETO OR THERETO SHALL BE TRIED ONLY BY A COURT AND NOT BY A JURY AND  
EACH PARTY WAIVES THE RIGHT TO TRIAL BY JURY; (ii) EACH WAIVES ANY RIGHT IT     
MAY HAVE TO CLAIM OR RECOVER, IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY       
SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER      
THAN, OR IN ADDITION TO, ACTUAL DAMAGES; AND (ii) THIS SECTION IS A SPECIFIC    
AND MATERIAL ASPECT OF THIS AGREEMENT AND THE BANK WOULD NOT EXECUTE THIS       
AGREEMENT IF THE WAIVERS SET FORTH IN THIS SECTION WERE NOT A PART OF THIS      
AGREEMENT.                                                                      

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be 
executed and delivered by their proper and duly authorized officers as of the   
day and year first above written.                                               

Multi-Arc Inc.                

By:  /s/ Peter D. Flood       
Name:  Peter D. Flood 
Title:  President     

Multi-Arc, Inc.               

By:  /s/ Peter D. Flood       
Name:  Peter D. Flood 
Title:  President     

Vagle Technology, Inc.        

By:  /s/ Peter D. Flood       
Name:  Peter D. Flood 
Title:  President     

Multi-Arc of Ohio, Inc.       

By:  /s/ Peter D. Flood       
Name:  Peter D. Flood 
Title:  President     

       Scientific Coatings of Illinois, Inc.

By:  /s/ Peter D. Flood       
Name:  Peter D. Flood 
Title:  President     

Scientific Coatings, Inc.     

By:  /s/ Peter D. Flood       
Name:  Peter D. Flood 
Title:  President     

SCI Coatings Southwest Inc    

By:  /s/ Peter D. Flood       
Name:  Peter D. Flood 
Title:  President     

First Union National Bank     

By:  /s/ Peter C. DeLuca      
Name:  Peter DeLuca   
Title   Vice President

10-K
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EXHIBIT 10(r)                                                                   

EMPLOYMENT AGREEMENT                

 AGREEMENT, dated as of the 31st day of August 1996, between Andal Corp.
(the "Company"), a New York corporation, and Walter N. Kreil, Jr. (the          
"Executive").                                                                   

W I T N E S S E T H:                

WHEREAS, the Company desires to employ the Executive on the terms and 
conditions set forth in this Agreement and the Executive is willing to accept   
employment with the Company on such terms and conditions; now, therefore,       

IN CONSIDERATION of the premises and the mutual covenants herein      
contained, the parties hereto hereby agree as follows:                          

SECTION 1.  TERM OF EMPLOYMENT.                                                 

 The Company will employ the Executive, and the Executive hereby accepts
employment by the Company, on the terms and conditions contained in this        
Agreement for the period commencing upon the date of this Agreement and ending  
August 31, 2001 (the "Initial Term").  The term of the Executive's employment   
under this Agreement (the "Term") will continue thereafter year to year (each   
extended year-term, an "Extended Term"), unless either party gives to the       
other notice at least one hundred and eighty (180) days prior to end of the     
Initial Term (or, if this Agreement is extended past the Initial Term, the end  
of any Extended Term) of such party's intention to terminate this Agreement as  
of the end of such Term or Extended Term.                                       

In no event will any Extended Term extend beyond the end of the year next       
following the Executive's 70th birthday (such date being referred to in         
Section 5.1 as the "Retirement Date").                                          

SECTION 2.  DUTIES.                                                             

   2.1     During the Term, the Executive shall serve as the Company's Chief
Financial Officer, with such additions to the scope of the duties of his        
employment within the Company's field of operations or those of the Company's   
subsidiaries or affiliated corporations as the Board of Directors of the        
Company shall determine.                                                        

2.2     If elected by the Board, the Executive agrees to serve as a   
member of the Board of Directors of the Company and as Executive Vice-          
President of The Company.                                                       

