SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended March 31, 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: 0-10909
CORNICHE GROUP INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 22-2343568
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification No.)
Wayne Interchange Plaza I
145 Route 46 West, Wayne, NJ 07974
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (201) 785-3338
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
(title of class)
Indicate by check mark whether 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
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. [ ]
[Cover page 1 of 2]
[Page 1 of 210 pages]
[Exhibit Index at page 59]
<PAGE>
$904,604 as of March 19, 1997
(Aggregate market value of the voting stock
held by non-affiliates of registrant)
2,412,278 shares, $.10 par value, as of March 19, 1997
(Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date)
DOCUMENTS INCORPORATED BY REFERENCE
Annual Reports on Forms 10-K of Registrant for the
years ended March 25, 1995 and September 30, 1994
Proxy Statement of Registrant --
September 28, 1995 Annual Meeting of Stockholders
[Cover Page 2 of 2 pages]
<PAGE>
PART I
ITEM 1. BUSINESS
History
Registrant was incorporated in Delaware on September 18, 1980 under the
name Fidelity Medical Services, Inc. On July 28, 1983 Registrant changed its
name to Fidelity Medical, Inc. From its inception through March 1995
Registrant was engaged in the development, design, assembly, marketing and
sale of medical imaging products through its wholly-owned subsidiary, Fidelity
Medical, Inc., a New Jersey corporation ("FMI"). On March 2, 1995 Registrant
acquired Corniche Distribution Ltd. ("CDL"), a United Kingdom ("UK")
corporation established in 1992. At such time, CDL was a holding company for
two operating subsidiaries, Chessbourne International Ltd. ("Chessbourne"), a
distributor/supplier of stationery products and office furniture, and The
Stationery Company Limited ("TSCL"), a stationery retailer. The acquisition
of CDL resulted in the former shareholders of CDL, Brian J. Baylis and Susan
A.M. Crisp, owning a majority of the outstanding common shares of Registrant
after the acquisition and was treated as a recapitalization of CDL with CDL
being treated as the acquirer. Accordingly, Registrant changed its fiscal
year to the last Saturday in March of each year in order to conform to the
fiscal years of its UK operating subsidiaries and, unless otherwise indicated,
the financial information and data thereafter contained in Registrant's
financial reports related to the operations of CDL alone for periods prior to
March 2, 1995. At the time of the CDL acquisition, CDL owned 51% of the
common stock of Chessbourne, the other 49% being owned by an unrelated entity,
Ronatree Limited ("Ronatree"), a property investment company. In connection
with the CDL acquisition, Registrant acquired the 49% interest of Ronatree in
Chessbourne by issuing to Ronatree 25,000 shares of its common stock. At such
time and in furtherance of the CDL acquisition, Registrant also issued 215,150
shares of its common stock to Chester Holdings, Ltd ("Chester"), a Colorado
corporation, in order to induce Chester to agree to terminate a pre-existing
agreement giving Chester the right to acquire CDL and to further induce
Chester to forgive approximately $71,000 of net indebtedness owing to Chester
by CDL and its subsidiaries.
Effective March 25, 1995, Registrant sold its wholly-owned medical
imaging products subsidiary, FMI, to Chester in exchange for the 215,150
shares of Registrant's common stock previously issued to Chester in connection
with Registrant's acquisition of CDL and Chester's Promissory Note and Option
Agreement dated as of March 25, 1995 (the "Note and Option Agreement"). The
Note and Option Agreement contained an 8% promissory note from Chester to
Registrant in the principal amount of $200,000 due October 1, 1995 (the
"Note"). It also included an option, in favor of Registrant, to apply the
unpaid principal balance and accrued interest due on the Note to the purchase
of shares of FMI, Chester or any other parent company to which Chester may
have transferred the FMI stock, at the fair market value of such shares.
Registrant's medical imaging products business had been generating significant
losses for a number of years resulting in the decision to dispose of the
medical imaging products business and to focus Registrant's business
operations on the development and expansion of its stationery operations. The
Note was not paid by Chester on its due date. However, during the period May
1996 through July 1996 Chester paid Registrant $125,000 of the principal sum
due Registrant under the Note. All accrued interest due under the Note and
the remaining principal balance of $75,000 has not been paid as of the date
hereof. Registrant expects to exercise the option applicable to the unpaid
balance on the Note to purchase voting shares of Medical Laser Technologies,
Inc., the corporate parent of FMI, although no assurance can be given that
this will prove to be the case.
Following the sale of FMI, Registrant's business operations consisted of
the retail stationery operations and brand marketing and stationery wholesale
operations of TSCL and Chessbourne respectively. These operations were funded
in large part from loans made by the Bank of Scotland, Registrant's primary
lender, to each of CDL, TSCL and Chessbourne over a period of several years.
In accordance with customary UK practice, the Bank of Scotland, when making
such loans obtained security for these loans by means of mortgages over fixed
assets ("Fixed Assets") and debentures over pools of assets which by their
nature will
<PAGE> 3
change from time to time ("Floating Changes"). Such security interests in the
assets of each of CDL, TSCL and Chessbourne were reflected in documents known
as Fixed and Floating Charges. The Bank of Scotland executed Fixed and
Floating Charges with CDL, TSCL and Chessbourne on April 7, 1995, November 16,
1993 and March 27, 1987, respectively. The Fixed and Floating Charges
contained powers for the Bank of Scotland to appoint an administrative
receiver for the assets covered by the security interests. Registrant
experienced large operating losses and net cash outflows from operating
activities during fiscal 1996 resulting in severe liquidity problems.
Registrant was unable to secure badly needed interim financing either in the
form of additional loans or the conversion of bank debt to equity.
Consequently, the Bank of Scotland had Chessbourne and TSCL placed into
receivership in the UK on February 7, 1996 and had CDL placed into
receivership in the UK on February 28, 1996. Since such time, Registrant has
been inactive.
General
During the period March 26, 1995 through February 7, 1996 Registrant was
engaged in the retail sale and wholesale distribution of stationery and
related office products, including office furniture, in the UK through
Chessbourne and TSCL. Chessbourne's operations consisted of the distribution
and sale at wholesale of a wide variety of branded stationery products in
England and Scotland, including products distributed under Chessbourne's
proprietary "Style" brand. TSCL's business consisted of the operation of
retail stationery stores in England. Prior to March 25, 1995, Registrant was
engaged in the development, design, assembly, marketing and sale of medical
imaging products through its wholly-owned subsidiary, FMI. As of March 25,
1995, Registrant discontinued those operations and sold that business to
Chester. Such sale was intended to enable Registrant to terminate the
significant cash outflows and operating losses being realized from the
operation of the medical imaging products business and to permit it to focus
its efforts and resources on its newly-acquired U.K. stationery business.
On March 31, 1995 TSCL acquired seven fully operational retail stationery
stores. The consideration paid totaled approximately $772,000 and was paid
substantially by way of the assumption of liabilities. The assets acquired
were independently valued at approximately $374,000 and in addition to
assumption of liabilities in the amount of approximately $1,121,000, TSCL also
paid $25,000 in cash. The liabilities assumed comprised a bank loan
($320,000), trade payables ($383,000) and amounts due to Chessbourne and TSCL
of approximately $418,000. The bank loan carried an interest rate of 2% over
the lending bank's primary rate and was collateralized by the assets of TSCL.
In June 1995, CDL acquired a freehold interest in a Leek, Staffordshire
warehouse and office facilities for a cash consideration of approximately
$240,000. The consideration was partly funded by a $152,000 fifteen year
business loan from Lloyds Bank Plc, banker and secured lender to CDL. The
loan was secured by a mortgage on the property which became due following the
institution of receivership proceedings. The loan carried a variable interest
rate which was .85% per month at the time the loan was made. Principal and
interest due on the loan were repayable in equal monthly installments over the
term of the loan. The Leek facilities had been occupied by TSCL under lease
from a non-affiliated landlord since July 1994. These facilities were used
for the storage and distribution of inventory for TSCL and also housed the
marketing, buying and administrative functions of Chessbourne and TSCL.
Operations of Chessbourne
CDL's wholesale stationery operations commenced in October 1993 with its
acquisition of Chessbourne. At the time of such acquisition, Chessbourne's
business was being operated as a traditional wholesale distribution operation
with Chessbourne purchasing and distributing stationery products, office
supplies and office furniture manufactured by third parties. Shortly
thereafter, Chessbourne's wholesale operations were expanded to include both
traditional wholesale distribution activities as well as the
<PAGE> 4
development of a line of stationery products to be marketed and sold under
Chessbourne's proprietary "Style" brand.
The customers of Chessbourne's wholesale operations were primarily small,
independently-owned stationery and office supply stores, other stationery
wholesalers and distributors, several small chain stationery stores and
specialist and non-specialist retailers and retail groups. During the 40 week
period ended December 30, 1995, approximately 15% of Chessbourne's sales were
made to TSCL's retail stores.
Until April 1995, Chessbourne maintained a large warehouse and filled and
shipped orders for stationery and office supply products using its own
personnel. In April 1995, however, Chessbourne closed its stationery and
office supplies warehouse and entered into an agreement with a third-party
warehouse operator to provide warehouse space and order filling and shipping
services for its products on a fee-for-service basis. Chessbourne's
outsourcing of its warehousing operations was intended both to reduce its
costs of operations and to permit Chessbourne to devote a greater portion of
its resources to the development and marketing of its "Style" brand products.
Notwithstanding the closure of its stationery and office supplies
warehouse, Chessbourne continued to maintain a warehouse and showroom from
which it filled and shipped orders for office furniture using its own
personnel. Chessbourne sold its office furniture products to retail sellers
of office supplies and office furniture, to designers of office interiors, and
to commercial end users. Chessbourne's wholesale stationery business
generally shipped goods to fill small orders within five days of receiving
orders therefor. Large orders from major customers were generally received
well in advance of the requested date. Chessbourne's wholesale sales were
primarily made on open account with payment generally being due within 35 days
of shipment.
Through February 1996, when it was placed into receivership, Chessbourne
devoted substantial resources to the development and marketing of its line of
stationery products and office supplies being marketed and sold under
Chessbourne's proprietary "Style" brand. The "Style" brand line of products
was intended to be value-oriented while still maintaining a high level of
quality. As of February 1996, Chessbourne was using the "Style" brand name on
a wide variety of stationery and office supplies and was marketing
approximately 500 items under the "Style" brand. Sales of Chessbourne's
"Style" brand products accounted for approximately 90% of the Registrant's
wholesale sales for the 40 week period ended December 30, 1995 (85% for the
comparable period during fiscal 1995). Further development of the "Style"
brand was adversely impacted by the Registrant's operating losses and working
capital limitations which ultimately resulted in a shortage of key inventory
lines.
Chessbourne did not manufacture any of its "Style" brand products.
Instead, Chessbourne designed such products and contracted with various third
party manufacturers to manufacture and/or print those products to
Chessbourne's specifications. Chessbourne utilized short-term contracts and
limited or single production run purchase orders and was not a party to any
long-term manufacturing contracts. Chessbourne's customer base for its
"Style" brand products included a number of specialist and non-specialist
retailers, including TSCL, and distributors and other wholesalers.
Chessbourne maintained an in-house marketing department to promote its
wholesale business and products. Customer awareness of Chessbourne's
wholesale operations and its products was achieved through promotional
literature, incentives, catalogs, trade shows and in the case of furniture
products, brochures. A team of in-house account managers was utilized to
increase sales to existing customers and expand the customer base through
telemarketing and sales calls. Advertising consisted of brand promotions,
seasonal support and direct offers to customers. During the 40 week period
ended December 30, 1995, Chessbourne employed approximately 9 people full-time
in its wholesale marketing department.
<PAGE> 5
Operations of TSCL
In addition to Chessbourne's wholesale operations, Registrant, through
TSCL, operated a chain of retail stationery stores in the UK which sold social
and commercial stationery products, gift items, greeting cards and writing
instruments to individuals and large and small businesses. TSCL's stores were
primarily designed and operated as traditional stationery and office supplies
retail stores. Throughout TSCL's existence as a subsidiary of Registrant,
Registrant was constantly seeking to expand the operations of TSCL through the
acquisition of similar retail chains and the opening of additional stores in
target market areas of the UK. These expansion plans were adversely impacted,
however, by Registrant's operating losses and working capital deficiency which
ultimately lead to TSCL being placed into receivership on February 7, 1996.
TSCL's retail stores offered a wide range of social and commercial
stationery products. These retail stores sold approximately 2,500 products,
including a selection of Chessbourne's "Style" brand products, with
approximately 14,000 other products being available within 24 hours by special
order. In addition, many of the stores provided business services including
printing, binding, photocopying and facsimile transmission and receipt, while
others sold a limited range of office furniture. Approximately 80% of the
merchandise sold in each store consisted of products sold by all of the retail
stores. The balance of approximately 20% of the merchandise offered and sold
was specifically tailored to perceived needs of the customers of each
individual store.
Through February 1996, TSCL was attempting to implement a policy to
divide its retail stores into two different but related store concepts, each
operating under a different trade name. Certain of TSCL's stores were being
converted to operate under the trade name "Memo". Each of these stores was
operated as conventionally-merchandised stationery store of approximately
1,500 square feet. Each Memo store contained conventional stationery products
and standard retail fixturing and relied on conventional merchandising
techniques, stylish displays and appropriate point of sale material. These
stores were located primarily in more affluent areas within TSCL's geographic
retail market.
The balance of TSCL's stores were being converted to operate as price and
value oriented stationery stores under the name "Memo Express". Initially,
these stores were approximately the same size as the Memo stores, although
TSCL believed that the Memo Express concept and style was adaptable to larger,
warehouse-style stores. Memo Express stores featured metal racking in TSCL's
corporate colors and "cut case" presentations of products with the intention
of highlighting pricing and enhancing the appearance of value. Memo Express
stores were intended to be primarily located in areas of significant
commercial activity and more working class neighborhoods and marketed to
businesses and other cost-conscious buyers. Both retail concepts featured
products marketed and sold under the proprietary "Memo" and "Style" brands.
In addition to promoting uniformity of store design, TSCL was also in the
process of developing a value priced line of stationery products to be
marketed under its proprietary "Memo" brand. Like Chessbourne's "Style" brand
of products, TSCL's "Memo" brand of products was intended to include a broad
array of stationery and office supply products. Also, like the "Style"
products, TSCL intended to attempt to promote brand loyalty through the use of
uniform product packaging. Unlike Chessbourne's "Style" brand products,
however, the "Memo" brand products were exclusive to TSCL's retail stores and
were planned to be fundamental to generating customer loyalty to those
stores. At the time of the February 1996 receivership, TSCL's "Memo" brand
product line was still under development and only a limited number of such
products had become available in its stores.
TSCL's retail operations attempted to increase sales by the use of
seasonal promotions, in-store promotions, such as sale pricing, and
advertising. All of TSCL's promotional activities were conducted by TSCL's
management with input from store managers. TSCL also entered into
arrangements with manufacturers for special promotions, such as the sale of
advertising space on TSCL's retail stores' shopping bags and by special
introductory promotions.
<PAGE> 6
Annual Meeting of Shareholders
On September 28, 1995 Registrant conducted its Annual Meeting of
Stockholders. At such meeting (i) Brian J. Baylis, Susan A.M. Crisp, James
Fyfe, George Lombardi and Mathew P. Pazaryna were elected as directors of
Registrant; (ii) Registrant received approval to change its name from Fidelity
Medical, Inc. to Corniche Group Incorporated; (iii) Registrant received
approval for a ten for one reverse split of its outstanding common stock to be
effective October 1, 1995 and an increase in the par value of each share of
common stock from $.01 to $.10; and (iv) Registrant received approval to
increase the number of shares of its authorized preferred stock from 1,000,000
shares to 5,000,000 shares. To effectuate the name change, change in par
value of common stock, and increase in number of authorized shares of
preferred stock, Registrant amended its Certificate of Incorporation on
September 28, 1995.
Receivership Proceedings
As the result of Registrant's inability to overcome its liquidity
problems and reverse the trend of recurring and significant operating losses,
the Bank of Scotland, Registrant's primary banker and secured lender in the
UK, appointed receivers to Chessbourne and TSCL on February 7, 1996 and to CDL
on February 28, 1996. (See Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations). The receiverships resulted in
the discontinuation of all of Registrant's business operations.
Under UK law, Registrant is not liable for the liabilities of CDL, TSCL
and Chessbourne absent a guarantee or other enforceable promise by Registrant
to pay such liabilities. (See "Opinion Letter of Smithsons Solicitors"
included herewith and filed with the Securities and Exchange Commission as
Exhibit 99(a).) Registrant has given no such guarantee or promise and as such
has no liability for the payment thereof. Similarly, the appointment of an
administrative receiver in respect of the assets of CDL, TSCL and Chessbourne
has no effect on the assets of Registrant. Notwithstanding the foregoing, the
receivers for CDL made certain claims against Registrant for sums allegedly
owed to CDL by Registrant in connection with a contested share issue. To
resolve such dispute, a Compromise Agreement dated March 4, 1996 between
Registrant, CDL and the receivers for CDL was entered into which had the
effect of releasing Registrant from any and all liability to CDL upon
performance by Registrant of its obligations under that agreement. In
connection therewith Registrant issued a promissory note to the Bank of
Scotland, the secured creditor of CDL, in the principal amount of 50,000
pounds sterling (£50,000). On January 30, 1997, Registrant paid off the
Note in full, including all interest accrued thereon through the date of
payment and executed a Mutual Release with the Bank of Scotland (See Item 1.
Business - Subsequent Events).
In connection with the receiverships, Brian J. Baylis and Susan A.M.
Crisp, Registrant's then chief executive officer and chief financial officer,
who collectively owned approximately 45% of Registrant's outstanding common
stock entered into pledge agreements (the "Pledge Agreements") whereby they
pledged their common shares of Registrant to the Bank of Scotland as
collateral against the shortfall which was to be realized by the Bank of
Scotland in the receivership proceedings. Pursuant to Pledge Agreements dated
February 19, 1996 and February 21, 1996 Brian J. Baylis and Susan A.M. Crisp
pledged 877,800 shares and 219,450 shares, respectively, of Registrant's
common stock to the Bank of Scotland. The shares were pledged to
collateralize the February 19, 1996 personal guarantees of Brian J. Baylis and
Susan A.M. Crisp to the Bank of Scotland with respect to certain liabilities
of CDL, TSCL and Chessbourne to the Bank of Scotland.
<PAGE> 7
Reverse Stock Split
On October 1, 1995, Registrant effected a one for ten reverse split of
its common stock. In connection therewith Registrant increased the par value
of such common stock from $.01 to $.10 per share. Registrant had 24,083,075
shares of common stock issued and outstanding prior to reverse stock split and
approximately 2,408,307 shares of common stock issued and outstanding
following the effectiveness of the reverse stock split. Additionally,
Registrant had 3,806,128 shares of common stock reserved for issuance prior to
the reverse split and approximately 380,613 shares of common stock reserved
for issuance following the effectiveness of the reverse stock split. In
connection with the reverse split, Registrant did not issue fractional shares
choosing instead to pay shareholders otherwise entitled to a fractional share
the cash value thereof. Except where specifically noted, all references in
this Form 10-K to Registrant's common shares give effect, and in some cases
retroactive effect, to Registrant's October 1, 1995 one for ten reverse split.
The purpose of effecting the reverse split was twofold. First and
foremost, it was done in an effort to avoid having Registrant's common stock
delisted from the NASDAQ Small Cap Market by reason of not maintaining a
minimum share bid price of $3 per share. Despite the effectuation of the
reverse split, however, Registrant's common stock was delisted from the Small
Cap Market on October 11, 1995 due to Registrant's failure to maintain a
minimum share bid price of $3 per share and failure to maintain a required
minimum level of capital and surplus. The secondary reason for the reverse
split was to significantly reduce the number of Registrant's common shares
issued and outstanding and the number of common shares reserved for issuance
thereby granting the Registrant the flexibility of engaging in future equity
financings or acquisitions utilizing Registrant's common stock without having
to amend its Certificate of Incorporation to increase the number of authorized
common shares.
Increase In Authorized Number of Preferred Shares
Effective September 28, 1995, Registrant amended its certificate of
Incorporation to, among other things, increase the number of shares of its
authorized preferred stock, $.001 par value per shares, from 1,000,000 to
5,000,000. At the time of such amendment, Registrant had 946,069 shares of
its Series A $.07 Convertible Preferred Stock issued and outstanding leaving
few additional shares of preferred stock available for issuance. The increase
was deemed necessary and desirable by Registrant to permit Registrant the
flexibility of engaging in future equity financings or acquisitions utilizing
preferred stock.
Securities Offerings
Simultaneously with Registrant's acquisition of CDL on March 2, 1995,
NWCM Limited, a Hong Kong investment banker ("NWCM"), agreed, on a staggered
basis, to raise up to $5,000,000 of new equity capital for Registrant on a
"best efforts" basis. The offering was conducted pursuant to the requirements
of Regulation S of the Securities Act of 1933, as amended, and was made solely
to experienced, sophisticated investors who were "non-U.S. persons". An
initial offering of up to 600,000 shares of Registrant's common stock was made
at a price of $2.00 per share. Through the conclusion of the offering on
September 8, 1995, 528,600 of such shares were sold at an aggregate purchase
price of $1,057,200, which resulted in net proceeds to Registrant of $880,336
after the payment of a $50,000 due diligence fee, 10% sales commissions and
2% non-accountable expense allowance to NWCM. No additional equity capital
was raised by NWCM on behalf of Registrant subsequent to September 8, 1995 and
there are no existing plans for NWCM to undertake any further equity offerings
on behalf of Registrant.
On March 13, 1995 NWCM negotiated the conversion of a promissory note of
Registrant in the amount of $300,000 payable to Avalon Investments Ltd. on
November 30, 1995, into 150,000 shares of the
<PAGE> 8
common stock of Registrant. NWCM was paid a commission of $36,000 in respect
of such conversion. The promissory note had been entered into pursuant to a
bridge financing agreement in December 1994.
Other Matters
Registrant currently has no employees and pays no salaries, wages, or
similar compensation. James Fyfe is Registrant's sole executive officer and
director.
Subsequent Events
Transfer of Pledged Securities
Effective January 30, 1997 Registrant entered into a Stock Purchase
Agreement with the Bank of Scotland and twelve unrelated persons whereby
1,042,250 of the 1,097,250 shares of Registrant's common stock pledged to the
Bank of Scotland by Brian J. Baylis and Susan A.M. Crisp to secure certain
debts of Registrant to the Bank of Scotland (See Item I. Business -
Receivership Proceedings) were sold by the Bank of Scotland, following a
default in the obligation secured by the pledge, to such twelve persons, at a
price of $.12 per share or $125,070 on an aggregated basis.
Resignation of Director
In September 1996, Mathew P. Pazaryna, a director of Registrant since
1993, was deemed to have resigned his position as such. (See Item 10.
Directors and Executive Officers of Registrant).
Payment on Promissory Note to Bank of Scotland
On January 30, 1997 Registrant paid the Bank of Scotland $89,374.49 in
full satisfaction of all principal and interest due under Registrant's
February 1996 promissory note to the Bank of Scotland in the principal amount
of fifty thousand pounds sterling (£50,000). The note had been issued
to settle a disputed claim with the receivers for CDL. (See Item 1.
BUSINESS-Receivership Proceedings). In consideration thereof, the parties
executed a Mutual Release dated as of January 30, 1997 whereby the Bank of
Scotland released Registrant and James Fyfe, Registrant's sole officer and
director, from all liabilities, accounts, courses of action, sums of money,
reckonings, contracts, controversies, agreements, damages, judgments,
executions, claims, demands, debts, obligations, promises, covenants, actions
and undertakings which against Registrant or Fyfe the Bank of Scotland ever
had, had at the time of the release, or could thereafter have by reason of any
matter up to and through the date of the release and Registrant and Fyfe
released the Bank of Scotland in similar fashion.
Consulting Agreement
On September 23, 1996 Registrant entered into a six month consulting
agreement with Albermarle Investments & Consulting S.A. ("Albermarle"), a
financial consulting firm. The consulting agreement, which ran from October
1, 1996 thorugh March 31, 1997, required Albermarle to provide Registrant with
advisory and investment banking services which included, among other things,
(i) reviewing and reorganizing Registrant's stock structure to facilitate a
viable future financing strategy for Registrant; (ii) assisting Registrant to
secure interim financing to settle outstanding liabilities; (iii) assisting
Registrant in completing outstanding
<PAGE> 9
regulatory filings; (iv) analyzing and evaluating potential public and private
financing options; and (v) identifying and evaluating acquisitions.
The consulting agreement provided for Registrant to pay Albermarle a fee
of $10,000 per month or an aggregate of $60,000. Due to its financial
situation, Registrant has not been able to make any payments due to Albermarle
pursuant to the consulting agreement.
Securities Offerings
During the fiscal year ended March 31, 1997 Registrant conducted two
private securities offerings pursuant to Rule 506 of Regulation D of the
Securities Act of 1933, as amended, one of which is still in progress. The
purpose of each of such offerings was, in part, to provide Registrant with the
ability to settle and pay off certain of its outstanding liabilities thereby
making it a desirable acquisition candidate. The first of such offerings
commenced in July 1996 and was completed in December 1996 upon the sale of 4
Units resulting in $100,000 in gross proceeds to Registrant. This offering,
of up to $300,000 in Units, was conducted on a "best-efforts" basis through
Robert M. Cohen & Co., Inc., a New York based broker dealer ("RMCC") and was
offered and sold in the form of $25,000 units. Each unit consisted of one
$25,000 face amount, 90 day, 8% convertible promissory note and one redeemable
common stock purchase warrant to purchase 60,000 shares of Registrant's common
stock at a price of $.50 per share during a period of three years from
issuance. All of the notes issued in such offering were subsequently paid in
full and all of the warrants issued in such offering were subsequently
redeemed by the Registrant at a price of $.075 per underlying share. The
second of such offerings commenced in January 1997 and is still in progress.
Similar to the prior offering, it is being conducted on a "best-efforts" basis
through RMCC and consists of $25,000 units, each consisting of one $25,000
face amount, 90 day, 8% convertible promissory note and one redeemable common
stock purchase warrant to purchase 60,000 shares of Registrant's common stock
at a price of $.50 per share during a period of three years from issuance.
This offering will involve the sale of up to 19 units resulting in gross
proceeds to Registrant of $475,000 if all of the Units offered are sold. As
of the date, hereof 14 Units have been sold by RMCC. In connection with each
of the offerings, Registrant has paid or is paying RMCC a sales commission
equal to 10% of the subscription price for each Unit sold.
ITEM 2. PROPERTIES
Registrant currently utilizes approximately 200 square feet of office
space, rent free, at the offices of its former subsidiary, FMI, as its
corporate office. These accommodations are made available under an informal
arrangement with FMI and are terminable at will by FMI.
Prior to on or about February 7, 1996, CDL was leasing approximately 1670
square feet of office space at 272 London Road, Wallington, Surrey in
England. In addition, a portion of Chessbourne's telemarketing staff
servicing southern England was based at these offices.
Through April 15, 1995 Chessbourne operated from 60,000 square feet of
warehouse and office space in Dundee, Scotland. On April 15, 1995 the lease
was canceled by agreement with the landlord. On that date, the marketing,
buying and administrative offices of Chessbourne were transferred to the TSCL
facilities at Leek, Staffordshire. In connection with the relocation of
Chessbourne's administrative offices, Chester also entered into a lease in
April 1995, in Dundee, Scotland, on a month to month basis, of approximately
1,800 square feet of office space to house certain of its telesales and its
legal and secretarial staff. Throughout the period of its ownership by CDL,
Chessbourne also leased 10,500 square feet of office, showroom and warehousing
space in Glasgow, Scotland which was used primarily for the sale of office
furniture.
<PAGE> 10
Prior to on or about February 7, 1996 TSCL operated from 20,000 square
feet of warehouse and office space in Leek, Staffordshire. That facility was
used for the storage and distribution of inventory and housed the
administrative offices of TSCL, including marketing, buying and finance
functions. From April 15, 1995 through on or about February 7, 1996 this
facility was also used to house the administrative and marketing offices of
Chessbourne. The Leek facility had been occupied under lease from an
unaffiliated landlord pending the June 1995 consummation of purchase by CDL
of the freehold interest in the property.
All of TSCL's retail outlets were located in leased facilities on
standard terms and with varying expiration dates. As a result of the
receivership proceedings involving Registrant's U.K. operations, which were
instituted in February 1996, all of the CDL, Chessbourne and TSCL properties
were handed over to the receivers and subsequently handed back to the landlord
or sold and the sale proceeds remitted to the secured lenders.
ITEM 3. LEGAL PROCEEDINGS
Registrant and certain of its former officers and directors were involved
in a shareholders' derivative action filed in Delaware Chancery Court filed on
April 7, 1995. The causes of action asserted included breach of fiduciary
duty, breach of duty of care and trust to the Registrant's shareholders, gross
negligence and mismanagement, as well as common law conspiracy and aiding and
abetting. The court granted Registrant's motion to dismiss by Opinion and
Order dated May 2, 1995. Registrant's litigation counsel thereafter advised
Registrant in June 1995 that the time for appeal regarding the derivative
action had expired.
Registrant filed a complaint in the Superior Court of New Jersey against
its former chief executive officer, Efriam Landa on May 4, 1995 alleging
breach of fiduciary duty. Mr. Landa answered the complaint on October 16,
1995 and asserted counterclaims. On December 5, 1996 (the "Release Date"),
Registrant and Landa entered into a Release Agreement dismissing the action
and releasing one another from any claims or rights each may have had against
the other based on circumstances created or arising before the Release Date.
On April 14, 1994, a former officer and director of Registrant, Rone H.
Lewis, filed suit against Registrant in Superior Court, Law Division, Morris
County (MRS-L-781-94), seeking damages for Registrant's alleged failure to
timely permit him to sell certain shares of Registrant's restricted common
stock. The complaint asserted consequential damages of approximately
$100,000. In December 1994, Registrant agreed to settle this claim for
$32,000. An initial settlement payment of $15,000 was made in January 1995,
and Registrant issued a two year 8% promissory note to Mr. Lewis dated January
12, 1995 with respect to the $17,000 principal balance. The note provided for
24 equal payments of $768.87 each. Registrant made the first 8 monthly
payments required under the note during the period February 1995 through
September 1995 leaving due a balance of 16 payments in the aggregate amount of
$12,301.92. Due to its financial problems, however, Registrant was thereafter
unable to make any further payments to Mr. Lewis on the note. In March 1997
Registrant and Mr. Lewis entered into a settlement agreement whereby Mr. Lewis
agreed to accept $5,000 in full satisfaction of all remaining sums due to him
under the note including accrued interest.
No other material legal proceedings are pending to which Registrant or
any of its property is subject, nor to the knowledge of Registrant are any
such legal proceedings threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Registrant submitted no matters to a vote of its security holders during
the fourth quarter of the fiscal year ended March 31, 1996.
<PAGE> 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
From April 4, 1994 until October 11, 1995 Registrant's common stock was
traded on NASDAQ's SmallCap Market under the symbol "FMSI". On October 11,
1995 Registrant's common stock was deleted from that system by reason of
Registrant's failure to meet required NASDAQ Small Cap Market listing
standards relating to minimum bid price per share and minimum capital and
surplus. Prior thereto, Registrant's common stock had been trading on
NASDAQ's National Market System. Since October 11, 1995 Registrant's common
stock has been listed for trading on the OTC Bulletin Board under the symbol
"CGII". The following table sets forth the range of high and low bid prices
of Registrant's common stock for periods since April 4, 1994. The quotations
represent prices between dealers in securities, do not include retail
mark-ups, mark-downs, or commissions and do not necessarily represent actual
transactions. The quarters referred to are based on Registrant's fiscal year
which for fiscal year 1995 ended on the last Saturday in March (March 25,
1995) and which for fiscal years thereafter, 1996 and beyond, ended on March
31.
<TABLE>
<CAPTION>
Bid Prices
High Low
<S> <C> <C>
Fiscal 1995(1)
First Quarter $8.40 $3.10
Second Quarter 5.00 3.80
Third Quarter 4.70 2.50
Fourth Quarter 5.00 2.50
Fiscal 1996(1)
First Quarter $7.19 $3.12
Second Quarter 5.00 2.66
Third Quarter 4.00 .25
Fourth Quarter .50 .1875
Fiscal 1997(1)
First Quarter $ .25 $ .1875
Second Quarter .375 .1875
Third Quarter .30 .1250
Fourth Quarter* .375 .1875
</TABLE>
(1)All prices shown give effect, and in some cases retroactive effect, to
Registrant's 1 for 10 reverse stock split which was effected on October 1,
1995.
*Through March 19, 1997
At March 19, 1997, there were approximately 1,851 record holders of
Registrant's common stock. Holders of common stock are entitled to dividends
when, as, and if declared by the Board of Directors out of funds legally
available therefor. Registrant has not paid any cash dividends on its common
stock and, for the foreseeable future, intends to retain earnings, if any, to
finance the operations, development, and expansion of its business. Future
dividend policy is subject to the discretion of Registrant's Board of
Directors.
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
The selected statements of operations and balance sheet data set forth
below are derived from the financial statements of Registrant, which were
examined by Simontacchi & Co., independent certified public accountants, for
the year ended March 31, 1996 and by Mahoney Cohen & Company, PC, independent
certified public accountants, for each of the three years in the period ended
March 25, 1995. Mahoney Cohen & Company, PC did not audit Registrant's UK
subsidiaries, the financial statements of which were audited by another
auditor whose report was furnished to Mahoney Cohen & Company, PC. The
information set forth below should be read in conjunction with the audited
financial statements of Registrant and related notes appearing elsewhere in
this Report (See Item 8. Financial Statements and Supplemental Data).
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
--------------------------------------------
March 31, March 25, March 27, March 31,
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Statement of Operations:
Net Sales $ 0 $21,048,151 $7,585,360 $336,779
Cost of Sales 0 15,531,102 5,121,884 20,381
Gross Profit 0 5,517,049 2,463,476 316,398
Operating (Loss) Income (593,207) (2,821,339) 207,300 16,436
Net (Loss) Income (664,348) (3,394,652) 1,804 496
Net (Loss) Income per common share: (.29) (2.05) 0 0
Weighted average number
of shares outstanding 2,296,829 1,656,903 1,669,784 1,670,232
Dividends per common share -0- -0- -0- -0-
</TABLE>
<TABLE>
<CAPTION>
March 31, 1996 March 25, 1995
<S> <C> <C>
Balance Sheet Data:
Working capital (deficiency) $(661,078) $(1,863,138)
Total assets 136,201 9,822,570
Current liabilities 796,144 9,122,665
(Accumulated deficit) Retained earnings (2,457,623) (3,827,879)
Stockholders' equity (deficiency) (659,943) (2,879,165)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
During the fiscal year ended March 31, 1996 Registrant financed its
activities from sales revenues, increased bank loans, net proceeds from the
issuance of shares of its common stock and trade credit to meet its working
capital requirements and other operating needs. However, due to recurring and
significant operating losses Registrant still suffered material reductions in
working capital and eventually encountered great difficulty in replenishing
the inventory of its key product lines. Efforts to achieve alternative
sources of
<PAGE> 13
financing proved unsuccessful as did efforts to convert a significant portion
of Registrant's bank debt to equity. Registrant took several steps to reduce
its required cash outlays including relocating its corporate facilities and
reducing personnel and other operating expenses but was unable to overcome its
liquidity problems. Consequently, the Bank of Scotland, Registrant's primary
banker and secured lender in the UK, appointed receivers to Chessbourne and
TSCL on February 7, 1996 and to CDL on February 28, 1996. The receiverships
resulted in the discontinuation of all of Registrant's business operations.
At the time of the appointment of an administrative receiver to each of
CDL, Chessbourne, and TSCL, each of these companies was insolvent. The
liabilities of these companies to the Bank of Scotland, secured by the
respective Fixed and Floating Charges, far outweighed the value of the assets
in each of the three companies. The administrative receiver, in each of these
instances, collected and realized upon the secured assets to repay the Bank of
Scotland. Given that the liabilities exceed the assets, all of the assets of
CDL, TSCL and Chessbourne were paid to the Bank of Scotland by the receiver.
The appointment of receivers in the UK effectively suspended the power of
Registrant, CDL, TSCL and Chessbourne and their respective officers and
directors to deal with the assets which were subject to the respective Fixed
and Floating Charges. Since, in the present instance, all of the assets of
CDL, TSCL and Chessbourne were subject to a Fixed and Floating Charge, the
respective companies are unable to operate as the result of the receiverships
and the officers and directors thereof have no control over such entities.
Further, Registrant, as the direct or indirect shareholder of each of these
three companies, has no further control over them during the entire period of
the receivership and Registrant has been advised that it will never regain contr
ol, since, upon the termination of the respective receiverships, the companies
will be left with material liabilities and no assets. Given the foregoing,
Registrant has been further advised that at the conclusion of the
receiverships, each of CDL, Chessbourne and TSCL will be liquidated and their
existence terminated. Additionally, it has become effectively impossible for
each of CDL, Chessbourne and TSCL to be audited for the year ended March 31,
1996 given that the respective receivers have possession and control over the
books, records and documents of each of the corporations and will not make
them available to Registrant or any auditor retained on its behalf. (See
"Opinion Letter of Smithsons Solicitors" included herewith and filed with the
Securities and Exchange Commission as Exhibit 99(a).) Consequently,
Registrant has treated each of CDL, Chessbourne and TSCL as no longer being
subsidiaries of Registrant, as reflected in Registrant's financial statements
for the year ended March 31, 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The financial statements of Registrant, itemized in the subtopic,
"Financial Statements" under Item 14 hereof, are set forth below. The audit
reports of Coopers & Lybrand dated August 3, 1995 and March 31, 1995
respectively, included with the financial statements and previously filed in
connection with Registrant's Annual Report on Form 10-K for the year ended
March 25, 1995 have not been re-signed by Coopers & Lybrand for reasons
relating to the institution of receivership proceedings against Registrant's
former operating subsidiaries. (See "Letter of James J. Fyfe regarding
Unavailability of Re-Signed Audit Report from Coopers & Lybrand" included
herewith and filed with the Securities and Exchange Commission as Exhibit
99(b)). The audit report of Mahoney Cohen & Company, PC dated July 25, 1995
included with the financial statements and previously filed in connection with
Registrant's Annual Report on Form 10-K for the year ended March 25, 1995 has
not been re-signed by Mahoney Cohen Rashba & Pokart, CPA, PC, formerly Mahoney
Cohen & Company, PC, due to such reports reliance on the audit of Registrant's
former operating subsidiaries performed by Coopers & Lybrand and Coopers &
Lybrand's not re-signing their audit report (See "Letter of Mahoney Cohen
Rashba & Pokart, CPA, PC Regarding Their Inability to Re-Sign Their July 25,
1995 Audit Report" included herewith and filed with the Securities and
Exchange Commission as Exhibit 99(c)).
<PAGE> 14
SIMONTACCHI & COMPANY, LLP 9 LAW DRIVE
CERTIFIED PUBLIC ACCOUNTANTS FAIRFIELD, NEW JERSEY 07004
TEL (201) 575-5040
FAX (201) 575-5044
To The Stockholders and
Board of Directors
Corniche Group Incorporated
Wayne, New Jersey
INDEPENDENT AUDITOR'S REPORT
We have audited the accompany balance sheet of Corniche Group Incorporated as
of March 31, 1996 and the related statements of operations, stockholders'
deficiency, and cash flows for the year then ended. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. We did not audit the financial
statements and the financial statement schedule of Corniche Distribution
Limited and Subsidiaries, a former consolidated subsidiary, as of March 31,
1996 and for the year then ended. These statements and schedules were not
audited as the corporations were in receivership in the United Kingdom (see
Note 3 of the Financial statements), and the records are unavailable for
audit. The financial statements of Corniche Group Incorporated and Subsidiary
at March 25, 1995 and for the year then ended were audited by other auditors
whose report, dated July 25, 1995, was unqualified.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, based on our audit the financial statements referred to above
present fairly, in all material respects, the financial position of Corniche
Group Incorporated as of March 31, 1996, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
/s/ SIMONTACCHI & COMPANY, LLP
Fairfield, New Jersey
April 1, 1997
MEMBER, AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 15
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and
Board of Directors
Fidelity Medical, Inc. and Subsidiary
Wayne, New Jersey
We have audited the accompanying consolidated balance sheet of Fidelity
Medical, Inc. and Subsidiary as of March 25, 1995, and the related
consolidated statements of operations, stockholders' deficiency, and cash
flows for the year then ended. These financial statements and the financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement financial
statements schedule based on our audit. We did not audit the financial
statements and the financial statement schedule of Corniche Distribution
Limited and Subsidiaries, a consolidated subsidiary, as of March 25, 1995 and
for the year then ended, which statements reflect total assets and results of
operations constituting 99.8% and 81.8%, respectively, of the related
consolidated totals. Those statements and schedule were audited by another
auditor whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Corniche Distribution Limited and
Subsidiaries for the year ended March 25, 1995 is based solely on the report
of the' other auditor.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit and the report of the other
auditor provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditor,
the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Fidelity Medical,
Inc. and Subsidiary as of March 25, 1995, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming, that the Company will continue as a going concern. As discussed in
Note 2 to the consolidated financial statements. the Company has suffered
recurring losses from operations and its total liabilities exceed its total
assets. This raises substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described Note 2. The consolidated financial statement do not include any
adjustments that might result from the outcome of this uncertainty.
New York, New York /s/ Mahoney Cohen & Company PC
July 25, 1995
<PAGE> 16
REPORT OF THE AUDITORS TO THE DIRECTORS OF
CORNICHE DISTRIBUTION LIMITED
We have audited the attached consolidated balance sheet of Corniche
Distribution Limited and subsidiaries ("the Company") as at March 25, 1995 and
the related consolidated statements of operations, cashflows and changes in
stockholders' equity for the period then ended, included in the Company's
consolidation package which we have initialled for the purposes of
identification. Our audit also included the financial statement schedule
listed on item 14(a) for the periods ended March 25, 1995, March 27, 1994 and
March 31, 1993.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The company's directors are responsible for the preparation of the
consolidation package. It is our responsibility to express an opinion on the
consolidation package based on our audit and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
consolidation package is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidation package. An audit also includes assessing the accounting
principles used and significant estimates made by the directors, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
FUNDAMENTAL UNCERTAINTIES
In forming our opinion we have considered the adequacy of the disclosures made
in the consolidation package concerning the Company's dependence on the
renewal of banking facilities on or shortly after July 31, 1995 and on
substantially meeting the Company's forecasts or, if not achieved, its
dependence on gaining additional funding. In addition the financial
statements include £2, 131,770 due from the ultimate parent company,
Fidelity Medical, Inc, ("FMI") in settlement of unpaid calls on shares issued
as at the end of this year. The receipt of these monies is dependent upon the
outcome of a planned equity placing by FMI. The consolidation package has
been prepared on a going concern basis and the validity of this depends on
successful outcomes of the above matters. The consolidation package does not
include any adjustments that would be required if the above matters are not
successfully achieved. Details of the circumstances relating to these
fundamental uncertainties are described in the consolidation package.