2.3      The Executive shall devote his time, energy and skill during 
regular business hours to the affairs of the Company and its subsidiaries and   
affiliated corporations and to the promotion of their interests, provided that  
the Executive may serve as a director of such business and not-for-profit       
corporations as the Board of Directors shall consider not materially adverse    
to the interests of the Company.                                                

SECTION 3.  CURRENT COMPENSATION.                                               

3.1     Signing Bonus.  Upon signing the Agreement, the Company shall 
become immediately obligated to pay to the Executive a bonus of $50,000 of      
which $10,000  (each payment, a "Bonus Payment," and collectively, the "Bonus   
Payments")  shall be paid within ninety days of the date of this Agreement and  
the remainder  as soon as possible thereafter.  The Company may defer such      
payment until such time as the Board of Directors determines that the           
Company's cash flow is sufficient to make such payment.                         

  3.2     Base Compensation.  During the Term, the Company shall cause its
principal subsidiary, Multi-Arc Inc. ("MAI"), to pay the Executive a Base       
Compensation as follows in the indicated contract years:                        

1st     $149,350                                  
2nd      156,500                                  
3rd      164,000                                  
4th      172,000                                  
5th      180,000                                  

The Base Compensation shall be payable in equal installments in accordance      
with the Company's normal practices for payment of executives.  It is           
understood that the aforementioned Base Compensation is a minimum annual Base   
Compensation and is subject to such additional compensation and increases as    
the Board of Directors, in its sole discretion, may award; provided, however,   
that nothing contained herein shall be deemed to create any obligation on the   
part of the Board of Directors to exercise its discretion in favor of any such  
increase in Base Compensation or to constitute a representation that any such   
increase will be awarded.                                                       

The Company shall cause MAI to provide supplements to the Executive in
the form of salary to enable him to pay interest on funds lent to the Company   
in the aggregate amount of $5,000 a year, to be reduced each year in the        
amount of $50 per $1,000 of principal amount of indebtedness retired.           

3.3    Incentive Compensation.  During the term of the Agreement, the 
Company shall provide an incentive program for executive officers, which shall  
be the reasonable equivalent to the existing Corporate Management Incentive     
Plan of MAI, effective as of the date of this Agreement, a copy of which has    
been provided to the Executive and which is incorporated herein by reference.   

3.4     Reimbursement for Expenses.  During the Term, the Company will
further reimburse the Executive for all documented expenses properly incurred   
by the Executive in the performance of the Executive's duties under this        
Agreement.  In addition, the Company shall pay to the Executive a monthly car   
allowance of not more than $500 per month in lieu of providing a company-       
leased automobile.                                                              

3.5     Other Benefits.  In addition to the benefits specified in     
Sections 3.1 through 3.4, during the Term the Executive will be entitled to     
participate in any present and future life, disability or health insurance,     
pension or retirement plan adopted by the Company for the general and overall   
benefit of principal executives of the Company.  The Board of Directors may,    
in its absolute discretion, determine to provide greater or different benefits  
than required hereby to the Executive.  Executive acknowledges that his         
incentive compensation and other entitlements hereunder shall be in lieu of     
any right he might otherwise have to participate in any profit-sharing or       
employee stock membership plan or other compensation or incentive plan of the   
Company or MAI.  Notwithstanding the foregoing, in the event the Company        
adopts a new stock option plan, Executive will be a participant subject to the  
discretion of the Board of Directors.                                           

SECTION 4.  NONASSIGNABILITY OF BENEFITS.                                       

No benefit under this Agreement shall be subject in any manner to     
anticipation, alienation, sale, transfer or assignment by the Executive, his    
beneficiaries or his estate, nor shall any benefit in any manner be liable for  
or subject to attachments or legal process for or against the Executive, his    
beneficiaries or his estate.                                                    

SECTION 5.  TERMINATION OF AGREEMENT.                                           