<PAGE> 17
OPINION
Subject to any adjustments that might be, required as a result of the
fundamental uncertainties described above, in our opinion the consolidation
package, which has been prepared in accordance with the accounting policies
stated therein and in conformity with USGAAP, contains financial information
suitable for inclusion in the consolidated financial statements of FMI as of
March 25, 1995 and for the period from March 28, 1994 to March 25, 1995 except
that the consolidation package does not include adjustments required to
reflect the reverse acquisition of FMI by the Company.
/s/ Coopers & Lybrand
Chartered Accountants and Registered Auditors
London
August 3, 1995
<PAGE> 18
CORNICHE DISTRIBUTION LIMITED
Report of Independent Accountants
To the stockholders of Corniche Distribution Limited
We have audited the accompanying consolidated balance sheets of Corniche
Distribution Limited, and Subsidiaries as of March 27, 1994 and March 31, 1993
and the related consolidated statements of operations, cash flows and changes
in stockholders' equity for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Corniche
Distribution Limited, and Subsidiaries as of March 27, 1994 and March 31,
1991, and the consolidated results of their operations and their cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
/s/ Coopers & Lybrand
Plumtree Court
London
3rd March 1995
<PAGE> 19
CORNICHE GROUP INCORPORATED
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
March 31, March 25, Proforma
1996 1995 March 25, 1995
<S> <C> <C> <C>
Current Assets:
Cash $66 $ 108,438 $100
Accounts Receivable, net of allowances for
doubtful accounts of $345,108 in 1995 0 3,393,594 0
Notes Receivable 125,000 200,000 200,000
Inventory 0 3,146,307 0
Prepaid Expenses-and Other Receivables 10,000 411,188 18,422
Total Current Assets 135,066 7,259,527 218,522
Other Assets:
Property and Equipment - at cost, net 135,066 7,259,527 0
Intangible Assets - at cost, net 0 1,206,495 0
Investment in and Advances to UK Subsidiary -------- ---------- --------
0 0 514,322
Total Assets $136,201 $9,822,570 $732,844
========= ========== ========
</TABLE>
See Accompany Notes
<PAGE> 21
CORNICHE GROUP INCORPORATED
BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY
<TABLE>
<CAPTION>
March 31, March 25, Proforma
1996 1995 March 25, 1995
<S> <C> <C> <C>
Current Liabilities:
Notes Payable $ 5,000 $2,521,452 $ 16,292
Note Payable on Debt Compromise 77,630 0 0
Trade Accounts Payable 183,123 4,065,439 55,366
Current Portion of Long-Term Debt 0 415,177 0
Dividends Payable - Preferred Stock 84,749 21,954 21,954
Accrued Liabilities 104,804 1,512,873 555,874
Deferred Income 0 23,570 0
Payroll and Sales Tax Payable 0 562,200 0
Total Current Liabilities 455,306 9,122,665 649,486
Long-Term Liabilities:
Long-Term Debt 0 3,323,565 0
Deferred Income 0 57,159 0
Deferred Credit 0 37,998 0
Total Long-Term Liabilities 0 3,418,722 0
Total Liabilities 455,306 12,541,387 $649,486
Cumulative Redeemable Preference Shares and
Class B Ordinary Shares 0 160,348 0
Stockholders' (Deficiency) Equity:
7% Cumulative Convertible Preferred Stock
authorized 5,000,000 shares, and issued
outstanding 909,267 shares (March 31, 1996)
and 946,069 (March 25, 1995) 909,267 946,069 946,069
Common Stock, $0. 1 0 par value, authorized -
30,000,000 shares, issued 2,630,378 (March 31,
1996) and 2,119,857 (March 25, 1995) 263,037 211,985 211,985
Additional Paid-In Capital 830,086 0 0
(Accumulated Deficit) Retained Earnings (2,116,785) (3,827,879) (869,986)
(114,395) (2,669,825) 288,068
Cumulative Translation Adjustment 0 (4,630) 0
Treasury Stock - at cost, 218, 100 shares (204,710) (204,710) (204,710)
Total Stockholders' (Deficiency) Equity (319,105) (2,879,165) 83,358
Total Liabilities and Stockholders'
(Deficiency) Equity $ 136,201 $9,822,570 $732,844
</TABLE>
See Accompanying Notes
<PAGE> 21
CORNICHE GROUP INCORPORATED
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
March 31, March 25, March 27,
1996 1995 1994
<S> <C> <C> <C>
Net Sales $ 0 $21,048,151 $7,585,360
Cost of Sales 0 15,531,102 5,121,884
Gross Profit 0 5,517,049 2,463,476
Selling, General and Administrative
Expenses 257,073 8,338,388 2,256,176
Operating Loss (257,073) (2,821,339) 207,300
(Loss) on Sale of Assets (3,042) (22,221) (40,017)
Interest (Net) (600) (538,646) 164,070
(Loss) Income before Income Tax (260,715) (3,382,206) 3,213
Income Tax Benefit (Expense) 0 9,508 (1,409)
Net (Loss) Income before Pref. Dividend (260,715) (3,372,698) 1,804
Preferred Stock Dividend (62,795) (21,954) 0
Net (Loss) Income from Continuing Operations (323,510) (3,394,652) 1,804
Loss from Discontinued Operations (3,432,032) 0 0
Excess of UK Subsidiary Cumulative Losses
over Investment 5,466,636 0 0
Net Income (Loss) $1,711,094 $(3,394,652) $1,804
Profit / (Loss) per share of Common Stock
Income (Loss) from Continuing Operations (0.14) (2.05) 0.00
Profit (Loss) from Discontinued Operations 0.88 0.00 0.00
Net Profit (Loss) per share $ 0.74 $ (2.05) 0.00
Weighted Average Number of Common Shares
Outstanding 2,300,289 1,656,903 1,669,784
</TABLE>
See Accompanying Notes
<PAGE> 22
CORNICE GROUP INCORPORATED
STATEMENT OF STOCKHOLDERS' (DEFICIENCY) EQUITY
Common Stock
<TABLE>
<CAPTION> Additional Cumulative
Preferred Number of Paid-In Accumulated Translation Treasury
Stock Shares Amount Capital Deficit Adjustment Stock Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - April 1, 1993 $ 0 572,981 $ 57,298 150,127 $ (23,644) 61 $(183,196) $ 646
Recision of Common Stock Sale - (895) (90) 24,041) 24,131 - - -
Recapitalization Adjustment - - - (9) - - - (9)
Net Income - - - - 1,804 - - 1,804
Balance - March 27, 1994 0 572,086 57,208 126,077 2,291 61 (183,196) 2,441
Issuance of Preferred Stock 1,000,000 - - - - - - 1,000,000
Conversion of Preferred Stock (53,931) 10,371 1,037 52,894 - - - -
Preferred Stock Dividends - - - - (21,954) - - (21,954)
Purchase of Treasury Stock - - - - - - (21,514) (21,514)
Issuance of Common Stock - 1,337,400 133,740 99,000 - - - 232,740
Conversion of Note, net - 150,000 15,000 235,000 - - - 250,000
Issuance of Common Stock - 50,000 5,000 (95,000) - - - 100,000
Costs Related of Sale of Common Stock- - - (50,000) - - - (50,000)
Recapitalization Adjustment - - - (557,971) (435,518) - - (993,489)
Net Loss - - - - (3,372,879) - - (3,372,698)
Cumulative Translation Adjustment - - - - - (4,691) - (4,691)
Balance - March 25, 1995 946,069 2,119,857 211,985 0 (3,827,879) (4,630) (204,710) (2,879,165)
Conversion of Preferred Stock (36,802) 7,077 708 36,094 - - - -
Adjustment to Common Stock - (156) (16) 16 - - - -
Issuance of Common Stock - 478,600 47,860 909,340 - - - 957,200
Costs Related to Sale of Common Stock - - - (162,864) - - - (162,864)
Issuance of Common Stock - 25,000 2,500 47,500 - - - 50,000
Preferred Stock Dividends - - - - (62,795) - - (62,795)
Elimination of UK Subsidiaries - - - - 2,034,604 4,630 - 2,036,234
Net Loss - - - - (260,715) - - (260,715)
Balance - March 31, 1996 $909,267$2,630,378 $263,037 $830,086 $(2,116,785) $ 0 $(204,710) $(319,105)
</TABLE>
See Accompanying Notes
<PAGE> 23
CORNICHE GROUP INCORPORATED
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
March 31, March 25, March 27,
1996 1995 1994
<S> <C> <C> <C>
Cash Flows from Operation Activities:
Net Loss Income from Continuing Operations
in 1996 and Net (Loss) Income in 1995 and 1994 $(260,715) $(3,372,698) $1,804
Adjustments to reconcile Net Loss from Continuing
Operations to Net Cash used in Operating
Activities in 1996 and Net (Loss) Income to Net
Cash provided by (used in) Operating Activities in
1995 and 1994:
Depreciation 1,749 346,668 82,026
Amortization of Goodwill - 97,651 19,261
Amortization of Trademarks - 1,248 2,104
Amortization of Development Costs - 18,524 -
Amortization of Deferred Credit - (4,223) (675)
Loss on Sale of Property and Equipment 3,042 22,220 40,017
Allowance for Bad Debts - 349,231 131,692
Changes in Assets and Liabilities Net of Effects
from Acquisitions:
Decrease (Increase) in Accounts Receivable - (217,151) 167,940
Decrease in Notes Receivable 75,000 - -
Decrease in Inventory - 561,291 292,519
Decrease (Increase) in Prepaid Expenses and
Other Receivables 8,422 (59,268) (72,400)
Decrease in Notes Payable (11,292) - -
Increase (Decrease) in Trade Accounts Payable 127,757 286,501 (359,536)
Increase (Decrease) in Accrued Liabilities (451,070) 893,946 7,255
Increase (Decrease) in Deferred Credit - (23,138) 53,912
Increase in Taxes Payable - 259,217 104,891
Net Cash used by Continuing Activities in 1996
and Net Cash provided by (Used In)
Operating Activities in 1995 and 1994 (507,107) (839,981) 470,810
Net Cash used in Discontinued Operations (331,337) - -
Net Cash used in Operating Activities (838,444) (839,981) 470,810
Cash Flows from Investing Activities:
Payments to Acquired Fixed Assets (8,926) (439,169) (499,592)
Proceeds from Sale of Equipment 3,000 54,607 641,946
Payments for Acquisition of Business - - (5,267,364)
Net Cash used in Investing Activities (5,926) (384,562) (5,125,010)
Balance Carried Forward $(844,370) $(1,224,543) $(4,654,200)
<PAGE> 24
CORNICHE GROUP INCORPORATED
STATEMENT OF CASH FLOWS
</TABLE>
<TABLE>
<CAPTION>
March 31, March 25, March 27,
1996 1995 1994
<S> <C> <C> <C>
Balance Brought Forward $(844,370) $(1,224,543) $(4,654,200)
Cash Flows from Financing Activities:
Net Proceeds from Issuance of Common Stock for
Cash 794,336 50,000 -
Net Proceeds from Issuance of Common Stock for
Services 50,000 - -
Net Borrowings under Line of Credit Agreement - 1,018,536 1,397,606
Principal Payments under Capital Lease Obligations - (106,369) (32,864)
Proceeds from Issuance of Long-Term Debt - - 3,151,155
Net Cash Provided by Financing 844,336 962,167 4,515,897
Effect of Exchange Rate on Cash - (7,725) (515)
Net Decrease in Cash (34) (270,101) (138,818)
Cash at Beginning of Period 100 9,940 148,758
Cash received from FMI - 368,599 -
Cash at End of Period $ 66 $ 108,438 $ 9,940
Supplemental Disclosures of Cash Flow
Information
Cash Paid during the Year for:
Interest $ 600 $ 538,646 $ 167,946
Income Taxes $ - $ - $ 3,451
See Accompany Notes
<PAGE> 25
CORNICHE GROUP INCORPORATED
STATEMENT OF CASH FLOWS (CONCLUDED)
Supplemental Schedule of Non-Cash Investing
and Financing Activities
During the year ended March 31, 1996 the Company accrued preferred stock
dividends of $62,795 and (1995 - $21,954).
During the year ended March 31, 1996 holders of 36,802 shares of preferred
stock converted such shares into 7,077 shares of CGI's common stock. In March
1995, holders of 53,931 shares of preferred stock converted such shares into
10,371 shares of CGI's common stock (Note 11).
On March 2, 1995 CGI issued 1,097,250 shares of its common stock for 100% of
the issued and outstanding common stock of Corniche (Note 2). Additionally, it
issued 25,000 shares to the 49 shareholder of Chessbourne (Note 11) and
215,150 shares to Chester Holdings, Ltd.
On March 25, 1995, Chester Holdings, Ltd. returned the 215,150 shares to CGI
in exchange for the medical imaging subsidiary of CGI (Note 11).
In March 1995, holders of a promissory note in the amount of $300,000
converted such note into common stock of CGI (Note 11).
During the year ended March 25, 1995, Corniche acquired a company through the
assumption of debt as follows:
March 27, 1995
Fair Value of Assets Acquired $2,046,000
Cash Paid 0
Liabilities Assumed and Incurred $2,046,000
In connection with the reverse acquisition on March 2, 1995, cash of $368,599
was received.
See Accompanying Notes
<PAGE> 26
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 1 THE COMPANY
Corniche Group Incorporated, formerly Fidelity Medical, Inc. (hereinafter
referred to as the "Company" or "CGI") as result of a reverse acquisition with
Corniche Distribution Limited and its Subsidiaries ("Corniche") (see "Reverse
Acquisition" below), was engage in the retail sale and wholesale distribution
of stationery products and related office products, including office
furniture, in the United Kingdom. The operating subsidiaries of Corniche were
Chessbourne International Limited ("Chessbourne") and The Stationery Company
Limited ("TSCL").
Corniche experienced large operating losses and net cash outflows from
operating activities in fiscal 1995 and 1996 resulting in a significant
reduction in working capital during that period. The Company was unsuccessful
in its efforts to raise interim financing to resolve its liquidity problems.
Additionally, the Company was not able to convert a significant portion of its
bank debt to equity. As a result, receivers were appointed to Corniche's
subsidiaries Chessbourne and TSCL on February 7, 1996 by their primary bankers
and secured lender, Bank of Scotland. Corniche Distribution Limited was
placed in receivership on February 28, 1996 (See Notes 2 & 3).
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reverse Acquisition
On March 2, 1995, the stockholders of Corniche exchanged all of their
common stock for 1,097,250 shares of CGI. Since the former stockholders' of
Corniche owned a majority of the outstanding stock of CGI after the
acquisition, such purchase transaction was accounted for as a reverse
acquisition. The acquired company (Corniche) was deemed to have acquired the
acquiring company (CGI). Accordingly, CGI changed its fiscal year to the last
Saturday in March of each year in order to conform to the fiscal year of its
operating subsidiary. Historical stockholders' equity of Corniche has been
retroactively restated to give effect to the recapitalization. The historical
financial statements prior to March 2, 1995 are those of Corniche. Further,
on March 2, 1995, CGI acquired a 49 % interest in the outstanding shares of
Chessbourne.
<PAGE> 27
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
UK Receivership Proceeding
Significant losses were incurred during the forty weeks to December 30,
1995, and in the fiscal year ended March 25, 1995, resulting in a working
capital and a stockholders deficiency as of December 30, 1995 and March 25,
1995. Management of Corniche had taken several steps to reduce the amount of
cash used by operations, including relocation of its corporate facilities and
reduce staffing levels and other operating expenses. However, a receivership
proceeding involving the operating subsidiaries of the Company was commenced
on February 7, 1996 and the UK holding company, Corniche Distribution Limited,
was placed in receivership on February 28, 1996. The receiverships resulted
in the loss of all of the Company's operations and operating assets and
eliminated most liabilities. Accordingly, the operating activities of the UK
subsidiaries have been classified as a discontinued operation and the excess
of the UK subsidiary's cumulative losses over the Company's investment is
included in the income statement for the year ended March 31, 1996. In
addition, the UK Subsidiaries have been removed from the balance sheet as of
March 31, 1996 and the audited balance sheet as of March 25, 1995 has been
restated on a proforma basis to reflect the removal of the UK subsidiaries as
of that date. This significantly reduces the Company's stockholder equity
deficiency. The adjustments necessary to eliminate the UK subsidiaries are
set out in Note 3.
Basis of Presentation
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The Company's ability to
continue as a going concern may depend on its ability to obtain outside
financing sufficient to support it pending identification and completion of a
suitable acquisition or acquisitions and its ability to obtain financing and
consummate such acquisition or acquisitions. There can be no assurance given
that the Company will obtain such short-term or long-term outside financing or
complete the acquisition of new business operations.
Effective October 1, 1995, the Company declared a one-for-ten reverse
stock split and all numbers of shares and share values stated herein reflect
such reverse split unless otherwise noted.
<PAGE> 28
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
Consolidation Policy
The consolidated financial statements for the fiscal years ended March
25, 1995 and March 27, 1994 include the accounts of CGI and its subsidiary,
Corniche. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Inventories
Inventories were valued at the lower of cost (first-in, First-out method)
or market for wholesale inventories ($1,906,300 in 1995). The retail
inventory method ($1,240,007 in 1995) was used for inventory in retail stores.
Property and Equipment
Machinery and equipment, furniture and fixtures and motor vehicles are
depreciated by the straight-line method over the estimated useful lives of the
assets, which range principally from two to five years. Leasehold
improve-ments were amortized over the lesser of the estimated useful lives or
the remaining lease term.
Repairs and maintenance which did not materially extend the useful lives
of the assets were expensed as incurred. The cost of assets sold or retired
and the related accumulated depreciation or amortization are removed from the
accounts with any resulting gain or loss included in the statement of
operations.
Intangible Assets
Goodwill
Goodwill arising on acquisitions represents the cost in excess of the
fair value of net assets acquired and was amortized on the straight-line
method over ten years.
Trademarks
Trademarks were being carried at cost and were amortized over a period of
two years.
<PAGE> 29
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
Intangible Assets (Cont'd)
Intangible Assets are as follows:
March 31 March 25
1996 1995
Goodwill $ 0 $1,321,363
Trademarks 0 11,374
0 1,332,737
Less: Accumulated Amortization 0 126,242
$ 0 $1,206,495
Income Taxes
Effective October 1993, the Company adopted SFAS 109, "Accounting for
Income Taxes", which recognizes (a) the amount of taxes payable or refundable
for the current year and, (b) deferred tax liabilities and assets for the
future tax consequences of events that have been recognized in an enterprise's
financial statement or tax returns.
Income tax expense/benefit is calculated on a separate company basis
between CGI and Corniche.
Reverse Premiums and Rent Free Periods
Reverse premiums received on the inception of lease agreements and rent
free periods were accounted for as deferred income and were amortized over the
lease term on a straight-line basis.
New Accounting Standards
Effective fiscal 1996, the Company adopted Statement of Financial
Accounting Standards No. 107, "Disclosure About Fair Value of Financial
Instruments", and Statement of Position 94-6, "Disclosure of Certain
Significant Risks and Uncertainties".
<PAGE> 30
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
Translation of Foreign Currency
Corniche's functional currency was pounds sterling. Assets and
liabilities of non-U.S. operations were translated into U.S. dollars at year
end exchange rates. Revenue and expenses were translated using average
exchange rates. The resulting translation adjustment was reported as a
separate component of stockholders' equity. Gains and losses from non-U.S.
currency transactions were included in results of operations.
Concentrations of Credit Risk
Financial instruments which subject the Company to credit risk consist of
deposits with financial institutions and in the case of Corniche, trade
receivables. Corniche's deposits were primarily held with a single financial
institution and its trade receivables were due from retailers and mass
merchants. Corniche performed ongoing credit evaluations of its customers.
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. Although these estimates are based on management's
knowledge of current events and actions it may take in the future, they may
ultimately differ from actual results.
Per Share Information
Per share information has been computed based on the weighted average
number of shares and dilutive common stock equivalents outstanding during each
respective period. Common stock equivalents were excluded from the loss per
common share computation in fiscal 1995 as the effect of their inclusion would
be anti-dilutive and for fiscal 1994 the dilutive effect was less than 3%.
Retroactive effect has been given to the recapitalization discussed in Note 2.
<PAGE> 31
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 3 UK SUBSIDIARY RECEIVERSHIP PROCEEDING
Receivers were appointed to Chessbourne and TSCL on February 7, 1996 and
to Corniche Distribution Limited on February 28, 1996. Corniche had prepared
unaudited financial statements as of December 30, 1995. No financial
statements were prepared for the period from December 31, 1995 to the date of
the receivership proceedings as none were required under UK corporate laws nor
generally accepted accounting standards. In addition, as a result of the
receivership proceedings no audit of the financial statements of Corniche for
their period from March 25, 1995 will be carried out. Accordingly, proforma
financial statements reflecting the impact of the receiverships and
adjustments necessary to eliminate these companies from the balance sheet of
CGI were prepared as of December 30, 1995 and are as follows:
</TABLE>
<TABLE>
<CAPTION>
PROFORMA BALANCE SHEET
Consolidated Proforma
December 30, EIimination December 30,
ASSETS 1995 of subsidiary 1995
<S> <C> <C> <C>
Current Assets:
Cash $ 45,433 $ 45,223 $ 210
Accounts receivable 679,297 679,297 0
Allowances for doubtful
accounts (34,146) (34,146) 0
Notes receivable 200,000 0 200,000
Inventory 2,120,367 2,120,367 0
Prepaid expenses 1,372,141 1,229,356 142,785
Other receivables 86,067 0 86,067
Total Current Assets 4,469,159 4,040,097 429,062
Other Assets:
Property and equipment 1,781,126 1,779,894 1,232
at cost, net
Intangible Assets
at cost, net 1,788,499 1,788,499 0
Total Assets $8,038,784 $7,608,490 $430,294
</TABLE>
<PAGE> 32
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 3 UK SUBSIDIARY RECEIVERSHIP PROCEEDING (Cont'd)
<TABLE>
<CAPTION>
PROFORMA BALANCE SHEET (Cont'd)
Consolidated Proforma
December 30, EIimination of December 30,
Liabilities 1995 subsidiary 1995
<S> <C> <C> <C>
Current Liabilities:
Notes Payable $ 2,026,387 $ 2,014,708 $ 11,679
Note Payable on Debt Compromise 0 (77,630) 77,630
Trade-Accounts Payable 4,792,996 4,467,350 325,646
Current Portion of Long-term Debt 700,476 700,476 0
Dividends Payable 72,897 0 72,897
Accrued Liabilities 1,581,497 1,245,677 335,820
Deferred Income 69,067 69,067 0
Payroll and Sales Tax Payable 994,342 994,342 0
Total Current Liabilities 10,237,662 9,413,990 823,672
Long-term Liabilities:
Long-term Debt 3,258,962 3,258,962 0
Deferred Income 212,108 212,108 0
Deferred Credit 33,805 33,805 0
Total Long-term Liabilities 3,504,875 3,504,875 0
Total Liabilities $13,742,537 $12,918,865 $823,672
Cumulative Redeemable Preference
Shares and
Class B Ordinary Shares 156,261 156,261 0
</TABLE>
<PAGE> 33
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 3 UK SUBSIDIARY RECEIVERSHIP PROCEEDING (Cont'd)
PROFORMA BALANCE SHEET (Cont'd)
<TABLE>
<CAPTION>
Consolidated Proforma
December 30, Elimination of December 30,
Liabilities 1995 subsidiary 1995
<S> <C> <C> <C>
Stockholders' (deficiency) equity:
7% Cumulative Convertible
Preferred Stock authorized
5,000,000. shares, issued and
outstanding 909,267 (December
30, 1995) and 946,069 (March 25,
1995) 946,069 0 946,069
Common Stock, $0. 1 0 par value,
authorized 30,000,000 shares,
issued 2,623,457 (December 30,
1995) and 2,119,857 (March 25,
1995) 262,345 0 262,345
Additional Paid-in Capital 793,976 0 793,976
Accumulated Deficit (7,754,330) (5,563,272) (2,191,058)
(5,751,940) (5,563,272) (188,668)
Cumulative Translation Adjustment 96,636 96,636 0
Treasury Stock at cost, 218,100
shares (204,710) 0 (204,710)
Total Stockholders' Deficiency (5,860,014) (5,466,636) (393,378)
Total Liabilities and Stockholders'
(Deficiency) Equity $ 8,038,784 $ 7,608,490 $ 430,294
</TABLE>
<PAGE> 34
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 3 UK SUBSIDIARY RECEIVERSHIP PROCEEDING (Cont'd)
Consolidated Statement of Operations
The "Consolidated Statement of Operations" for the forty weeks ended
December 30, 1995 and for the corresponding period in 1994, before the impact
of the receivership proceedings involving the UK subsidiaries, was as follows:
<TABLE>
<CAPTION>
------------ 40 Weeks Ended------------
December 30, December 30,
1995 1994
<S> <C> <C>
Net Sales $12,370,716 $16,311,552
Cost of Sales (8,554,569) (11,667,351)
Gross Profit 3,816,147 4,644,201
Selling, general & admin. expenses (7,086,773) (5,527,519)
Operating Loss (3,270,626) (883,318)
(Loss) gain on sale of equipment (6,563) 1,308
Interest expense, net (501,683) (391,178)
Net Loss before preferred stock dividend (3,778,872) (1,273,188)
Preferred stock dividend (50,943) 0
Net Loss $(3,829,815) $(1,273,188)
Loss per share of common stock $(1.69) $(0.76)
Weighted average number of common
shares outstanding 2,260,599 1,669,336
</TABLE>
Although financial statements for Corniche for the period December 31,
1995 to the date of receivership are not available, had such financial
statements been available the impact on the Company's balance sheet as of
March 31, 1996 and on the results of operations for the year then ended would
have remained unchanged as any profit earned or loss incurred by Corniche in
the period would have been offset by a corresponding increase or decreased in
the excess of the UK subsidiary cumulative losses over the Company's
investment.
<PAGE> 35
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 4 NOTES RECEIVABLE
Notes Receivable comprise a 180-day promissory note in the principal
amount of $200,000 due from Chester Holdings, Ltd. ("Chester") as part
consideration for the Company's former medical imaging subsidiary sold to
Chester on March 25, 1995. The note was due on October 1, 1995 and includes
an option to apply any unpaid balance of such note to purchase voting
securities of Chester's operating subsidiary, or any new parent company of
such operating subsidiary, at the fair market value of such securities. As of
March 31, 1996 Chester was in default on the note and no principal or interest
had been received. Subsequent to March 31, 1996, the company received
payments of principal in the aggregate sum of $125,000. Accordingly, a
provision of $75,000 has been made at March 31, 1996 and no interest has been
accrued. The Company may exercise the option applicable to the unpaid balance
of the Note to purchase voting shares of Medical Laser Technologies, Inc., the
corporate parent of the operating subsidiary.
NOTE 5 PROPERTY AND EQUIPMENT
Property and Equipment consists of the following:
March 31, March 25,
1996 1995
Leasehold Property $ 0 $ 652,950
Machinery and Equipment 0 925,500
Motor Vehicles 0 287,588
Furniture and Fixtures 1,426 538,409
1,426 2,404,447
Less: Accumulated Depreciation 291 1,047,899
$ 1,135 $1,356,548
Motor Vehicles and Machinery and Equipment include assets held under
capital leases as follows:
March 31, March 25,
1996 1995
Cost $ 0 $ 311,385
Less: Accumulated Depreciation 0 102,409
Net book value $ 0 $ 208,976
<PAGE> 36
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 6 NOTE PAYABLE ON DEBT COMPROMISE
Notes Payable on debt compromise comprise a 180-day promissory note in
the principal amount of 50,000 pounds sterling (approximately $77,630 as of
March 31,1996) in favor of the Bank of Scotland, primary banker to Corniche.
The note was issued to settle certain claims involving Corniche and the
Company following the receivership proceeding involving the Company's UK
Subsidiary. The note was paid in full, including accrued interest, on January
30, 1997 and simultaneously the Company was released from any further
obligation.
NOTE 7 REVOLVING LINE OF CREDIT - BANK
TSCL and Chessbourne had separate revolving lines of credit with a bank
of approximately $400,000 and $1,740,000, respectively. The facilities were
reviewed annually and interest was payable at 3% over the bank's base rate
(9.75 % at March 25, 1995) for TSCL and 2 % over the bank's base rate (8.75 %
at March 25, 1995) for Chessbourne.
NOTE 8 LONG-TERM DEBT
Long-term Debt as of March 25, 1995 consisted of:
Chessbourne bank loan payable over 12 years from
October 12, 1993 eliminated by UK receivership
proceeding $3,186,400
Corniche bank loan payable in monthly installments
through June 16, 2004 eliminated by UK receivership
proceeding 266,071
Corniche bank loan due on October 31, 1995 eliminated
by UK receivership proceeding 159,320
Capital lease obligations payable through July 1997
eliminated by UK receivership proceeding 126,951
---------
3,738,742
Less: Current portion 415,177
$3,323,565
===========
<PAGE> 37
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 8 LONG-TERM DEBT (Cont'd)
These notes and the revolving lines of credit (see Note 7) were secured
by substantially all of the assets of Corniche, which security interest was
demanded in February 1996 and resulted in the receivership proceeding.
NOTE 9 ACQUISITIONS
On March 31, 1995 Corniche acquired seven retail stationery stores. The
consideration paid totalled approximately $772,000 and was paid substantially
by way of assumption of liabilities. The acquisition was accounted for under
the purchase method of accounting.
The results of operations of those stores from the date of acquisition
had been included in the Company's consolidated statement of operations to
December 30, 1995 (See Note 3).
The assets acquired and liabilities assumed (in thousands) on acquisition
were as follows:
Fair Value of Assets Acquired $ 374
Goodwill 772
Cash Paid (25)
-------
Liabilities Assumed $1,121
NOTE 10 PENSION PLANS
Corniche operated a self-administered money purchase pension plan for
directors and senior employees. Contributions to the plan were determined by
the board of directors. The plan commenced on January 1, 1994. In addition,
Chessbourne operated an insured defined contribution employee benefit pension
plan available to all full-time employees. Contributions were set at 4% of
salary by Chessbourne and 4% by the employee. Pension costs charged to
operations for the year ended March 25, 1995 were $45,536 and $22,529 for the
year ended March 27, 1994.
<PAGE> 38
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 11 STOCKHOLDERS EQUITY
Effective October 1, 1995 the Company declared a one-for-ten reverse
stock split and all numbers of shares and share values stated herein reflect
such reverse split unless otherwise noted.
In connection with the settlement of the securities class action
litigation (see Note 13), the Company issued 1,000,000 shares of 7% cumulative
convertible preferred stock with an aggregate value of $1,000,000. The
preferred stock has a liquidation value of $1 per share, is non-voting and
convertible into common stock of the Company at a price of $5.20 per share.
Preferred stockholders are entitled to receive a cash dividend of 7% paid
semi-annually. The preferred shares are callable by the Company at any time
after the first anniversary of issuance, at prices ranging from 101 % to 105 %
of face value. In addition, if the closing price of the Company's common
stock exceeds $13.80 per share for a period of 20 consecutive trading days,
the preferred shares are callable by the Company at a price equal to 1 % of
face value. In March 1995, the holders of 53,931 shares of preferred stock
exercised their rights to convert and, accordingly, 10,371 shares of common
stock were issued. During the year ended March 31, 1996, holders of 36,802
shares of preferred stock converted such shares into 7,077 shares of CGI's
common stock.
In March 1995, the Company issued a total of 1,312,400 shares of common
stock to acquire all of the issued and outstanding stock of Corniche. Brian
J. Baylis was issued 877,800 shares of common stock and Susan A.M. Crisp was
issued 219,450 shares of common stock in exchange for their holdings
representing 100% of the issued common stock of Corniche, and the balance of
215,150 shares were issued to Chester in connection with the acquisition. In
addition, the Company issued 25,000 shares of the Company's common stock to
Ronatree in exchange for the remaining 49% of the common shares of
Chessbourne.
Simultaneous with the Company's acquisition of Corniche on March 2, 1995,
NWCM Limited ("NWCM"), a Hong Kong investment banker, agreed on a staggered
basis, to raise up to $5,000,000 of new equity capital on a "best efforts"
basis. This offer was limited to experienced, sophisticated investors who are
"non-U.S. persons" under Regulation S of the United States Securities Act of
1933. An initial tranche of 600,000 shares was offered at a price of $2.00
per share. Pursuant to the transaction, the Company paid NWCM a fee of
$50,000. In addition, NWCM was paid a sales commission of 10% and a
non-accountable expense allowance equal to 2% of the total dollars raised, a
total of $162,864. The offering was closed on September 8, 1995 and the
Company raised a total of $957,200 gross, $794,336 net of sales commission and
expense allowance in the year ended March 31, 1996 and $100,000 March 25,
1995. The Company has agreed to indemnify NWCM for certain liabilities
arising from the transaction.
<PAGE> 39
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 11 STOCKHOLDERS EQUITY (Cont'd)
During the year ended March 31, 1996, the Company issued 25,000 shares of
common stock to Trisec Holdings, Ltd. for consulting services in connection
with the "Reverse Acquisition' (see Note 2) of Corniche on March 2, 1995.
On March 13, 1995, the Company converted a promissory note in the amount
of $300,000 payable on November 10, 1995, which had been entered into pursuant
to a bridge finance agreement in December 1994, into 150,000 shares of the
common stock of the Company. In connection with the conversion, the Company
paid NWCM a fee of $36,000.
The Company has issued common stock purchase warrants from time to time
to investors in private placements, certain vendors, underwriters, and
directors and officers of the Company.
A total of 150,175 shares of common stock are reserved for issuance upon
exercise of warrants. Warrants issued are summarized as follows:
Shares
Issuable on Exercise Expiration
Exercise Price Date
February 1991 48,867 $36.00 1/98
September 1993 9,375 $46.40 4/99
March 1995 91,933 $3.20 - $8.10 1/99 - 11/03
In March 1995, as a result of the sale by the Company of its medical
imaging subsidiary, stock options held by certain directors, officers and
employees under the Company's 1986 Stock Option Plan were converted to
warrants on substantially the same terms as the previously held stock options,
except these warrants are immediately vested.
Stock Option Plans
CGI has two stock option plans. The 1986 Stock Option Plan provides for
the grant of options to purchase shares of the Company's common stock to
employees. The 1992 Stock Option Plan provides for the grant of options to
directors.
<PAGE> 40
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 11 STOCKHOLDERS EQUITY (Cont'd)
Stock Option Plans (cont'd)
The 1986 Stock Option Plan allows for the grant of incentive stock
options (ISO), non-qualified stock options (NQSO) and stock appreciation
rights (SAR). The maximum number of shares of the Company's common stock that
may be granted, as amended in April 1993, is 140,000 shares. The terms of the
plan provide that options are exercisable for a period of up to ten years from
the date of grant or a period of five years with respect to incentive stock
options if the holder owns more that 10% of the Company's outstanding common
stock. The exercise price and grantees of options are established by the
Stock Option Committee. The exercise price of ISO's must be at least 100% of
the fair market value of the common stock at the time of grant. For holders
of more than 10% of the Company's outstanding -common stock, the exercise
price must be at least I 10% of fair market value. The exercise price of
NQSO's must be not less than 80% of the fair market value of the common stock
at the time of grant. An option is exercisable not earlier than six months
from the date of grant.
In April 1992, the Company adopted the 1992 Stock Option Plan to provide
for the granting of options to directors. According to the terms of this
plan, each director is granted options to purchase 1,500 shares each year.
The maximum amount of the Company's common stock that may be granted under
this plan is 20,000 shares. Options are exercisable at the fair market value
of the common stock on the date of grant and have five year terms.
Information with respect to options under the 1986 and 1992 Stock Option
Plans is summarized as follows:
<TABLE>
<CAPTION>
---------- Year Ended ---------
March 31, March 25, Sept. 30, Sept. 30,
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Outstanding,
Beginning of Year 28,980 131,367 82,900 22,875
Granted 9,000 15,896 69,117 86,000
Converted 0 (91,933) 0 0
Expired (30,480) (26,350) (20,650) (25,975)
Exercised 0 0 0 0
Outstanding,
End of Year 700 28,980 131,367 82,900
</TABLE>
<PAGE> 41
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 11 STOCKHOLDERS EQUITY (Cont'd)
Stock Option Plans (cont'd)
The Company reclassified 18,000 options shown as expired in its 1994
financial statements to be outstanding as of March 25, 1995.
Outstanding options expire 90 days after termination of holder's status
as employee or director. Included in the outstanding options at March 31,
1996 were 1,500 shares which expired in April 1996 and 3,000 shares which
expired in June 1996.
At March 31, 1996, there were 1,500 exercisable outstanding options and
152,500 shares avoidable for grant. Exercise prices of outstanding options
ranged from $3.80 to $32.50.
On May 1, 1996, 3,000 options were granted at an exercise price of
$0.40625 per share.
<PAGE> 42
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 12 RELATED PARTY TRANSACTIONS
B.R. Linton, a director of Chessbourne until April 28, 1995, is also a
director of Ash Property Company Limited, a property investment company.
During the year ended March 25, 1995, a property was leased by Corniche from
Ash Property Company Limited at a rental of approximately $94,000.
B.R. Linton is also a director of Ronatree. Until March 2, 1995,
Ronatree beneficially owned a 49% interest in the ordinary share capital of
Chessbourne. On March 2, 1995, CGI purchased such interest from Ronatree in
exchange for the issuance of 25,000 shares of CGI.
On March 2, 1995, Chester acquired 215,150 common shares of CGI. CGI
issued the shares in order to induce Chester to agree to terminate a
pre-existing agreement to acquire Corniche and in forgiveness by Chester of
approximately $71,000 of indebtedness owed to Chester and its subsidiaries by
Corniche.
Effective March 25, 1995, CGI sold its wholly-owned medical imaging
products subsidiary to Chester in exchange for the 215,150 shares of the
Company's common stock previously issued to Chester in connection with the
Company's acquisition of Corniche and a 180-day promissory note in the
principal amount of $200,000. The promissory note also includes an option to
apply the unpaid balance of such note to purchase securities of Chester or
such operating subsidiary, or any other parent company of such operating
subsidiary at the fair market value of such securities.
During the year ended March 25, 1995, the Company charged fees of
$261,211 to Chester for management services provided by its directors and
employees to Chester. These fees were still owed by Chester as of March 25,
1995. The Company fully provided against this receivable.
During the year ended March 25, 1995, the Company sold inventory
totalling $732,367 to a subsidiary of Chester. In addition, the Company
purchased inventory from a subsidiary of Chester for $204,323.
On march 31, 1995, an agreement was completed whereby seven retail stores
were acquired from a subsidiary of Chester. The consideration paid totalled
$772,000 (see Note 9).
<PAGE> 43
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 13 COMMITMENTS, CONTINGENCIES AND OTHER
Legal Proceedings
During fiscal 1994, the Company disclosed irregularities in its revenue
recognition practices which led to the restatement of the Company's financial
statements for fiscal years ended September 30, 1989, 1990, and 1991, and the
first quarter of fiscal 1992. As a result, nine class action securities
complaints (the "lawsuits") were filed against the Company and certain other
persons which were settled in January 1994. Pursuant to the settlement, the
Company paid $2,560,000 in cash in 1995 and issued $1,000,000 in 7% cumulative
convertible preferred stock. The preferred- stock is convertible into common
stock at a price of $5.20 per share, and will be callable for five years. The
preferred stock has been included in stockholders' equity at March 31, 1996
and at March 25, 1995. Stockholders who purchased CGI's shares between
January 3, 1989 and May 7, 1992 have been included within the plaintiff class
for purposes of the settlement.
CGI and certain of its former officers and directors were involved in a
shareholders' derivative action filed in Delaware Chancery Court. The causes
of action asserted included breach of fiduciary duty, breach of duty of care
and trust of the Company's shareholders, gross negligence and mismanagement,
as well as common law conspiracy and aiding and abetting. The Court granted
the Company's motion to dismiss by Opinion and Order dated May 2, 1995. The
Company instituted its own action in State Court in New Jersey against its
former chief executive officer, Efriam Landa. The complaint was filed on May
4, 1995. Mr. Landa answered on October 16, 1995 and asserted counterclaims
seeking (a) reimbursement of defense costs in the derivative action and
related investigations by the Securities and Exchange Commission ("SEC') and
the United States Attorney for the District of New Jersey and (b) damages for
breach of his employment contract. This matter was settled by exchange of
mutual releases on December 5, 1996.
In the opinion of management, there are no other lawsuits or claims
pending against the Company.
<PAGE> 44
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 14 INCOME TAXES
Income Tax Expense (benefit) represents United Kingdom corporation tax
(benefit) for the years ended March 25, 1995 and March 27, 1994. There were
no significant differences between the financial statement and tax basis of
assets and liabilities that were expected to give rise to taxable income in
the future in view of the Company's substantial tax losses available for
carryforward.
Earnings (loss) before income taxes and preferred stock dividend is
attributable to the following sources:
<TABLE>
<CAPTION>
Years Ended In
=====================================
<S> <C> <C> <C>
1996 1995 1994
United Kingdom $ 0 $(2,786,689) $3,213
United States (596,849) (595,517) 0
$(596,849) $(3,382,206) $3,213
</TABLE>
In the United States the Tax Reform Act of 1986 enacted a complex set of
rules limiting the utilization of net operating loss carryforwards to offset
future taxable income following a corporate ownership change. The Company's
ability to utilize its NOL carryforwards is limited following a change in
ownership in excess of fifty percentage points. The Company has fully
reserved the balance of tax benefits of its operating losses because the
likelihood of realization of the tax benefits cannot be determined.
The Company is delinquent in the filing of Federal and State Income Tax
returns for the fiscal year ended September 30, 1994, short period ended March
25, 1995 and the fiscal year ended March 31, 1996.
NOTE 15 S.E.C. FILINGS
The Company is delinquent in its filing of the following reports with
the S.E.C:
* Annual Report on Form 10-K for the fiscal year ended March 31,
1996.
* Quarterly Report on Form IO-Q for the quarter ended June 30,
1996.
* Quarterly Report on Form 10-Q for the quarter ended September
30, 1996.
* Quarterly Report on Form 10-Q for the quarter ended December
31, 1996.
<PAGE> 45
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 16 SUBSEQUENT EVENTS
Transfer of Pledged Securities
Effective January 30, 1997 the Company entered into a Stock Purchase
Agreement with the Bank of Scotland and twelve unrelated persons whereby
1,042,250 of the 1,097,250 shares of the Company's common stock pledged to the
Bank of Scotland by Brian J. Baylis and Susan A.M. Crisp to secure certain
debts of Corniche Distribution Limited and subsidiaries to the Bank of
Scotland were sold by the Bank of Scotland following a default in the
obligation secured by the pledge to such twelve persons for an aggregate
consideration of $125,070.
Mutual Release
On January 30, 1997 the Company paid the Bank of Scotland $89,374.49 in
fun satisfaction of all principal and interest due under a Promissory Note
dated February 1996 to the Bank of Scotland in the principal amount of fifty
thousand sterling (see Note 6). In consideration thereof, the parties
executed a Mutual Release dated as of January 30, 1997 whereby the Bank of
Scotland released the Company and James J. Fyfe, the Company's sole officer
and director, from all liabilities, accounts, courses of action, sums of
money, reckonings, contracts, controversies, agreements, damages, judgements,
executions, claims, demands, debts, obligations, promises, covenants, actions
and undertakings which the Company or James J. Fyfe the Bank of Scotland ever
had at the time of the release or could thereafter have by reason of any
matter up to and through the date of the release and the Company and James J.