5.1     Termination Generally.  The Term, and all liabilities and     
obligations of the Company to the Executive under this Agreement, shall cease   
and terminate upon the earliest of the events specified below, provided that    
such termination shall not affect the right of the Executive or his estate or   
beneficiaries to receive any salary or bonus accrued but unpaid, and shall not  
affect any vested rights which the Executive may have at the time of his death  
pursuant to any insurance or other death benefit plans or any other plans,      
policies or arrangements of the Company or any of its subsidiaries or           
affiliated corporations.  The dates and events upon which such termination      
shall occur are:                                                                

       (a)     the disability of the Executive, subject to Section 5.3; or

  (b)     the death of the Executive, subject to Section 5.3; or

      (c)     the occurrence of the Retirement Date described in Section
1.0; or                                     

(d)     termination for cause as described in Section 5.2   

  For purposes of this Agreement, "disability" shall mean the inability of
the Executive to perform his duties hereunder for a period of six (6)           
consecutive calendar months, or an aggregate of eight (8) calendar months in    
any twelve (12) month-period, by virtue of illness or physical or mental        
incapacity or disability (from any cause or causes whatsoever) in               
substantially the manner and to the extent required hereunder, as determined    
by the Board of Directors of the Company in its reasonable discretion.          

5.2     Termination for Cause.  The Company may terminate Executive's 
employment, immediately and without notice, for cause, in which event after     
the date of termination no further Base Compensation or Incentive Compensation  
shall be payable to Executive.  The term "cause" shall mean (i) a material      
breach by Executive of the provisions of Sections 6, 7, 8 or 9 of this          
Agreement, (ii) repeated acts of dishonesty, (iii) breach of trust or other     
action by which Executive obtains personal gain at the expense of or to the     
detriment of the Company, (iv) repeated failure to perform customary duties of  
his position following notice from the Board (with Executive not participating  
or voting if Executive is a director) or (v) conviction of Executive of any     
felony or any other crime relating to the performance of his duties.            

   5.3     Death or Disability.  If the Executive dies or is disabled during
the Term, the Executive's estate or the Executive, as the case may be, shall    
be entitled to receive the Base Compensation provided in Section 3.2 for the    
calendar quarter during which death or disability occurs and the succeeding     
two calendar quarters.                                                          

SECTION 6.  ASSIGNMENT AND DISCLOSURE OF INVENTIONS.                            

 6.1     For purposes of this Agreement, the term "Inventions" means all
inventions, discoveries, improvements or modifications to inventions or         
discoveries, whether patentable or not, which are conceived of, reduced to      
practice, or both conceived of and reduced to practice, by the Executive at     
any time during the employee's period of employment and which are used or       
useful by the Company in any of its lines of business.                          

6.2     The Executive hereby assigns all Inventions to the Company.   

   6.3     The Executive will disclose any Invention promptly to the Company
and the Executive hereby assigns the Company all rights to any Invention.  The  
Executive will sign all documents necessary for the Company to apply for and    
obtain domestic and foreign patents for Inventions.  The obligations of the     
Executive to sign such documents will continue beyond the termination of        
employment with respect to Inventions, discoveries and improvements, whether    
patentable or not, conceived or made by the Executive during the period of      
employment.                                                                     

SECTION 7.  AVOIDANCE OF CONFLICT OF INTEREST.                                  

While employed by the Company, Executive will not engage in any other 
business activity which conflicts with Executive's duties to the Company.       
Under no circumstances will Executive be employed by, be a consultant to or     
otherwise act on behalf of any competitor or have any financial interest in     
any competitor of the Company; provided, however, that this Agreement does not  
prohibit investment of a reasonable part of Executive's assets in the stock or  
securities of any competitor whose stock or securities are publicly traded.     