Fyfe released the Bank of Scotland in similar fashion.
Equity Offerings
During the period July 1996 through December 1996 the Company engaged in
a private offering of securities pursuant to Rule 506 of Regulation D of the
Securities Act of 1933, as amended. The offering of up to $300,000 - was
conducted on a "best efforts" basis through Robert M. Cohen & Co., Inc.
("RMCC"), a New York based broker-dealer and was offered and sold in the form
of $25,000 units. Each unit consisted of one $25,000 face amount 90-day, 8%
promissory note and one redeemable common stock purchase warrant to purchase
60,000 shares of the Company's common stock at a price of $ .50 per share
during a period of three years from issuance. The offering was terminated in
January 1997 upon sale of 4 units resulting in $100,000 in gross proceeds. In
connection with such offering, RMCC was paid sales commissions equal to 10% of
the aggregate purchase price of the units sold resulting in aggregate sales
commissions of $10,000.
<PAGE> 46
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 16 SUBSEQUENT EVENTS (Cont'd)
Equity Offerings (Cont'd)
During the period January 1997 through date hereof, the Company engaged
in a private offering of securities pursuant to Rule 506 of Regulation D of
the Securities Act of 1933, as amended. The offering consists of up to 19
units being sold at an offering price of $25,000 per unit. Each unit consists
of one $25,000 face amount 90-day, 8% promissory note and one redeemable
common stock purchase warrant to purchase 60,000 shares of the Company's
common stock at a price of $ .50 per share during a period of three years from
issuance. The offering of up to $475,000 is being conducted on a "best
efforts" basis through RMCC. In connection with such ' offering, RMCC is
being paid sales commissions equal to 10% of the purchase price for each unit
sold or $2,500 per unit. To date RMCC has sold 14 units.
Settlement of Accounts Payable
The Company has settled its Accounts Payable with its major creditors.
The settlement resulted in a reduction of selling general and administrative
expenses in the amount of $175,637.
Settlement of Note Payable
The Company has settled its Note Payable for $5,000 in full satisfaction
of all remaining sums due including accrued interest. The adjustment has been
reflected in the Financial Statements.
<PAGE> 47
CORNICHE GROUP INCORPORATED
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31,1996, MARCH 25,1995 AND MARCH 27,1994
<TABLE>
<CAPTION>
COL. A COL B. COL. C COL. D COL. E
ADDITIONS
Balance at Beginning Charges to Costs Acquisitions Deductions Balance at
Description of Period and expenses of Subsidiaries Describe End of Period
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Account 1994 $ 0 $ 71,832 $59,860 $ 0 $131,692
1995 131,692 349,231 0 135,815 (1) 345,108
1996 345,108 0 0 345,108 (3) 0
Reserve against
Notes Receivable
in Default 1994 0 0 0 0 0
1995 0 0 0 0 0
1996 0 75,000 0 0 75,000
Inventory Reserve 1994 0 56,659 29,930 0 86,589
1995 86,589 9,758 0 56,123 (2) 40,224
1996 40,224 0 0 40,224 (3) 0
(1) Elimination of reserve on bad debt write-off.
(2) Release of provision no longer required.
(3) Elimination of UK subsidiary following receivership proceeding.
<PAGE> 48
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On April 5, 1995, Registrant terminated its relationship with the
accounting firm of Ernst & Young, LLP ("Ernst & Young") as Registrant's
independent auditors responsible for the audit of Registrant's financial
statements. This action was recommended by Registrant's Audit Committee and
approved by its Board of Directors. The decision to terminate Ernst & Young
as Registrant's principal independent auditors was made because another
accounting firm, Coopers & Lybrand LLP ("Coopers"), had been the auditor for
Registrant's then recently-acquired subsidiary, CDL, for some time.
In connection with the audits of Registrant's financial statements for
the fiscal year ended September 30, 1994, and in the subsequent interim
period, there were no disagreements with Ernst & Young on any matters of
accounting principles or practices, financial statement disclosure, or
auditing scope and procedures which, if not resolved to the satisfaction of
Ernst & Young, would have caused Ernst & Young to make reference to such
matter in their report. Ernst & Young's report on Registrant's financial
statements for its fiscal year ended September 30, 1994 expressed an unqualified
opinion on those financial statements based on their audit but included an
explanatory paragraph noting a "substantial doubt about Registrant's ability
to continue as a going concern" based upon the several matters summarized in
such report.
During the period April 1995 through on or about July 6, 1995 Registrant
negotiated with Coopers regarding the preparation of Registrant's audited
financial statements for the year ended March 25, 1995. Coopers subsequently
declined to act as Registrant's independent auditors even though Coopers' U.K.
office continued to act as auditor for Registrant's subsidiary, CDL, and
provided audited financial statements for CDL for the year ended March 25,
1995. Coopers decision not to act as Registrant's auditors was not based on
any disagreements with Registrant on any matters of accounting principles or
practices, financial statement disclosure or auditing scope and procedures
which, if not resolved to Coopers satisfaction, would have caused Coopers to
make reference to such matters in their reports. Coopers never offered
Registrant a formal reason for declining to act as Registrant's auditors
although Registrant was led to believe that Coopers' U.S. offices did not want
to act for a company with a recent experience of significant losses coupled
with prior shareholder litigation.
On July 20, 1995, Registrant appointed Mahoney Cohen & Company, PC
("Mahoney Cohen") as Registrant's independent auditors responsible for the
audit of Registrant's financial statements. This action was recommended by
Registrant's Audit Committee and approved by its Board of Directors.
Registrant had not consulted Mahoney Cohen regarding any accounting or
financial reporting issues prior to that firm being retained by Registrant.
In connection with its audit of Registrant's financial statements for the
fiscal year ended March 25, 1995, and in the subsequent interim period through
on or about April 17, 1997 when the relationship was formally terminated and
it resigned as Registrant's independent auditors, there were no disagreements
between Mahoney Cohen and Registrant on any matters of accounting principles
or practices, financial statement disclosure or auditing scope and procedures
which, if not resolved to the satisfaction of Mahoney Cohen, would have caused
Mahoney Cohen to make reference to such matters in their report. Mahoney
Cohen's report on Registrant's financial statements for the fiscal year ended
March 25, 1995 expressed an unqualified opinion on those financial statements
based upon their audit but included a paragraph noting a "substantial doubt
about Registrant's ability to continue as a going concern" based upon the
several matters summarized in such report.
In February 1997 Registrant appointed Simontacchi & Co., P.A.
("Simontacchi") as Registrant's independent auditors responsible for the audit
of Registrant's financial statements. This action was approved by
Registrant's board of directors. Registrant had not consulted Simontacchi
regarding any accounting or financial reporting issues prior to that firm
being retained by Registrant.
<PAGE> 49
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Directors
The following sets forth, as at March 31, 1996, the directors of
Registrant, their respective ages, the year in which each was first elected or
appointed a director, and any other office in Registrant held by each
director. Each director holds office until the next annual meeting of
shareholders and until their successors have been elected and qualified.
Other Offices Director
Name Held Age Since
James J. Fyfe Vice President, Chief 42 1995
Operating Officer
Mathew P. Pazaryna None 54 1993
In September 1996, Mathew P. Pazaryna ceased all his activities relating
to his engagement as a director of Registrant. Efforts to contact him proved
unsuccessful and consequently, his association with Registrant was
terminated. Although no written resignation was provided to Registrant by Mr.
Pazaryna, Registrant, based upon the actions of Mr. Pazaryna, treated Mr.
Pazaryna as having resigned effective September 1996. During the fiscal year
ended March 31, 1996 several other directors of Registrant resigned their
positions as such including George Lombardi (January 1996), Manfred Pfeiler
(May 28, 1995), Werner Haas (June 27, 1995), Brian J. Baylis (March 6, 1996),
and Susan A.M. Crisp (March 6, 1996). None of the foregoing resignations were
the result of any disagreements with Registrant on any matter relating to
Registrant's operations, policies or practices. The resignations of Brian J.
Baylis and Susan A.M. Crisp were the result of the receivership proceedings
instituted against Registrant's operating subsidiaries.
Executive Officers
The following sets forth the executive officers of Registrant, their
respective ages, the year in which each was first appointed an executive
officer of Registrant and all positions and offices in Registrant held by each
such person as at March 31, 1996.
Office Held
Name Offices Held Age Since
James J. Fyfe Vice President 42 May 1995
During the fiscal year ended March 31, 1996 all of Registrant's executive
officers, with the exception of James J. Fyfe, resigned. Brian J. Baylis and
Susan A. M. Crisp resigned on March 6, 1996 as the result of the receivership
proceedings instituted against Registrant's operating subsidiaries. At the
time of their resignations, Mr. Baylis had been serving as Registrant's
president and chief executive and Ms. Crisp had been serving as Registrant's
vice president for finance and administration, chief financial officer,
treasurer and secretary. Mr. Baylis and Ms. Crisp had been serving in such
capacities as of March 25, 1995 when they replaced Werner Haas and George
Lombardi, respectively, following Registrant's sale of its medical imaging
products subsidiary, FMI, to Chester.
<PAGE> 50
Family Relationships
No family relationship exists between any director, executive officer of
Registrant or any person contemplated to become such.
Business Experience
The following summarizes the occupation and business experience during at
least the five years preceding March 31, 1996 of each person who served as a
director and/or executive officer of Registrant at March 31, 1996.
JAMES J. FYFE has been a director, vice president and the chief operating
officer of Registrant since May 1995. From January 1991 to May 1995, he was
an independent business consultant. Prior to January 1991 he was chairman and
chief executive officer of the Lewis Group, a UK based chain of department
stores and specialty retail outlets.
MATHEW P. PAZARYNA was a director of Registrant from December 1993 until
September 1996. From May 1995 through September 1996, Mr. Pazaryna was an
independent business consultant. From 1992 until April 1995, he was the
senior vice president and chief financial officer of Bio-Technology General
Corp. From 1966 until 1992, he held positions in finance, accounting, and
strategic planning for several subsidiaries and divisions of Johnson &
Johnson, a consumer products manufacturer.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid during the
three years ended March 31, 1996 to each person who served as Registrant's
Chief Executive Officer during fiscal 1996 and any other executive officer of
Registrant earning in excess of $100,000 for services rendered during fiscal
1996.
</TABLE>
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term Compensation
Annual Compensation Awards Payouts
-------------------- --------------------------
Other All
Name Annual Rest. Other
and Compen- Stock Options LTIP Compen-
Principal Salary Bonus sation Awards SARs Payouts sation
Position Year ($) ($) ($)(1) ($) (#) ($) ($)(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Brian J. Baylis 1996 79,335 0 10,311 0 1,500 0 0
CEO(3) 1995 78,200 0 16,198 0 0 0 17,204
1994 37,500 0 9,808 0 0 0 16,500
</TABLE>
(1) Includes car allowance.
(2) Includes pension contributions.
(3) Compensation includes amounts paid to Mr. Baylis by CDL and its
subsidiaries prior to their acquisition by Registrant in March 1995.
Mr. Baylis resigned as Registrant's chief executive officer on
March 6, 1996.
<PAGE> 51
<TABLE>
<CAPTION>
Option/SAR Grants During The Fiscal Year Ended March 31, 1996
Individual Grants
Number % of
Shares of Total
Common Stock Options/
Underlying SARs
Options/ Granted to Exercise
SARs Employees or Base
Granted in Fiscal Price Expiration
Name (#) Year ($/Sh) Date
- - ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Brian J. Baylis 1,500 16.67% .48 June 6, 1996
</TABLE>
<TABLE>
<CAPTION>
Aggregate Options/SAR Exercises During Fiscal Year Ended March 31, 1996
and Fiscal Year-End Options/SAR/Values
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
At FY-End (#) At FY-End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Brian J. Baylis 0 0 1,500 (unexercisable) N/A
</TABLE>
Compensation of Directors
Directors who are not full-time members of management receive $300 per
Board of Directors meeting attended, in addition to reimbursement of travel
expenses. Directors are also compensated for special assignments from time to
time. No special compensation was paid in fiscal 1996.
All directors receive options to purchase 1,500 shares of Registrant's
common stock each May under Registrant's 1992 Stock Option Plan for Directors.
Compliance with Section 16(a) of the Exchange Act
Any person who is an officer, director, or the beneficial owner, directly
or indirectly, of more than 10% of the outstanding common stock of Registrant
is required under Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") to file certain reports with the Securities and
Exchange Commission (the "Commission") disclosing his or her holdings or
transactions in any securities of Registrant. For purposes of this
discussion, all such persons required to file such reports will be referred to
as "Reporting Persons". Every Reporting Person must file an initial statement
of his or her beneficial ownership of Registrant's securities on the
Commission's Form 3 within ten days after he or she becomes a Reporting
Person. Thereafter (with certain limited exceptions), all changes in his or
her beneficial ownership of Registrant's securities must be reported on the
Commission's Form 4 on or before the 10th day after the end of the month in
which such change occurred. Certain changes in beneficial ownership are
exempt from the
<PAGE> 52
Form 4 reporting requirements, but are required to be reported on a Form 5
within 45 days of the end of the fiscal year in which such changes occurred.
The Registrant knows of no person who was a Reporting Person during the fiscal
year ended March 31, 1996, who has failed to file any reports required to be
filed during such period on Forms 3 and 4 with respect to his holdings or
transactions in the Company's securities.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
As of March 19, 1997 there were no persons known to Registrant to be the
beneficial owners of more than 5% of Registrant's common stock, $.10 par value.
Security Ownership of Management
The following table sets forth information concerning the beneficial
ownership of Registrant's common stock, as of March 19, 1997, by (i) each
person who was a director or a nominee to become a director, (ii) Registrant's
executive officers, and (iii) all persons who were directors and officers of
Registrant, as a group, and the percentage of Registrant's issued and
outstanding stock represented by such beneficial ownership.
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership Percent of Class
James J. Fyfe -0- (1) -0-
145 Route 46 West
Wayne, NJ 07974
All directors and officers -0- (1) -0-
as a group (1 person)
________________
(1) Does not include 1,500 shares of common stock which may be issued to
Mr. Fyfe upon the exercise of 1,500 stock options issued to Mr. Fyfe as of May
1996 in connection with his services as a director of Registrant. These
options were issued in connection with Registrant's 1992 Stock Option Plan and
are not exercisable until May 1997. Each option is exercisable at an exercise
price of $.40625 per share.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions With Management and Others
During the fiscal year ended March 31, 1996 and all subsequent periods
there have been no material transactions between Registrant and any member of
management or any principal shareholder of Registrant.
<PAGE> 53
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
Financial Statements
The financial statements filed as a part of this report are as follows:
Report of independent accountants
Balance Sheets - March 31, 1996 and March 25, 1995
Statements of Operations - Years ended March 31, 1996,
March 25, 1995 and March 27, 1994
Statement of Changes in Stockholders' (Deficiency)/Equity -
Years ended March 31, 1996, March 25, 1995 and March 27, 1994
Statements of Cash Flows - Years ended March 31, 1996,
March 25, 1995 and March 27, 1994
Notes to consolidated financial statements
Financial Statement Schedules
The financial statement schedule filed as a part of this report is as
follows:
Valuation and Qualifying Accounts for the years ended March 31, 1996,
March 25, 1995 and March 27, 1994.
Other financial statement schedules have been omitted for the reason that
they are not required or are not applicable, or the required information is
shown in the financial statements or notes thereto.
Exhibits
The exhibits filed as a part of this report are as follows:
<TABLE>
<CAPTION>
Exhibit No. as filed
with registration statement
or report specified below
<S> <C> <C>
3 (a) Certificate of Incorporation filed September 18, 1980 (1) 3
(b) Amendment to Certificate of Incorporation filed
September 29, 1980 (1) 3
(c) Amendment to Certificate of Incorporation filed
July 28, 1983 (2) 3(b)
(d) Amendment to Certificate of Incorporation filed
February 10, 1984 (2) 3(d)
(e) Amendment to Certificate of Incorporation filed
March 31, 1986 (3) 3(e)
<PAGE> 54
(f) Amendment to Certificate of Incorporation filed
March 23, 1987 (4) 3(g)
(g) Amendment to Certificate of Incorporation filed
June 12, 1990 (5) 3.8
(h) Amendment to Certificate of Incorporation filed
September 27, 1991 (6) 3.9
(i) Certificate of Designation filed November 12, 1984 (7) 3.8
(j) Amendment to Certificate of Incorporation filed
September 28, 1995 *
(k) By-laws of the Registrant, as amended on
December 22, 1983(2) 3(c)
(l) By-laws of the Registrant, as amended on
December 5, 1985(3) 3(f)
(m) By-laws of the Registrant, as amended on
April 25, 1991(6) 3.10
4 (a) Form of Underwriter's Warrant (6) 4.9.1
(b) Form of Promissory Note - 1996 Offering *
(c) Form of Promissory Note - 1997 Offering *
(d) Form of Common Stock Purchase Warrant - 1996 Offering *
(e) Form of Common Stock Purchase Warrant - 1997 Offering *
10 (a) Form of Financial Advisory Agreement between
Registrant and Commonwealth Associates (6) 10.13
(b) Underwriting Agreement among Registrant,
Commonwealth Associates and Selling Stockholders,
dated November 15, 1991 (8) 10.14
(c) 1986 Stock Option Plan, as amended (7) 10.6
(d) 1992 Stock Option Plan (9) B
(e) Novation Agreement relating to a Share Sale and Purchase
Agreement dated April 24, 1994 among Brian John
Baylis, Susan Ann Meadows Crisp and Fidelity
Medical, Inc. dated March 2, 1995 (10) 2(a)
(f) Supplemental Agreement relating to a Share Sale and
Purchase Agreement dated April 24, 1994 among
Brian John Baylis, Susan Ann Meadows Crisp and
Fidelity Medical, Inc. dated March 2, 1995 (10) 2(b)
(g) Agreement for sale and purchase of the entire issued
share capital of Corniche Distribution Limited among
Brian John Baylis, Susan Ann Meadows Crisp and
Fidelity Medical, Inc. dated March 2, 1995 (10) 2(c)
(h) Letter of Agreement between Fidelity Medical, Inc. and
NWCM Limited dated as of March 6, 1995 (10) 2(d)
(i) Supplemental Agreement with respect to Options
dated March 2, 1995 (10) 9(b)
(j) Stock Purchase Agreement dated as of March 25, 1995
by and between Fidelity Medical, Inc. and Chester
Holdings, Ltd (11) 2(a)
(k) Promissory Note and Option Agreement dated as of
March 25, 1995 from Chester Holdings, Ltd. to
Fidelity Medical, Inc. (11) 2(b)
<PAGE> 55
(l) Form of Warrant of Fidelity Medical, Inc. to be issued
to employees of Fidelity Medical, Inc., a New Jersey
corporation, in replacement of stock options (11) 2(c)
(m) Stock Purchase Agreement dated as of January 30, 1997
by and among Registrant, the Bank of Scotland and 12 Buyers *
(n) Mutual Release dated as of January 30, 1997 by and among
Registrant, James Fyfe and the Bank of Scotland *
27 Financial Data Schedule
99 (a) Opinion Letter of Smithsons Solicitors dated March 7, 1997
regarding the status of Registrant's former subsidiaries
as the result of the February 1996 receivership proceedings. *
99 (b) Letter of James J. Fyfe Regarding Unavailablity of Re-signed
Audit Reports from Coopers & Lybrand LLP *
99 (c) Letter of Mahoney Cohen Rashba & Pokart, CPA, PC Regarding
Their Inability to Re-Sign Their July 25, 1995 Audit Report *
</TABLE>
* Filed herewith
- - -----------------
Notes:
(1) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the registration statement of Registrant on Form S-18,
File No. 2-69627, which exhibit is incorporated herein by reference.
(2) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the registration statement of Registrant on Form S-2,
File No. 2-88712, which exhibit is incorporated herein by reference.
(3) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the registration statement of Registrant on Form S-2,
File No. 33-4458, which exhibit is incorporated herein by reference.
(4) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the annual report of Registrant on Form 10-K for the
year ended September 30, 1987, which exhibit is incorporated herein by
reference.
(5) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the registration statement of Registrant on Form S-3,
File No. 33-42287, which exhibit is incorporated herein by reference.
(6) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the registration statement of Registrant on Form S-1,
File No. 33-42154, which exhibit is incorporated herein by reference.
(7) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the annual report of Registrant on Form 10-K for the
year ended September 30, 1994, which exhibit is incorporated herein by
reference.
(8) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the annual report of Registrant on Form 10-K for the
year ended September 30, 1991, which exhibit is incorporated herein by
reference.
(9) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the proxy statement of Registrant dated March 30, 1992,
which exhibit is incorporated herein by reference.
<PAGE> 56
(10) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the current report of Registrant on Form 8-K, dated
March 2, 1995, which exhibit is incorporated herein by reference.
(11) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the current report of Registrant on Form 8-K, dated
April 5, 1995, which exhibit is incorporated herein by reference.
Reports on Form 8-K
No reports on Form 8-K have been filed by Registrant during the last
quarter of the period covered by this report other than Registrant's Report on
Form 8-K dated February 7, 1996 reporting on Item 3, Bankruptcy or
Receivership, and relating to the appointment of a receiver for Registrant's
operating subsidiaries, Chessbourne and TSCL.
<PAGE> 57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CORNICHE GROUP INCORPORATED
By /s/ James J. Fyfe
JAMES J. FYFE, Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of Registrant and in the capacities and on the dates indicated:
Signatures Title Date
Principal Executive Officer:
/s/ James J. Fyfe Vice President April 24, 1997
JAMES J. FYFE
Principal Financial and
Accounting Officer:
/s/ James J. Fyfe Vice President April 24, 1997
JAMES J. FYFE
A Majority of the board of directors:
/s/ James J. Fyfe April 24, 1997
JAMES J. FYFE
<PAGE> 58
EXHIBITS
-------------------
CORNICHE GROUP INCORPORATED
FORM 10-K
--------------------
Exhibit Index
The exhibits indicated below as having heretofore been filed with another
document with the Securities and Exchange Commission are incorporated herein
by reference.
<TABLE>
<CAPTION>
Exhibit No. as filed
with registration
statement or report
specified below Page No.
<S> <C> <C>
3 (a) Certificate of Incorporation filed September 18, 1980 (1) 3
(b) Amendment to Certificate of Incorporation filed
September 29, 1980 (1) 3
(c) Amendment to Certificate of Incorporation filed
July 28, 1983 (2) 3(b)
(d) Amendment to Certificate of Incorporation filed
February 10, 1984 (2) 3(d)
(e) Amendment to Certificate of Incorporation filed
March 31, 1986 (3) 3(e)
(f) Amendment to Certificate of Incorporation filed
March 23, 1987 (4) 3(g)
(g) Amendment to Certificate of Incorporation filed
June 12, 1990 (5) 3.8
(h) Amendment to Certificate of Incorporation filed
September 27, 1991 (6) 3.9
(i) Certificate of Designation filed November 12, 1984 (7) 3.8
(j) Amendment to Certificate of Incorporation filed
September 28, 1995 * 62
(k) By-laws of the Registrant, as amended on
December 22, 1983(2) 3(c)
(l) By-laws of the Registrant, as amended on
December 5, 1985(3) 3(f)
(m) By-laws of the Registrant, as amended on
April 25, 1991(6) 3.10
4 (a) Form of Underwriter's Warrant (6) 4.9
(b) Form of Promissory Note - 1996 Offering * 69
(c) Form of Promissory Note - 1997 Offering * 76
(d) Form of Common Stock Purchase Warrant - 1996 Offering * 83
(e) Form of Common Stock Purchase Warrant - 1997 Offering * 88
<PAGE> 59
10 (a) Form of Financial Advisory Agreement between
Registrant and Commonwealth Associates (6) 10.13
(b) Underwriting Agreement among Registrant,
Commonwealth Associates and Selling Stockholders,
dated November 15, 1991 (8) 10.14
(c) 1986 Stock Option Plan, as amended (7) 10.6
(d) 1992 Stock Option Plan (9) B
(e) Novation Agreement relating to a Share Sale and Purchase
Agreement dated April 24, 1994 among Brian John
Baylis, Susan Ann Meadows Crisp and Fidelity
Medical, Inc. dated March 2, 1995 (10) 2(a)
(f) Supplemental Agreement relating to a Share Sale and
Purchase Agreement dated April 24, 1994 among
Brian John Baylis, Susan Ann Meadows Crisp and
Fidelity Medical, Inc. dated March 2, 1995 (10) 2(b)
(g) Agreement for sale and purchase of the entire issued
share capital of Corniche Distribution Limited among
Brian John Baylis, Susan Ann Meadows Crisp and
Fidelity Medical, Inc. dated March 2, 1995 (10) 2(c)
(h) Letter of Agreement between Fidelity Medical, Inc. and
NWCM Limited dated as of March 6, 1995 (10) 2(d)
(i) Supplemental Agreement with respect to Options
dated March 2, 1995 (10) 9(b)
(j) Stock Purchase Agreement dated as of March 25, 1995
by and between Fidelity Medical, Inc. and Chester
Holdings, Ltd (11) 2(a)
(k) Promissory Note and Option Agreement dated as of
March 25, 1995 from Chester Holdings, Ltd. to
Fidelity Medical, Inc. (11) 2(b)
(l) Form of Warrant of Fidelity Medical, Inc. to be issued
to employees of Fidelity Medical, Inc., a New Jersey
corporation, in replacement of stock options (11) 2(c)
(m) Stock Purchase Agreement dated as of January 30, 1997
by and among Registrant, the Bank of Scotland and 12 Buyers * 93
(n) Mutual Release dated as of January 30, 1997 by and among
Registrant, James Fyfe and the Bank of Scotland * 115
27 Financial Data Schedule * 118
99 (a) Opinion Letter of Smithsons Solicitors dated March 7, 1997
regarding the status of Registrant's former subsidiaries
as the result of the February 1996 receivership proceedings. * 119
99 (b) Letter of James J. Fyfe Regarding Unavailablity of Re-signed
Audit Reports from Coopers & Lybrand LLP * 206
99 (c) Letter of Mahoney Cohen Rashba & Pokart, CPA, PC Regarding Their
Inability to Re-Sign Their July 25, 1995 Audit Report * 210
</TABLE>
* Filed herewith
________________
Notes:
(1) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the registration statement of Registrant on Form S-18,
File No. 2-69627, which exhibit is incorporated herein by reference.
<PAGE> 60
(2) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the registration statement of Registrant on Form S-2,
File No. 2-88712, which exhibit is incorporated herein by reference.
(3) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the registration statement of Registrant on Form S-2,
File No. 33-4458, which exhibit is incorporated herein by reference.
(4) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the annual report of Registrant on Form 10-K for the
year ended September 30, 1987, which exhibit is incorporated herein by
reference.
(5) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the registration statement of Registrant on Form S-3,
File No. 33-42287, which exhibit is incorporated herein by reference.
(6) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the registration statement of Registrant on Form S-1,
File No. 33-42154, which exhibit is incorporated herein by reference.
(7) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the annual report of Registrant on Form 10-K for the
year ended September 30, 1994, which exhibit is incorporated herein by
reference.
(8) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the annual report of Registrant on Form 10-K for the
year ended September 30, 1991, which exhibit is incorporated herein by
reference.
(9) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the proxy statement of Registrant dated March 30, 1992,
which exhibit is incorporated herein by reference.
(10) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the current report of Registrant on Form 8-K, dated
March 2, 1995, which exhibit is incorporated herein by reference.
(11)Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the current report of Registrant on Form 8-K, dated
April 5, 1995, which exhibit is incorporated herein by reference.
<PAGE> 61
EXHIBIT 3 ( j )
<PAGE> 62
STATE OF DELAWARE Page 1
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, secretary of state of the state of delaware, do
hereby certify the attached is a true copy and correct copy of the certificate
of amendment of "fidelity medical, inc.", changing its name from "fidelity
medical, inc.", to "corniche group incorporated", filed in this office on the
twenty-eighth dat of September, a.d. 1995, at 9 o'clock a.m.
a certified copy of this certificate has been forwarded to the kent
county recorder of deeds for recording.
[DELAWARE'S STATE SEAL APPEARS AS WATERMARK]
/s/ Edward J. Freel
Edward J. Freel, Secretary of State
AUTHENTICATION: 7659162
DATE: 09-29-95
0899444 0100
950223828
<PAGE> 63
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FIDELITY MEDICAL, INC.
(Under Section 242 of the General Corporation Law)
The undersigned, being the President and Secretary, respectively, of
Fidelity Medical, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), do hereby amend and certify as
follows:
1. The name of the Corporation is Fidelity Medical, Inc.
2. The Certificate of Incorporation of the Corporation is hereby
amended effective October 1, 1995 to effect the following amendments which
were set forth in a resolution adopted by the board of directors and adopted
by the holders of a majority of the outstanding shares of common stock of the
Corporation entitled to vote thereon, in accordance with the provisions of
Section 242 of the Delaware General Corporation Law: (a) to change the name of
the Corporation, (b) to reduce the number of shares of common stock, par value
$.01 per share ("Common Stock"), issued and outstanding by means of a reverse
stock split of one share for every ten shares outstanding on October 1, 1995
(without reducing the number of authorized common shares), and (c) to increase
the number of authorized shares of Preferred Stock.
3. To accomplish the second of the foregoing amendments, Article
FIRST of the Restated Certificate of Incorporation is hereby amended to
change the name of the corporation as follows: "The name of the Corporation is
CORNICHE GROUP INCORPORATED."
4. To accomplish the second of the foregoing amendments, Article
FOURTH of the Restated Certificate of Incorporation is amended by adding the
following clause at the end of such Article, which reads in its entirety as
follows:
Immediately prior to the date of filing this
Certificate of Amendment, there were 24,083,075
shares of Common Stock outstanding. The Corporation
hereby is reducing the number of shares of Common Stock
issued and outstanding by means of a reverse stock split
of one for every ten shares outstanding on October 1,
1995. Upon surrender to the Corporation of certificates
(duly endorsed in blank) representing shares of common
Stock to be converted, certificates representing the
appropriate number of
<PAGE> 64
shares of Common Stock will be issued. with respect to
any resulting fractional shares, the Corporation shall (i)
arrange for the disposition of fractional interests by
those entitled thereto and (ii) pay in cash the fair
value of fractions of a share as of the time when those
entitled to receive such fractions are determined.
5. To accomplish the third of the foregoing amendments, Article
FOURTH of the Restated Certificate of Incorporation is restated in its
entirety as follows (with the preceding paragraph to follow):
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is THIRTY FIVE MILLION (35,000,000) consisting
of (i) Thirty Million(30,000,000) shares of Common Stock of the par value of
$.10 per share and (ii) Five Million (5,000,000) shares of Preferred Stock of
the par value of $.01 per share.
The designations and the powers, preferences and right, and the
qualifications, limitations or restrictions thereof of the Preferred Stock,
and the Common Stock are as follows:
A. Preferred Stock.
The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of this Article FOURTH, to provide for
the issuance of the Preferred Stock in series and by filing a Certificate
pursuant to the Delaware General Corporation Law to establish the number of
shares to be included in each such series. The Preferred Stock may be issued
either as a class without series, or as so determined from time to time by the
Board of Directors, either in whole or in part in one or more series, each
series to be appropriately designated by a distinguishing number, letter or
title prior to the issue of any shares thereof. Whenever the term "Preferred
Stock" is used in this Article FOURTH, it shall be deemed to mean and include
Preferred Stock issued as a class without series, or one or more series
thereof, or both unless the context shall otherwise require. There is hereby
expressly granted to the Board of Directors of the Corporation authority,
subject to the limitations provided by law, to fix the voting power, the
designations, and the relative preferences, powers, participating, optional or
other special rights, and the qualifications, limitations or restrictions
thereof, of the shares of each series of said Preferred Stock and the
variations in the relative powers, rights, preferences and limitations as
between series, and to increase the number of shares constituting each series,
and to decrease such number of shares (list not to less than tile number of
outstanding shares of the series), in the resolution or resolutions adopted by
the Board of Directors providing for the issue of said Preferred stock.
The authority of the Board of Directors of die corporation with respect
to each series shall include, but shall not be limited to, the authority to
determine the following:
1. The designation of the series;
2. The number of shares initially constituting such series;
<PAGE> 65
3. The increase, and the decrease to a number not less than the
number of the outstanding shares of such series, of the number of shares
constituting such series theretofore, fixed;
4. The rate or rates and the times and conditions under which dividends
on the shares of such series shall be paid, and, (i) if such dividends are
payable in preference to, or in relation to, the dividends payable on any
other class or classes of stock, the terms and conditions of such payment, and
(ii) if such dividends shall be cumulative, the date or dates from and after
which they shall accumulate;
5. Whether or not the shares of such series shall be redeemable, and, if
such shares shall be redeemable, the terms and conditions of such redemption,
including, but not limited to, the date or dates upon or after which such
shares shall be redeemable and the amount per share which shall be payable
upon such redemption, which amount may vary under conditions and at different
redemption dates;
6. The amount payable on the shares of such series in the event of the
dissolution of, or upon any distribution of the assets of, the Corporation;
7. Whether or not the shares of such series may be convertible into, or
exchangeable for, shares, of any other class or series and the price or prices
and the rates of exchange and the terms of any adjustments to be made in
connection with such conversion or exchange;
8. Whether or not the shares of such series shall have voting rights in
addition to the voting rights provided by law, and, if such shares shall have
such voting rights, the terms and conditions thereof, including but not
limited to, the right of the holders of such shares to vote as a separate
class either alone or with the holders of shares of one or more other series
of Preferred Stock and the right to have more or less than one vote per share;
9. Whether or not a purchase fund shall be provided for the shares of
such series, and, if such a purchase fund shall be provided, the terms and
conditions thereof;
10. Whether or not a sinking fund shall be provided for the redemption of
the shares of such series and if such a sinking fund shall be provided, the
terms and conditions thereof; and
11. Any other powers, preferences and relative, participating, optional,
or other special rights, and qualifications, limitations or restrictions
thereof, as shall not be inconsistent with the provisions of this Article
FOURTH or the limitations provided by law.
<PAGE> 66
B. Common Stock.
1. Subject to the rights of the Preferred stockholders, the holders of
the Common Stock shall be entitled to receive such dividends as may be declared
thereon by the Board of Directors of the Corporation in its discretion, from
time to time, out of any funds or assets of the Corporation lawfully available
for the payment of such dividends.
2. In the event of any liquidation, dissolution or winding up of the
Corporation, or any reduction of its capital, resulting in a distribution of
its assets to its stockholders, whether voluntary or involuntary, then, after
there shall have been paid or set apart for the holders of the Preferred Stock
the full preferential amounts to which they are entitled, the holders of the
Common Stock shall be entitled to receive as a class, pro rata, the remaining
assets of the Corporation available for distribution to its stockholders.
3. For any and all purposes of this Certificate of Incorporation neither
the merger or consolidation of the Corporation into or with any other
corporation, nor the merger or consolidation of any other corporation into or
with the Corporation, nor a sale, transfer or lease of all or substantially
all of the assets of the Corporation, or any other transaction or series of
transactions having the effect of a reorganization shall be deemed to be a
liquidation, dissolution or winding-up of the Corporation.
4. Except as otherwise expressly provided by, law or in a resolution of
the Board of Director, providing voting rights to the holders of the Preferred
Stock, the holders of the Common Stock shall possess exclusive voting power
for the election of directors and for all other purposes and each holder
thereof shall be entitled to one vote for each share thereof.
<PAGE> 67
IN WITNESS WHEREOF, the undersigned being duly elected officers of
the above-named corporation, have executed this Certificate of Amendment and
affirm the statements herein contained on this 28th day of September, 1995.
FIDELITY MEDICAL INC.
By: /s/ Brian J. Baylis
Brian J. Baylis, President
ATTEST:
/s/ Susan A.M. Crisp
Susan A. M. Crisp, Secretary
<PAGE> 68
EXHIBIT 4 ( b )
<PAGE> 69
NEITHER THIS PROMISSORY NOTE NOR THE SECURITIES ISSUABLE UPON THE CONVERSION
THEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAW, AND MAY BE TRANSFERRED ONLY IF
REGISTERED PURSUANT TO THE PROVISIONS OF THAT ACT OR ANY APPLICABLE STATE
SECURITIES LAW OR IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE
PROMISSORY NOTE
No. NA-__________ $25,000
Dated: ____________, 1996 Wayne, New Jersey
FOR VALUE RECEIVED, CORNICHE GROUP INCORPORATED, a Delaware corporation
(hereinafter called the "Company), hereby promises to pay
________________________________________
(Name)
________________________________________
(Street and No.)
________________________________________
(City, State and Zip Code)
________________________________________
(Social Security No. or Federal Employer ID No.)
________________________________________
(Date of Birth)
(herein called the "Holder"), or to his order, the sum of TWENTY-FIVE THOUSAND
DOLLARS ($25,000), together with interest thereon at the rate of eight percent
(8%) per annum from the date hereof on ________, _____. Interest shall be
payable at maturity, and shall be computed on the balance of principal
outstanding from time to time based on actual number of days elapsed.
Both principal hereof and interest thereon are payable in lawful money of
the United States of America at the Holder's address above or such other
address as the Holder shall designate in writing delivered to the Company from
time to time.
<PAGE> 70
ARTICLE ONE
EVENTS OF DEFAULT
If any of the following events of default (each, an "Event of Default")
shall occur, the Holder hereof, at its option, may declare the sum of
principal then remaining unpaid hereon immediately due and payable.
1.01 Event of Default
For purposes of this instrument, an Event of Default will be deemed to
have occurred if:
(a) the Company shall fail to pay the principal of or interest
due on this Promissory Note on the due date and such non-payment shall
continue for a period of five (5) days from the date due; or
(b) a receiver, liquidator or trustee of the Company or of any
property of the Company, shall be appointed by court order and such
appointment shall remain in effect for 60 days; or the Company shall be
adjudged bankrupt or insolvent; or any of the property of the Company shall be
sequestered by court order and such order shall remain in effect for more than
60 days; or a petition to reorganize the Company under any bankruptcy,
reorganization or insolvency law shall be filed against the Company and shall
not be dismissed within 60 days after such filing; or
(c) the Company shall file a petition in voluntary bankruptcy or
requesting reorganization under any provision of any bankruptcy,
reorganization or insolvency law or shall consent to the filing of any
petition against it under any such law; or
(d) the Company shall make a formal or informal assignment for
the benefit of its creditors or admit in writing its inability to pay its
debts generally when they become due or shall consent to the appointment of a
receiver, trustee or liquidator of the Company or of all or part of the
property of the Company after the date hereof.
1.02 Remedies on Default
If an Event of Default shall have occurred, in addition to its rights and
remedies under this Promissory Note, and any other instruments, the Holder may
at its option by written notice to the Company declare all indebtedness to the
Holder hereunder to be due and payable, together with all reasonable expenses
of enforcement of the Holder's rights including legal fees and related
disbursements, whereupon the same shall forthwith mature and become due and
payable without any further notice to and without presentment, demand, protest
or notice of protest, all of which are hereby waived.
The Holder may proceed to protect and enforce its rights by suit in
equity, action at law or other appropriate proceedings, including, without
limitation action for specific performance of any agreement contained herein
or in any other instrument, or for an injunction against a violation of any of
the terms hereof or thereof, or in aid of the exercise of any right, power or
remedy granted hereby or by law, equity or otherwise.
ARTICLE TWO
CONVERSION PRIVILEGE
The Company hereby grants to the Holder of this Promissory Note the right
to convert the principal and interest on this Promissory Note into fully paid
and non-assessable shares of the Company's Common Stock, $0.10 par value, at
the "Conversion Price" per share. The "Conversion Price" is defined as ten
cents ($0.10).
<PAGE> 71
The right to convert may be exercised at any time after an Event of Default up
to and including _____________, ____. The right to convert may only be
exercised with respect to the entire amount due on this Promissory Note at the
exercise date. The Company will reserve 300,000 (three hundred thousand)
shares of its Common Stock for the foregoing purpose.
2.01 Exercise Procedure
(a) The Conversion privilege shall be deemed to have been
exercised (the "Exercise Time") when the Company shall have received all of
the following:
(i) a properly completed Exercise Agreement in the form set out
in Section 2.02 below executed by the Holder; and
(ii) this Promissory Note.
(b) Certificates for the underlying shares acquired shall be
delivered to the purchaser within 20 days after the Exercise Time.
2.02 Exercise Agreement
Upon exercise, the undersigned shall execute an agreement stating as
follows: "An event of default has occurred which has not been cured and
therefore the undersigned irrevocably elects to subscribe for and purchase
shares of the Company's Common Stock as provided in the Promissory Note, and
makes payment in full therefor by conversion. The undersigned hereby
represents and warrants that the shares of Common Stock to be acquired upon
exercise are being acquired for its own account, without any present intention
of reoffering, reselling or distributing such Common Stock, except to the
extent permitted under the Securities Act of 1993, as amended".
2.03 Changes in Capital Structure
(a) In the event that the outstanding shares of Common Stock of
the Company are hereafter increased or decreased, or changed into or exchanged
for a different number or kind of shares or other securities of the Company,
or of any other corporation, by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up, combination
of shares, or dividends payable in capital stock of the Company, appropriate
adjustments shall be made by the Company in the number and kind of shares to
be purchased upon exercise of this conversion right to the end that the
Holder's proportionate interest shall not be altered. All such adjustments
made by the Board of Directors of the Company shall be conclusive, absent
manifest error.
(b) Until this Promissory Note has been paid in full or the
conversion privilege has been exercised, the Company will not issue any shares
of its Common Stock for a price less than the then fair market value of the
stock.
ARTICLE THREE
RESTRICTIONS ON TRANSFER
The Holder, by execution of the acknowledgment at the end of this
Promissory Note, acknowledges that it understands that the Company will rely
upon the representations set forth herein in issuing the Promissory Note and
the Underlying Shares, if any, without registration under the Securities Act
of 1933, as amended, the New Jersey Uniform Securities Law, or any other state
securities law.
<PAGE> 72
Accordingly, the Holder, by acceptance of the Promissory Note, represents
and warrants that this offering is being made pursuant to the exemption from
registration with the Securities and Exchange Commission ("SEC") afforded by
Sections 3(b) and/or 4(2) of the Securities Act of 1933, as amended ("Act")
relating to transactions by an issuer not involving any public offering. The
Holder understands that the Company has no present intention, and is under no
obligation to, register the Promissory Note or the Underlying Shares under the
Act, or any applicable state law.
The Holder understands that due to lack of registration, the Promissory
Note and the Underlying Shares will be restricted securities, that the holder
must bear the economic risk of the investment for an indefinite period, that
the Promissory Note and the Underlying Shares may not be sold, pledged or
otherwise disposed of unless they are registered under the Act and any
applicable state securities law, or an exemption from such laws is available
and the Company is supplied with an opinion of counsel to the Holder,
satisfactory to the Company, that registration is not required under any of
such laws, and in the opinion of counsel for the Company, such sale, transfer,
or pledge will not cause the Company to fail to be in compliance with the
exemption provisions under which the Promissory Note or the Underlying Shares
were issued.
The Holder has such knowledge and experience in financial and business
affairs that it is capable of evaluating the merits and risks of the
prospective investment.
The Holder is able to bear the economic risk of this investment. An
investment in the Promissory Note and the Underlying Shares is suitable for
the Holder in light of its financial position and investment objectives, with
full knowledge that this investment could result in a complete loss. The
Holder recognizes that the Promissory Note represents a HIGH-RISK, SPECULATIVE
INVESTMENT and that there is no assurance that any return will be received
thereon. The Holder can afford a total loss of this investment.