SECTION 8.  CONFIDENTIALITY.                                                    

8.1     Executive recognizes and acknowledges that the systems and    
software which the Company owns, plans or develops, or acquires from third      
parties, whether for its own use or for use by its clients, are developed as a  
result of an expenditure of time and expense, are confidential in nature and    
are the trade secrets, proprietary to and the property of the Company.          
Executive further recognizes and acknowledges that in order to enable the       
Company to perform services for its clients, such clients may furnish to the    
Company confidential information concerning their business affairs, property,   
methods of operation, lists of customers and customer information or other      
data and that the good will afforded to the Company depends upon, among other   
things, the Company and its Executives keeping such services and information    
confidential.                                                                   

8.2      For the purposes of this Agreement, a "Trade Secret" is any  
scientific or technical information, design, process, procedure, formula or     
improvement that is valuable and not generally known to competitors of the      
Company including but not limited to computer software programs.  Examples      
are the specialized information and technology relating to the Company's        
business.  "Confidential Information" is any data or information, other than    
Trade Secrets, that is competitively sensitive, and not generally known to the  
public, including but not limited to the Company's customer lists, prospect     
lists, trading manuals, product development plans, marketing strategies and     
internal performance statistics.                                                

  8.3     Executive shall not, for the duration of this Agreement, nor any
time thereafter, without the prior written consent of the Company, disclose     
any Trade Secret or Confidential Information of the Company or its clients to   
its clients or any third parties, or, permit or cause any person or             
organization:                                                                   

   (a)     to copy or duplicate any physical form of the Company's
Trade Secrets or Confidential Information to or from any medium except for      
archival, security or other regular business purposes; or                       

     (b)     create or recreate, or attempt to create or recreate, the
source programs, object code or any other aspect of the Trade Secrets or        
Confidential Information of the Company, in all or in part; or                  

        (c)     to place such Trade Secrets or Confidential Information into
the public domain.                                                              

8.4     Executive shall limit access to all media containing the      
Company's and or its clients' Trade Secrets or Confidential Information to its  
employees and agents necessary to permit Executive to perform tasks require     
pursuant to this Agreement.  Executive further agrees to store all media and    
documentation upon which the Company's and or its clients' Trade Secrets and    
Confidential Information are recorded in a secure place, except when being      
used, and will exercise all other reasonable precautions to prevent             
unauthorized access, whether direct or indirect.  Executive shall not           
disclose, transfer, use, copy or allow access to any such Trade Secrets or      
Confidential Information to any employees or third parties.                     

8.5     Upon the request of the Company and, in any event, upon the   
termination of Executive's employment, Executive will leave with the Company    
and or its clients' all computer programs, documentations, code, memoranda,     
notes, records, drawings, manuals, flow charts, or other documents pertaining   
to the Company's business or Executive's employment (including all copies       
thereof).  Executive will also leave with the Company and or its clients all    
materials involving any Trade Secrets or Confidential Information of the        
Company or the Company's clients.                                               

8.6     During the course of employment, Executive agrees to treat all
Trade Secrets and Confidential Information of the Company and its clients as    
confidential and to take all necessary precautions against disclosure of such   
information to third parties during and after the term of this Agreement.       

SECTION 9.  RESTRICTIONS ON COMPETITION AND SOLICITATION.                       

  9.1     Executive recognizes that the scope of the Company's business is
international in scope and not just limited to any single state or region of    
the United States.  Executive covenants and agrees that from the date hereof    
and for a period of two (2) years after termination of this Agreement, he will  
not engage in any business, whether as officer, director, consultant, partner,  
guarantor, principal, agent, employee, advisor or in any other manner, which    
competes with the business of the Company as it is engaged in at the time of    
the termination of this Agreement, unless at the time  of such termination or   
thereafter during the non-competition period the Company ceases to be engaged   
in such activity.                                                               

   9.2     Executive further agrees that, during the term of this Agreement,
and for a period of two (2) years thereafter, Executive shall not attempt to    
sell any competing goods or services to any client to whom the Company          
introduces Executive, nor shall Executive do any work for or contract with any  
client or customer to whom the Company introduces Executive.                    

 9.3     During employment with the Company, and for a period of 2 years
thereafter, Executive will not solicit, entice or persuade any other Executive  
of the Company or the Company's clients to leave the services of their Company  
for any reason.                                                                 

9.4     Executive agrees that the foregoing restrictions are fair and 
reasonable considering the scope of Executive's employment, salary and          
benefits provided by the Company and Executive further agrees that such         
restrictions will not unduly restrict or prohibit Executive from obtaining      
gainful employment in his or her chosen profession.                             

9.5     The Company recognizes that the scope of this Section 9 may   
prevent Executive from obtaining comparable employment during the two (2) year  
period and, therefore, agrees to pay to Executive during such two (2) year      
period the Base Compensation, plus all employee benefits, reduced by any        
earned income from other sources received by Executive.                         

SECTION 10.  INJUNCTIVE RELIEF.                                                 

   Executive acknowledges that disclosure of any Trade Secrets or disclosure
of any Confidential Information or any breach of any restrictive agreements     
contained herein will give rise to irreparable injury to Employer or clients    
of the Company.  The damage done to the Company will be difficult to ascertain  
and the Company will be inadequately compensated in damages.  Accordingly, the  
Company may seek and obtain injunctive relief against the breach or threatened  
breach of the foregoing undertakings, in addition to any other legal remedies   
which may be available.  The Executive further acknowledges and agrees that     
covenants contained herein are necessary for the protection of the Company's    
legitimate business interests and are reasonable in scope and content.          

SECTION 11.  SEVERABILITY.                                                      

  If any provision of this Agreement shall, for any reason, be adjudged by
any court of competent jurisdiction to be invalid or unenforceable, such        
judgment shall not affect, impair or invalidate the remainder of this           
Agreement but shall be confined in its operation to the provision of this       
Agreement directly involved in the controversy in which such judgment shall     
have been rendered.                                                             

SECTION 12.  SUCCESSORS AND ASSIGNS.                                            

This Agreement shall be binding upon and inure to the benefit of the  
Company, its successors and assigns and shall be binding upon and inure to the  
benefit of the Executive and his heirs, executors, administrators, legal        
representatives and assigns.                                                    

SECTION 13.  NOTICES.                                                           

   All notices, requests, demands and other communications hereunder must be
in writing and shall be deemed to have been duly given if mailed by first       
class certified mail, return receipt requested, postage prepaid, addressed as   
follows:                                                                        

(a)  to the Executive:                                      

Walter N. Kreil, Jr.                              
875 Bradford Avenue                               
Westfield, NJ  07090                              

(b)  to the Company:                                        

President                                         
Andal Corp.                                       
200 Roundhill Drive                               
Rockaway, NJ  07866                               

Either party by notice in writing mailed to the other as hereunder provided     
may change the address to which future notices to such party shall be mailed.   

SECTION 14.  MISCELLANEOUS.                                                     

This Agreement shall be construed and enforced in accordance with, and
governed by, the laws of the State of New Jersey, without reference to          
principles of conflicts of law.  This Agreement embodies the entire agreement   
and understanding between the Company and the Executive and supersedes all      
prior agreements and understandings relating to the subject matter hereof.      
This Agreement may not be modified or amended or any term or provision thereof  
waived or discharged except in writing signed by the party against whom such    
amendment, modification, waiver or discharge is sought to be enforced.  The     
headings of this Agreement are for the purpose of reference only and shall not  
limit or otherwise affect the meaning thereof.                                  

 IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.                           

THE COMPANY:                  
ANDAL CORP.                   

PETER D. FLOOD          
         By:____________________________________
             Peter D. Flood, Chairman of the Board

THE EXECUTIVE:                

WALTER N. KREIL               
         _______________________________________
Walter N. Kreil               

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EXHIBIT 22              

SIGNIFICANT SUBSIDIARIES OF THE COMPANY                 

                              State or Other
                                 Jurisdiction of
                              Incorporation or
Name                                        Organization              