The Holder is an Accredited Investor" as that term is defined in Regulation D
under the Securities Act of 1933 as amended.
The Promissory Note is being, and the Underlying Shares will be,
purchased for the Holder's own account for investment purposes and not with a
view to the resale or distribution thereof by the Holder.
The Holder has reviewed the Company's Annual Report on Form 10-K for the
year ended March 25, 1995; its quarterly reports on Form 10-Q for the quarters
ended June 17, October 6, and December 30, 1995; its proxy statement for an
annual meeting held on September 28, 1995; and all current reports on Form 8-K
filed on or after March 25, 1995, including but not limited to, the Form 8-K
filed on February 12, 1996. The Holder has also been informed that the
proceeds of this investment shall be used for general corporate purposes,
including the settlement of accrued past due liabilities due to the Company's
professional advisors, suppliers of goods and corporate services, director and
officer liability insurance premiums and director and officer fees and
expenses. Prior to the date hereof, the Holder has had ample opportunity to
ask questions of and receive answers from the officers and directors of the
Company, concerning the Company, the Promissory Note and the Company's
business and to obtain any additional information which was considered
necessary to verify the information supplied by those individuals.
The Holder understands that a restrictive legend in substantially the
following form shall be placed on the certificates representing the Underlying
Shares:
"The shares represented by this certificate have not been registered under the
Securities Act of 1933, as amended ("Act"). Such shares have been acquired
for investment and may not be publicly offered or sold in the absence of (1)
an effective registration for such shares under the Act; (2) opinions of
counsel to the Company and to the holder hereof and presented to the Company
prior to any proposed transfer to the effect that registration is not required
under the Act; or (3) a letter presented to the Company, prior to any proposed
<PAGE> 73
transfer, from the staff of the Securities and Exchange Commission, to the
effect that it will not take enforcement action if the proposed transfer is
made without registration under the Act"
Except as set forth in the documents which the Holder has reviewed, no
representations or warranties have been made to the Holder by the Company. In
entering into this transaction, the Holder is not relying upon any
information, other than the results of its own independent investigation.
ARTICLE FOUR
PIGGY-BACK REGISTRATION RIGHTS
If this Promissory Note has been converted to Common Stock, and if the
Company proposes to file a registration statement under the Securities Act
with respect to an offering by the Company of Company Common Stock (other than
a registration statement on Form S-4 or S-8 or any form substituting therefor)
the Company shall in each such case give written notice of such proposed
filing and the proposed method of distribution of securities covered by such
proposed filing to the Holder of shares issued upon conversion of this
Promissory Note at least ten (10) days before the anticipated filing date.
The Company will use its best efforts to include in the registration statement
proposed to be filed by the Company all shares issued upon conversion hereof
and other Promissory Notes in this series with respect to which the Company
has received written requests for inclusion therein prior to the anticipated
filing date. Notwithstanding the foregoing, if the managing underwriter or
underwriters of such offering deliver a written opinion to the holders of
securities to be included therein to the effect that .the total amount of
securities intended to be included in such offering would materially and
adversely affect the success of such offering, then the amount of securities
to be offered for the account of the participating holders shall be reduced
(pro rata among the participating holders) to the extent necessary to reduce
the total amount of securities to be included in such offering to the amount
recommended by such managing underwriter or underwriters. The Holder shall
provide the Company and any underwriters with any further documents and
assurances reasonably required to effect such registration. Notwithstanding
anything to the contrary herein, if the Company determines, in its business
judgment, that there are business reasons to delay the effectiveness of,-or to
withdraw, a registration statement prior to it becoming effective under the
Securities Act, the Company shall not be deemed to have breached any of its
obligations hereunder.
ARTICLE FIVE
MISCELLANEOUS
5.01 Failure or Delay Not Waiver
No failure or delay on the part of the Holder hereof in the exercise of
any power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or privilege precl
ude, other or further exercise thereof or of any other right, power or
privilege. All rights and remedies existing hereunder are cumulative to, and
not exclusive of, any rights or remedies otherwise available.
5.02 Notices
Any notice herein required or permitted to be given shall be given by
federal express or similar overnight courier or by same day courier service or
by certified mail, return receipt requested, if to the Holder, at the address
set forth on the first page hereof, or, if to the Company:
<PAGE> 74
Corniche Group Incorporated, Wayne Interchange Plaza 1, 145 Route 46
West, Wayne, New Jersey 07470.
5.03 Amendments
The term "Promissory Note" or "this Promissory Note" and all reference
thereto, as used through this instrument, shall mean this instrument as
originally executed or, if later amended or supplemented, then, as so amended
or supplemented
5.04 Assignability
This Promissory Note shall be binding on the Company, its successors and
assigns, and shall inure to the benefit of the Holder, its successors and
assigns.
5.05 Governing Law and Jurisdiction
This Promissory Note has been executed in and shall be governed by the
laws of the State of New Jersey and any proceeding brought to enforce its
terms shall be brought in a federal or state court located in the State of New
Jersey.
5.06 No Personal Liability
No officer, director, shareholder, employee, consultant or agent of the
Company shall be personally liable for repayment of this Promissory Note.
IN WITNESS WHEREOF, the Company has caused this Promissory Note to be
signed in its name by its duly authorized officer and its-corporate seal to be
affixed hereto.
CORNICHE GROUP INCORPORATED
_________________________________
James J. Fyfe
Director and Vice President
I acknowledge the accuracy of the representations in Article Three of
this Promissory Note.
By:______________________________
<PAGE> 75
EXHIBIT 4 ( c )
<PAGE> 76
NEITHER THIS PROMISSORY NOTE NOR THE SECURITIES ISSUABLE UPON THE CONVERSION
THEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAW, AND MAY BE TRANSFERRED ONLY IF
REGISTERED PURSUANT TO THE PROVISIONS OF THAT ACT OR ANY APPLICABLE STATE
SECURITIES LAW OR IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE
PROMISSORY NOTE
No. NA-__________ $25,000
Dated: ____________, 1997 Wayne, New Jersey
FOR VALUE RECEIVED, CORNICHE GROUP INCORPORATED, a Delaware corporation
(hereinafter called the "Company), hereby promises to pay
______________________________________________
(Name)
______________________________________________
(Street and No.)
______________________________________________
(City, State and Zip Code)
______________________________________________
(Social Security No. or Federal Employer ID No.)
______________________________________________
(Date of Birth)
(herein called the "Holder"), or to his order, the sum of TWENTY-FIVE THOUSAND
DOLLARS ($25,000), together with interest thereon at the rate of eight percent
(8%) per annum from the date hereof on __________ ___, 1997. Interest shall
be payable at maturity, and shall be computed on the balance of principal
outstanding from time to time based on actual number of days elapsed.
Both principal hereof and interest thereon are payable in lawful money of
the United States of America at the Holder's address above or such other
address as the Holder shall designate in writing delivered to the Company from
time to time.
ARTICLE ONE
EVENTS OF DEFAULT
If any of the following events of default (each, an "Event of Default")
shall occur, the Holder hereof, at its option, may declare the sum of
principal then remaining unpaid hereon immediately due and payable.
<PAGE> 77
1.01 Event of Default
For purposes of this instrument, an Event of Default will be deemed to
have occurred if:
(a) the Company shall fail to pay the principal of or interest
due on this Promissory Note on the due date and such non-payment shall
continue for a period of five (5) days from the date due; or
(b) a receiver, liquidator or trustee of the Company or of any
property of the Company, shall be appointed by court order and such
appointment shall remain in effect for 60 days; or the Company shall be
adjudged bankrupt or insolvent; or any of the property of the Company shall be
sequestered by court order and such order shall remain in effect for more than
60 days; or a petition to reorganize the Company under any bankruptcy,
reorganization or insolvency law shall be filed against the Company and shall
not be dismissed within 60 days after such filing; or
(c) the Company shall file a petition in voluntary bankruptcy or
requesting reorganization under any provision of any bankruptcy,
reorganization or insolvency law or shall consent to the filing of any
petition against it under any such law; or
(d) the Company shall make a formal or informal assignment for
the benefit of its creditors or admit in writing its inability to pay its
debts generally when they become due or shall consent to the appointment of a
receiver, trustee or liquidator of the Company or of all or part of the
property of the Company after the date hereof.
1.02 Remedies on Default
If an Event of Default shall have occurred, in addition to its rights and
remedies under this Promissory Note, and any other instruments, the Holder may
at its option by written notice to the Company declare all indebtedness to the
Holder hereunder to be due and payable, together with all reasonable expenses
of enforcement of the Holder's rights including legal fees and related
disbursements, whereupon the same shall forthwith mature and become due and
payable without any further notice to and without presentment, demand, protest
or notice of protest, all of which are hereby waived.
The Holder may proceed to protect and enforce its rights by suit in
equity, action at law or other appropriate proceedings, including, without
limitation action for specific performance of any agreement contained herein
or in any other instrument, or for an injunction against a violation of any of
the terms hereof or thereof, or in aid of the exercise of any right, power or
remedy granted hereby or by law, equity or otherwise.
ARTICLE TWO
CONVERSION PRIVILEGE
The Company hereby grants to the Holder of this Promissory Note the right
to convert the principal and interest on this Promissory Note into fully paid
and non-assessable shares of the Company's Common Stock, $0.10 par value, at
the "Conversion Price" per share. The "Conversion Price,, is defined as ten
cents ($0.10). The right to convert may be exercised at any time after an
Event of Default up to and including ____________, 1997. The right to convert
may only be exercised with respect to the entire amount due on this Promissory
Note at the exercise date. The Company will reserve 300,000 (three hundred
thousand) shares of its Common Stock for the foregoing purpose.
<PAGE> 78
2.01 Exercise Procedure
(a) The Conversion privilege shall be deemed to have been
exercised (the "Exercise Time") when the Company shall have received all of
the following:
(i) a properly completed Exercise Agreement in the form set out
in Section 2.02 below executed by the Holder; and
(ii) this Promissory Note.
(b) Certificates for the underlying shares acquired shall be
delivered to the purchaser within 20 days after the Exercise Time.
2.02 Exercise Agreement
Upon exercise, the undersigned shall execute an agreement stating as
follows: "An event of default has occurred which has not been cured and
therefore the undersigned irrevocably elects to subscribe for and purchase
shares of the Company's Common Stock as provided in the Promissory Note, and
makes payment in full therefor by conversion. The undersigned hereby
represents and warrants that the shares of Common Stock to be acquired upon
exercise are being acquired for its own account, without any present intention
of reoffering, reselling or distributing such Common Stock, except to the
extent permitted under the Securities Act of 1993, as amended".
2.03 Changes in Capital Structure
(a) In the event that the outstanding shares of Common Stock of
the Company are hereafter increased or decreased, or changed into or exchanged
for a different number or kind of shares or other securities of the Company,
or of any other corporation, by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up, combination
of shares, or dividends payable in capital stock of the Company, appropriate
adjustments shall be made by the Company in the number and kind of shares to
be purchased upon exercise of this conversion right to the end that the
Holder's proportionate interest shall not be altered. All such adjustments
made by the Board of Directors of the Company shall be conclusive, absent
manifest error.
(b) Until this Promissory Note has been paid in full or the
conversion privilege has been exercised, the Company will not issue any shares
of its Common Stock for a price less than the then fair market value of the
stock.
ARTICLE THREE
RESTRICTIONS ON TRANSFER
The Holder, by execution of the acknowledgment at the end of this
Promissory Note, acknowledges that it understands that the Company will rely
upon the representations set forth herein in issuing the Promissory Note and
the Underlying Shares, if any, without registration under the Securities Act
of 1933, as amended, the New Jersey Uniform Securities Law, or any other state
securities law.
Accordingly, the Holder, by acceptance of the Promissory Note, represents
and warrants that this offering is being made pursuant to the exemption from
registration with the Securities and Exchange Commission ("SEC") afforded by
Sections 3(b) and/or 4(2) of the Securities Act of 1933, as amended ("Act")
relating to transactions by an issuer not involving any public offering. The
Holder understands that the
<PAGE> 79
Company has no present intention, and is under no obligation to, register the
Promissory Note or the Underlying Shares under the Act, or any applicable
state law.
The Holder understands that due to lack of registration, the Promissory
Note and the Underlying Shares will be restricted securities, that the holder
must bear the economic risk of the investment for an indefinite period, that
the Promissory Note and the Underlying Shares may not be sold, pledged or
otherwise disposed of unless they are registered under the Act and any
applicable state securities law, or an exemption from such laws is available
and the Company is supplied with an opinion of counsel to the Holder,
satisfactory to the Company, that registration is not required under any of
such laws, and in the opinion of counsel for the Company, such sale, transfer,
or pledge will not cause the Company to fail to be in compliance with the
exemption provisions under which the Promissory Note or the Underlying Shares
were issued.
The Holder has such knowledge and experience in financial and business
affairs that it is capable of evaluating the merits and risks of the
prospective investment.
The Holder is able to bear the economic risk of this investment. An
investment in the Promissory Note and the Underlying Shares is suitable for
the Holder in light of its financial position and investment objectives, with
full knowledge that this investment could result in a complete loss. The
Holder recognizes that the Promissory Note represents a HIGH-RISK, SPECULATIVE
INVESTMENT and that there is no assurance that any return will be received
thereon. The Holder can afford a total loss of this investment.
The Holder is an Accredited Investor" as that term is defined in Regulation D
under the Securities Act of 1933 as amended.
The Promissory Note is being, and the Underlying Shares will be,
purchased for the Holder's own account for investment purposes and not with a
view to the resale or distribution thereof by the Holder.
The Holder has reviewed the Company's Annual Report on Form 10-K for the
year ended March 25, 1995; its quarterly reports on Form 10-Q for the quarters
ended June 17, October 6, and December 30, 1995; its proxy statement for an
annual meeting held on September 28, 1995; and all current reports on Form 8-K
filed on or after March 25, 1995, including but not limited to, the Form 8-K
filed on February 12, 1996. The Holder has also been informed that the
proceeds of this investment shall be used for general corporate purposes,
including the settlement of accrued past due liabilities due to the Company's
professional advisors, suppliers of goods and corporate services, director and
officer liability insurance premiums and director and officer fees and
expenses. Prior to the date hereof, the Holder has had ample opportunity to
ask questions of and receive answers from the officers and directors of the
Company, concerning the Company, the Promissory Note and the Company's
business and to obtain any additional information which was considered
necessary to verify the information supplied by those individuals.
The Holder understands that a restrictive legend in substantially the
following form shall be placed on the certificates representing the Underlying
Shares:
"The shares represented by this certificate have not been registered under the
Securities Act of 1933, as amended ("Act"). Such shares have been acquired
for investment and may not be publicly offered or sold in the absence of (1)
an effective registration for such shares under the Act; (2) opinions of
counsel to the Company and to the holder hereof and presented to the Company
prior to any proposed transfer to the effect that registration is not required
under the Act; or (3) a letter presented to the Company, prior to any proposed
transfer, from the staff of the Securities and Exchange Commission, to the
effect that it will not take enforcement action if the proposed transfer is
made without registration under the Act"
<PAGE> 80
Except as set forth in the documents which the Holder has reviewed, no
representations or warranties have been made to the Holder by the Company. In
entering into this transaction, the Holder is not relying upon any
information, other than the results of its own independent investigation.
ARTICLE FOUR
PIGGY-BACK REGISTRATION RIGHTS
If this Promissory Note has been converted to Common Stock, and if the
Company proposes to file a registration statement under the Securities Act
with respect to an offering by the Company of Company Common Stock (other than
a registration statement on Form S-4 or S-8 or any form substituting therefor)
the Company shall in each such case give written notice of such proposed
filing and the proposed method of distribution of securities covered by such
proposed filing to the Holder of shares issued upon conversion of this
Promissory Note at least ten (10) days before the anticipated filing date.
The Company will use its best efforts to include in the registration statement
proposed to be filed by the Company all shares issued upon conversion hereof
and other Promissory Notes in this series with respect to which the Company
has received written requests for inclusion therein prior to the anticipated
filing date. Notwithstanding the foregoing, if the managing underwriter or
underwriters of such offering deliver a written opinion to the holders of
securities to be included therein to the effect that .the total amount of
securities intended to be included in such offering would materially and
adversely affect the success of such offering, then the amount of securities
to be offered for the account of the participating holders shall be reduced
(pro rata among the participating holders) to the extent necessary to reduce
the total amount of securities to be included in such offering to the amount
recommended by such managing underwriter or underwriters. The Holder shall
provide the Company and any underwriters with any further documents and
assurances reasonably required to effect such registration. Notwithstanding
anything to the contrary herein, if the Company determines, in its business
judgment, that there are business reasons to delay the effectiveness of, or to
withdraw, a registration statement prior to it becoming effective under the
Securities Act, the Company shall not be deemed to have breached any of its
obligations hereunder.
ARTICLE FIVE
MISCELLANEOUS
5.01 Failure or Delay Not Waiver
No failure or delay on the part of the Holder hereof in the exercise of
any power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or privilege
preclude, other or further exercise thereof or of any other right, power or priv
ilege. All rights and remedies existing hereunder are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
5.02 Notices
Any notice herein required or permitted to be given shall be given by
federal express or similar overnight courier or by same day courier service or
by certified mail, return receipt requested, if to the Holder, at the address
set forth on the first page hereof, or, if to the Company:
Corniche Group Incorporated, Wayne Interchange Plaza 1, 145 Route 46
West, Wayne, New Jersey 07470.
<PAGE> 81
5.03 Amendments
The term "Promissory Note" or "this Promissory Note" and all reference
thereto, as used through this instrument, shall mean this instrument as
originally executed or, if later amended or supplemented, then, as so amended
or supplemented
5.04 Assignability
This Promissory Note shall be binding on the Company, its successors and
assigns, and shall inure to the benefit of the Holder, its successors and
assigns.
5.05 Governing Law and Jurisdiction
This Promissory Note has been executed in and shall be governed by the
laws of the State of New Jersey and any proceeding brought to enforce its
terms shall be brought in a federal or state court located in the State of New
Jersey.
5.06 No Personal Liability
No officer, director, shareholder, employee, consultant or agent of the
Company shall be personally liable for repayment of this Promissory Note.
IN WITNESS WHEREOF, the Company has caused this Promissory Note to be
signed in its name by its duly authorized officer and its-corporate seal to be
affixed hereto.
CORNICHE GROUP INCORPORATED
_________________________________
James J. Fyfe
Director and Vice President
I acknowledge the accuracy of the representations in Article Three of
this Promissory Note.
By:______________________________
<PAGE> 82
EXHIBIT 4 ( d )
<PAGE> 83
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE ON THE EXERCISE THEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"); AND THIS WARRANT IS NOT TRANSFERABLE EXCEPT ON DEVOLUTION OF SUCH
WARRANT BY OPERATION OF THE LAWS OF DESCENT AND DISTRIBUTION IN THE EVENT OF
THE DEATH OR ADJUDICATED INCOMPETENCE OF THE HOLDER.
No. WA-__________ 3-Year Warrant to purchase
*60,000* shares (subject to adjustment)
Dated: _____________, 1996 of common stock, $.10 par value, of
Corniche Group Incorporated
VOID AFTER ______________, 1999
CORNICHE GROUP INCORPORATED
Non-Transferable, Redeemable Common Stock Purchase Warrant
Corniche Group Incorporated (hereby called the "Company"), a Delaware
corporation, hereby certifies that, for and in consideration of the sum of
$1,000:
______________________________________________
(Name)
______________________________________________
(Street and No.)
______________________________________________
(City, State and Zip Code)
______________________________________________
(Social Security No. or Federal Employer ID No.)
______________________________________________
(Date of Birth)
is entitled to purchase from the Company, at any time or from time to time,
subsequent to the date of issuance hereof and before 3:00 P.M. New York local
time on _________, 1999 (the "Exercise Period"), subject to prior redemption
by the Company, an aggregate of up to 60,000 fully paid and non-assessable
shares (the number or character of such shares being subject to adjustment as
provided below) of the common stock, $.10 par value per share, of the Company
(the "Underlying Shares") on the payment therefor of $.50 for each share of
the common stock subscribed for and purchased, upon the surrender of this
warrant duly signed by the registered holder hereof or assigns at the time of
subscription, accompanied by payment of the total subscription price in cash
or by certified check or bank draft payable to the order of the Company, upon
the terms and subject to the conditions hereinafter set forth.
1. Notice of Exercise. Notice of intention to exercise any of the
purchase rights evidenced by this warrant must be given during the Exercise
Period by written notice addressed to the Company at its principal office or
by written notice addressed to its duly designated and acting agent, if any,
at least 10 days prior to any intended exercise. Such notice shall specify
the date on which purchase rights are to be exercised and the number of shares
of the common stock to be purchased on that date.
<PAGE> 84
2. Exercise of Warrant. On or before the date of exercise specified
in such notice given during the Exercise Period, the holder shall surrender
this warrant (in negotiable form, if not surrendered by the holder named
above) to the principal office of the Company, or to that of its duly
designated and acting agent with the exercise form attached to this warrant
duly signed together with the purchase price of the common stock represented
by certified or official bank check on New York Clearing House funds payable
to the order of the Company, in the amount of the said purchase price.
3. Delivery of Stock Certificates on Exercise. As soon as
practicable after the exercise of this warrant and payment of the purchase
price, and in any event no later than 10 days thereafter, the Company or its
duly designated and acting agent, if any, will cause to be issued in the name
of and delivered to the holder hereof, or such holder's nominee or nominees, a
certificate or certificates for the number of full shares of the common stock
of the Company to which such holder shall be entitled upon such exercise. In
case, between the date of such exercise and the date on which such certificate
or certificates are issued, the record holder of such shares shall become
entitled to any dividend or other right, the Company will forthwith pay or
cause to be paid in cash to the holder hereof the amount of such dividend, or
transfer to the holder hereof such right, as the case may be. No fraction of
a share or scrip certificate for such fraction shall be issued upon the
exercise of this warrant; in lieu thereof, the Company will pay or cause to be
paid to such holder cash equal to a like fraction at the then prevailing
market price for such share as determined by the Company.