Andal Corp. (parent)                         New York                           
Multi-Arc Inc.                             Delaware                         
Multi-Arc, Inc.                         Minnesota                     
Multi-Arc (U. K.) Ltd.                  United Kingdom                
Multi-Arc of Ohio, Inc.                 Ohio                          
Vagle Technology, Inc.                  Michigan                      
SCI Coatings Southwest, Inc.       Texas                    
Scientific Coatings, Inc.          Michigan                 
Multi-Arc Inc.                     Canada                   
Scientific Coatings of                                      
Illinois, Inc.                     Michigan                 

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EXHIBIT 24(a)                                                                   

Kelly Graham Myska & Partners                           211 Water Street North  
Chartered Accountants                                            P. O. Box 880  
                                                  Cambridge, Ontario N1R 5X9
                                                    Telephone (519) 623-1870
                                                          FAX (519) 623-9490

We consent to the use of our reports on the statement of earnings, financial    
position and changes in cash position for the fiscal year ended September 30,   
1996 of Multi-Arc Inc. included in the Annual Report of Form 10-K of Andal      
Corporation and the Registration Statement S-9 of Andal Corporation which       
incorporates such Annual Report by reference.                                   

                       /s/ Kelly Graham Myska & Partners
Cambridge, Ontario                      Chartered Accountants                   

November 1, 1996                                                                

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EXHIBIT 24(b)                                                                   

KPMG                                                                            
Quayside House                Tel +44 (0) 191 232 8815                          
110 Quayide                   Fax +44 (0) 191 232 3391                          
Newcastle upon Tyne                                                             
NE1 3DX                                                                         

Private & confidential                                                          
WN Kreil Esq                                                                    
Multi-Arc Scientific Coatings                                                   
200 Roundhill Drive                Our ref   pbm/321                            
Rockaway                                                                        
NJ 07866                           Contact   Paul Moran                         
United States of America                     0191 401 3786                      

8 January 1997                                                                  

Dear Sir                                                                        

Multi-Arc (UK) Limited                                                          

On 14 December 1994 we gave our consent to the use of our audit reports for     
the purposes of the 1994 filing requirements of Andal.  These audit reports     
were issued on the financial statements of Multi-Arc (UK) Limited for the year  
ended 30 September 1994 and were contained in our letter of 14 December 1994.   
We hereby confirm that we consent to the use of these reports for the purposes  
of the 1996 filing requirements of Andal.                                       

Yours faithfully                                                                

/s/ KPMG                                                                        
KPMG                                                                            

                 KPMG is registered to carry on         INVESTOR IN PEOPLE
Member firm of      audit work and authorised to                                
KPMG International  carry on investment business by                             
the Institute of Chartered              
Accountants in England and Wales.       
The principal place of business         
is 8 Salisbury Square, London           
EC4Y 8BB where a list of partners'      
names is open to inspection.            

Dates Referenced Herein   and   Documents Incorporated By Reference

				Referenced-On Page
This 10-K Filing		Date		First		Last			Other Filings
		1/1/92		22
		6/15/93		7		21
		9/30/93		7		21
		10/1/93		16
		9/24/94		22
		9/30/94		7		22
		6/15/95		7		22
		6/30/95		16					10-Q
		9/21/95		7		21
		9/30/95		2		21			NT 10-K, 10-K
		10/5/95		2		16
		11/21/95		2		16
		3/4/96		2		16
		5/7/96		2		16
		5/8/96		2		16
		6/30/96		7		22			10-Q
		7/10/96		2		21
		8/1/96		2		16
		8/27/96		2		22
		8/30/96		7		21			8-K
		8/31/96		2		21
		9/1/96		22
For The Period Ended		9/30/96		1		25			NT 10-K
		10/1/96		22
		11/1/96		25
		11/30/96		4		5
		12/31/96		1		22			10-Q
		1/29/97		10
		1/30/97		9
Filed On / Filed As Of		1/31/97
		9/1/97		22
		9/15/97		7		21
		9/29/98		2		16
		9/30/98		22
		9/1/99		16		22
		8/31/1		23
		9/30/1		5
		8/1/3		22
		9/1/3		22
		12/15/4		6		22
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