4. Partial Exercise of a Warrant. In case this warrant shall be
exercised for less than the full number of shares to which the holder is
entitled the Company, at its expense, will issue, or will cause to be issued
and delivered to the holder hereof, a new warrant or warrants of like tenor
issued in said holder's name, representing the unexercised warrants.
5. Dividends in Stock, Property, Reclassifications. In case at any
time or from time to time the holders of the common stock of the Company (or
any other shares of stock or other securities at that time receivable upon
exercise of this warrant) shall have received, or as of a record date shall
have become entitled to receive other or additional or less stock or other
securities or property (other than cash) without payment therefor (whether
through a dividend in stock of any class of stock of the Company or any other
corporation, or a dividend in any securities or property other than cash, or
through stock split, spin-off, reclassification, combination, of shares or
otherwise), then and in each such case the holder of this warrant upon the
exercise thereof and upon the payment of the sum obtained by multiplying (a)
the number of shares of the common stock of the Company called for on the face
of this warrant by (b) the purchase price per share obtaining on the date of
such event, as hereinabove provided, shall be entitled to receive, in lieu of
the shares called for hereby, the stock or other securities of property which
said holder would hold on the date of such exercise, if, from the date hereof
to and including such date, he had been the holder of record of the number of
shares of the common stock of the Company called for on the face of this
warrant and had retained such shares and all such other or additional or less
stock and other securities and property receivable in respect of such shares.
In case of the partial exercise of this warrant under such circumstances, the
number of shares of stock which would have been receivable upon the full
exercise of this warrant, computed as provided above, shall be proportionately
reduced.
6. Reorganization, Consolidations, Mergers. In case of any
reorganization of the Company, or any other corporation, the stock or
securities of which are at the time deliverable on the exercise of this
warrant, or in case the Company or such other corporation shall consolidate
with or merge into another corporation, or convey all or substantially all of
its assets to another corporation, the holder of this warrant, upon the
exercise hereof and upon the payment of the sum obtained by multiplying (a)
the number of shares of the Company called for on the face of the warrant by
(b) the purchase price per share obtaining on the date of such event, as
hereinabove provided, shall be entitled to receive, in lieu of the shares
theretofore called for hereby, the stock or other securities or property to
which such holder would have been entitled upon the consummation of such
reorganization, consolidation, merger or conveyance if he had purchased the
shares
<PAGE> 85
called for hereby immediately prior thereto; and in such case, the provisions
of this warrant shall be applicable to the shares of stock or other securities
or property thereafter deliverable upon the exercise of this warrant. In the
case of the partial exercise of this warrant under such circumstances, the
number of shares of stock or other securities or property which would have
been receivable upon the full exercise of this warrant, and the sum payable
therefor, shall be proportionately reduced.
7. Redemption Of Warrants. The unexercised portions, if any, of the
warrants are redeemable at the option of the Company at a price of $.075 per
Underlying Share at any time during a period of one hundred twenty days
commencing on the date hereof (the "Redemption Period"). If the Company shall
elect to redeem warrants as permitted by this Section 7, notice of redemption
shall be given to the holders of all outstanding warrants to whom the
redemption shall apply by mailing, by regular first class or certified mail or
by recognized courier service, a notice of such redemption, accompanied by
payment in full therefor by check or draft at the rate herein provided, to
their last addresses as they shall appear upon the Company's registry books.
The date of the mailing of such notice and payment shall be deemed the
effective date of such redemption (the "Redemption Date") whereupon, as of the
close of business on the Redemption Date, the warrants which shall have been
thus redeemed shall be null, void and of no further force and effect.
8. Lost, Stolen, Destroyed or Mutilated Warrants. Upon receipt by
the Company or its duly designated and acting agent, if any, of evidence
satisfactory (in the exercise of reasonable discretion) to each of them of the
ownership of and the loss, theft or destruction or mutilation of this or any
warrant and (in the case of loss, theft or destruction) of indemnity
satisfactory (in the exercise of reasonable discretion) to each of them, and
(in the case of mutilation) upon the surrender and cancellation thereof, the
Company or its duly designated and acting agent will issue and deliver, in
lieu thereof, a new warrant of like tenor.
9. Transferability. This warrant has not been registered under the
Securities Act; and is not transferable except on devolution of such warrant
by operation of the laws of descent and distribution in the event of the death
or adjudicated incompetence of the holder. Neither this warrant nor any
shares of common stock issued by reason of the exercise thereof shall be
pledged, hypothecated, made the subject of a security interest or otherwise
lodged as collateral to secure or guaranty the payment or performance of any
debt, indemnity, cause, claim, demand or other obligation of any kind, in
furtherance of which the certificate(s) evidencing any such shares of common
stock shall bear a restrictive legend reciting the proscription set forth
above.
10. Piggyback Registration Rights. If at any time, or from time to
time, commencing on the date of issuance hereof and ending three years after
the date of issuance hereof, the Company proposes to file a registration
statement with the Securities and Exchange Commission with respect to the sale
of any securities of the Company, the Company will, at least thirty (30) days
prior to such filing, give written notice thereof to the holders of this
warrant and the holders of the Underlying Shares and if, within twenty (20)
days after receipt of such notice, such holders request inclusion in such
registration statement of the Underlying Shares, the Company will use its best
efforts to include the Underlying Shares in such registration statement. The
Company will pay and bear all costs and expenses in connection with
registering such Underlying Shares.
11. Miscellaneous. This warrant shall not be valid for any purpose
unless signed by an authorized officer of the Company and countersigned by the
duly designated and acting agent, if any. This warrant does not confer upon
the holder any right to vote or to consent or to receive notice as a
stockholder of the Company.
12. Headings. The headings in this warrant are for purposes of
reference only, and shall not limit or otherwise affect the meaning hereof.
13. Expiration. This warrant will be wholly void and of no effect
after 3 P.M., New York local time, on the expiration date set forth on the
first page hereof.
<PAGE> 86
14. Law Governing. This warrant shall be construed and enforced in
accordance with and governed by the laws of the State of New Jersey.
15. Savings Clause. If any provision of this warrant, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this warrant, or the application of such provision
to persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
CORNICHE GROUP INCORPORATED
By_______________________________
JAMES J. FYFE, Vice President
ATTEST:
_______________________________
, Secretary
<PAGE> 87
EXHIBIT 4 ( e )
<PAGE> 88
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE ON THE EXERCISE THEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"); AND THIS WARRANT IS NOT TRANSFERABLE EXCEPT ON DEVOLUTION OF SUCH
WARRANT BY OPERATION OF THE LAWS OF DESCENT AND DISTRIBUTION IN THE EVENT OF
THE DEATH OR ADJUDICATED INCOMPETENCE OF THE HOLDER.
No. WA-__________ 3-Year Warrant to purchase
*60,000* shares (subject to adjustment)
Dated: ______________, 1997 of common stock, $.10 par value, of
Corniche Group Incorporated
VOID AFTER ______________, 2000
CORNICHE GROUP INCORPORATED
Non-Transferable, Redeemable Common Stock Purchase Warrant
Corniche Group Incorporated (hereby called the "Company"), a Delaware
corporation, hereby certifies that, for and in consideration of the sum of
$1,000:
______________________________________________
(Name)
______________________________________________
(Street and No.)
______________________________________________
(City, State and Zip Code)
______________________________________________
(Social Security No. or Federal Employer ID No.)
______________________________________________
(Date of Birth)
is entitled to purchase from the Company, at any time or from time to time,
subsequent to the date of issuance hereof and before 3:00 P.M. New York local
time on _____________, 2000 (the "Exercise Period"), subject to prior
redemption by the Company, an aggregate of up to 60,000 fully paid and
non-assessable shares (the number or character of such shares being subject to
adjustment as provided below) of the common stock, $.10 par value per share,
of the Company (the "Underlying Shares") on the payment therefor of $.50 for
each share of the common stock subscribed for and purchased, upon the
surrender of this warrant duly signed by the registered holder hereof or
assigns at the time of subscription, accompanied by payment of the total
subscription price in cash or by certified check or bank draft payable to the
order of the Company, upon the terms and subject to the conditions hereinafter
set forth.
1. Notice of Exercise. Notice of intention to exercise any of the
purchase rights evidenced by this warrant must be given during the Exercise
Period by written notice addressed to the Company at its principal office or
by written notice addressed to its duly designated and acting agent, if any,
at least 10 days prior to any intended exercise. Such notice shall specify
the date on which purchase rights are to be exercised and the number of shares
of the common stock to be purchased on that date.
<PAGE> 89
2. Exercise of Warrant. On or before the date of exercise specified
in such notice given during the Exercise Period, the holder shall surrender
this warrant (in negotiable form, if not surrendered by the holder named
above) to the principal office of the Company, or to that of its duly
designated and acting agent with the exercise form attached to this warrant
duly signed together with the purchase price of the common stock represented
by certified or official bank check on New York Clearing House funds payable
to the order of the Company, in the amount of the said purchase price.
3. Delivery of Stock Certificates on Exercise. As soon as
practicable after the exercise of this warrant and payment of the purchase
price, and in any event no later than 10 days thereafter, the Company or its
duly designated and acting agent, if any, will cause to be issued in the name
of and delivered to the holder hereof, or such holder's nominee or nominees, a
certificate or certificates for the number of full shares of the common stock
of the Company to which such holder shall be entitled upon such exercise. In
case, between the date of such exercise and the date on which such certificate
or certificates are issued, the record holder of such shares shall become
entitled to any dividend or other right, the Company will forthwith pay or
cause to be paid in cash to the holder hereof the amount of such dividend, or
transfer to the holder hereof such right, as the case may be. No fraction of
a share or scrip certificate for such fraction shall be issued upon the
exercise of this warrant; in lieu thereof, the Company will pay or cause to be
paid to such holder cash equal to a like fraction at the then prevailing
market price for such share as determined by the Company.
4. Partial Exercise of a Warrant. In case this warrant shall be
exercised for less than the full number of shares to which the holder is
entitled the Company, at its expense, will issue, or will cause to be issued
and delivered to the holder hereof, a new warrant or warrants of like tenor
issued in said holder's name, representing the unexercised warrants.
5. Dividends in Stock, Property, Reclassifications. In case at any
time or from time to time the holders of the common stock of the Company (or
any other shares of stock or other securities at that time receivable upon
exercise of this warrant) shall have received, or as of a record date shall
have become entitled to receive other or additional or less stock or other
securities or property (other than cash) without payment therefor (whether
through a dividend in stock of any class of stock of the Company or any other
corporation, or a dividend in any securities or property other than cash, or
through stock split, spin-off, reclassification, combination, of shares or
otherwise), then and in each such case the holder of this warrant upon the
exercise thereof and upon the payment of the sum obtained by multiplying (a)
the number of shares of the common stock of the Company called for on the face
of this warrant by (b) the purchase price per share obtaining on the date of
such event, as hereinabove provided, shall be entitled to receive, in lieu of
the shares called for hereby, the stock or other securities of property which
said holder would hold on the date of such exercise, if, from the date hereof
to and including such date, he had been the holder of record of the number of
shares of the common stock of the Company called for on the face of this
warrant and had retained such shares and all such other or additional or less
stock and other securities and property receivable in respect of such shares.
In case of the partial exercise of this warrant under such circumstances, the
number of shares of stock which would have been receivable upon the full
exercise of this warrant, computed as provided above, shall be proportionately
reduced.
6. Reorganization, Consolidations, Mergers. In case of any
reorganization of the Company, or any other corporation, the stock or
securities of which are at the time deliverable on the exercise of this
warrant, or in case the Company or such other corporation shall consolidate
with or merge into another corporation, or convey all or substantially all of
its assets to another corporation, the holder of this warrant, upon the
exercise hereof and upon the payment of the sum obtained by multiplying (a)
the number of shares of the Company called for on the face of the warrant by
(b) the purchase price per share obtaining on the date of such event, as
hereinabove provided, shall be entitled to receive, in lieu of the shares
theretofore called for hereby, the stock or other securities or property to
which such holder would have been entitled upon the consummation of such
reorganization, consolidation, merger or conveyance if he had purchased the
shares
<PAGE> 90
called for hereby immediately prior thereto; and in such case, the provisions
of this warrant shall be applicable to the shares of stock or other securities
or property thereafter deliverable upon the exercise of this warrant. In the
case of the partial exercise of this warrant under such circumstances, the
number of shares of stock or other securities or property which would have
been receivable upon the full exercise of this warrant, and the sum payable
therefor, shall be proportionately reduced.
7. Redemption Of Warrants. The unexercised portions, if any, of the
warrants are redeemable at the option of the Company at a price of $.075 per
Underlying Share at any time during a period of one hundred twenty days
commencing on the date hereof (the "Redemption Period"). If the Company shall
elect to redeem warrants as permitted by this Section 7, notice of redemption
shall be given to the holders of all outstanding warrants to whom the
redemption shall apply by mailing, by regular first class or certified mail or
by recognized courier service, a notice of such redemption, accompanied by
payment in full therefor by check or draft at the rate herein provided, to
their last addresses as they shall appear upon the Company's registry books.
The date of the mailing of such notice and payment shall be deemed the
effective date of such redemption (the "Redemption Date") whereupon, as of the
close of business on the Redemption Date, the warrants which shall have been
thus redeemed shall be null, void and of no further force and effect.
8. Lost, Stolen, Destroyed or Mutilated Warrants. Upon receipt by
the Company or its duly designated and acting agent, if any, of evidence
satisfactory (in the exercise of reasonable discretion) to each of them of the
ownership of and the loss, theft or destruction or mutilation of this or any
warrant and (in the case of loss, theft or destruction) of indemnity
satisfactory (in the exercise of reasonable discretion) to each of them, and
(in the case of mutilation) upon the surrender and cancellation thereof, the
Company or its duly designated and acting agent will issue and deliver, in
lieu thereof, a new warrant of like tenor.
9. Transferability. This warrant has not been registered under the
Securities Act; and is not transferable except on devolution of such warrant
by operation of the laws of descent and distribution in the event of the death
or adjudicated incompetence of the holder. Neither this warrant nor any
shares of common stock issued by reason of the exercise thereof shall be
pledged, hypothecated, made the subject of a security interest or otherwise
lodged as collateral to secure or guaranty the payment or performance of any
debt, indemnity, cause, claim, demand or other obligation of any kind, in
furtherance of which the certificate(s) evidencing any such shares of common
stock shall bear a restrictive legend reciting the proscription set forth
above.
10. Piggyback Registration Rights. If at any time, or from time to
time, commencing on the date of issuance hereof and ending three years after
the date of issuance hereof, the Company proposes to file a registration
statement with the Securities and Exchange Commission with respect to the sale
of any securities of the Company, the Company will, at least thirty (30) days
prior to such filing, give written notice thereof to the holders of this
warrant and the holders of the Underlying Shares and if, within twenty (20)
days after receipt of such notice, such holders request inclusion in such
registration statement of the Underlying Shares, the Company will use its best
efforts to include the Underlying Shares in such registration statement. The
Company will pay and bear all costs and expenses in connection with
registering such Underlying Shares.
11. Miscellaneous. This warrant shall not be valid for any purpose
unless signed by an authorized officer of the Company and countersigned by the
duly designated and acting agent, if any. This warrant does not confer upon
the holder any right to vote or to consent or to receive notice as a
stockholder of the Company.
12. Headings. The headings in this warrant are for purposes of
reference only, and shall not limit or otherwise affect the meaning hereof.
13. Expiration. This warrant will be wholly void and of no effect
after 3 P.M., New York local time, on the expiration date set forth on the
first page hereof.
<PAGE> 91
14. Law Governing. This warrant shall be construed and enforced in
accordance with and governed by the laws of the State of New Jersey.
15. Savings Clause. If any provision of this warrant, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this warrant, or the application of such provision
to persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
CORNICHE GROUP INCORPORATED
By_____________________________
JAMES J. FYFE, Vice President
<PAGE> 92
EXHIBIT 10 ( m )
<PAGE> 93
STOCK PURCHASE AGREEMENT
THIS AGREEMENT, entered into as of January 30, 1997, by and among:
The Governor and Company of
The Bank of Scotland
(the "Bank")
Those persons named in
Schedule A annexed hereto
(collectively, jointly and
severally "Buyers")
and
Corniche Group Incorporated
a Delaware corporation
(the "Company")
Whereas:
A. Pursuant to an agreement dated February 21, 1996, Susan A. Crisp
has pledged 219,450 shares, $.01 par value per share, of the issued and
outstanding common stock of the Company (the "Shares") to the Bank in order to
secure certain obligations to the Bank.
B. Pursuant to an agreement dated February 19, 1996, Brian J. Baylis
has pledged 877,800 Shares to the Bank in order to secure certain obligations
to the Bank.
C. Buyers desire to purchase 1,042,250 of the pledged Shares (the
"Sale Shares").
D. The Bank is willing to exercise its rights as pledgee of the
Shares to sell all right, title and interest of Ms. Crisp and Mr. Baylis in
the Sale Shares to the Buyers.
Now, Therefore, for the mutual consideration set out herein, the parties agree
as follows:
1. Purchase And Sale Of Company Shares
1.1 The Bank shall sell to Buyers and Buyers shall purchase from the
Bank, in the respective amounts set forth in Schedule A, all of the right,
title and interest of Ms. Crisp and Mr. Baylis in and to the Sale Shares at a
closing of such sale (the "Closing") to be held at the place and on the date
hereinafter provided (the "Closing Date").
1.2 The purchase price (the "Price") shall be $.12 per Sale Share or
$125,070 on an aggregated basis.
1.3 The Price shall be paid at the Closing to the Bank by wire
transfer of immediately available funds to an account in London or Edinburgh
designated by the Bank.
1.4 At the Closing Date, the Bank will deliver the certificates
purportedly representing the Sale Shares which were delivered to the Bank by
Crisp and Baylis and purportedly represent the Sale Shares. Such certificates
shall be accompanied by stock powers executed by Baylis and Crisp indicating
appropriate signature guarantees. Since the number of Shares purportedly
represented by such certificates exceeds the number of Sale Shares, the Bank
and the Buyers shall make reasonable arrangements to cause certificates
<PAGE> 94
representing the excess number of Shares to be issued in the names of Brian
J. Baylis (44,000 Shares) and Susan A. Crisp (11,000 Shares) and delivered to
the Bank. The Company has advised the Bank and the Buyers that: (a) the Sale
Shares are not registered under the Securities Act of 1933 as amended (the
"'33 Act"); (b) the Sale Shares are subject to usual and appropriate stop
transfer orders on the books and records of the Company's transfer agent
pertaining to securities not registered under the '33 Act; (c) the
certificates for the Sale Shares delivered by the Bank bear and all new
certificates for the Sale Shares to be delivered to Buyers shall bear on their
face the following restrictive legend:
"No sale, offer to sell or transfer of the shares represented by this
certificate shall be made unless a registration statement under the Federal
Securities Act of 1933, as amended, with respect to such shares is then in
effect or an exemption from the registration requirements of such Act is then
in fact applicable to such shares."
2. Representations And Covenants Of Bank
The Bank hereby represents and warrants, to the extent of the facts known
to the Bank, that, effective this date and the Closing Date, the
representations listed below are true and correct except to the extent
specifically set forth in a schedule annexed hereto and numbered in accordance
with the subsection number in which the relevant representation is made.
2.1 The certificates purportedly representing the Sale Shares are the
certificates heretofore delivered by Crisp and Baylis to the Bank pursuant to
the Pledge Agreements between the Bank and each of Crisp and Baylis.
2.2 The execution of this Agreement will not violate or breach any
agreement, contract, or commitment to which the Bank is a party, the Bank has
been duly authorized by all appropriate and necessary action to enter into and
perform this Agreement, and this Agreement is fully enforceable against the
Bank under English law.
2.3 The Bank will have no claim or lien on the Sale Shares upon
payment of the Price indefeasibly and in full.
2.4 The representations and warranties of the Bank contained in this
Section 2 shall survive the Closing Date.
The Bank makes no other representation or warranty of any nature
whatsoever. The Buyers have agreed to purchase the Sale Shares without
recourse to the Bank and, insofar as the Bank is concerned, the Sale Shares
will be sold "AS IS AND WHERE IS" and without representation or warranty
(including any representation or warranty as to condition, value or any other
matter concerning the Sale Shares or the Company, including the suitability of
the Sale Shares as an investment). Without limiting the foregoing, the Bank
has no basis to believe that the Sale Shares have a value equal to the Price,
and the Sale Shares' value could be less than the Price and the Sale Shares
could have no value.
3. Representations and Covenants of the Company
The Company hereby represents and warrants, to the extent of the facts
known to the Company, that, effective this date and the Closing Date, the
representations listed below are true and correct except to the extent
specifically set forth in a schedule annexed hereto and numbered in accordance
with the subsection number in which the relevant representation is made.
3.1 A copy of the audited financial statements of the Company dated
March 25, 1995 and the unaudited financial statements of the Company dated
December 31, 1995 and September 30, 1996 (collectively the "Financial
Statements") are attached hereto as Schedule 3.1. Except as noted therein,
the Financial Statements fairly present the financial position of the Company
for the periods indicated in conformity
<PAGE> 95
with generally accepted accounting principles consistently applied for such
periods. Except as disclosed in Schedule 3.1 there has not been and will not
be, prior to the Closing Date, any material changes in the financial position
of the Company as reflected in the Financial Statements.
3.2 The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware, has all
requisite corporate power and authority to own or lease and operate its
properties and to carry on its business as presently conducted. The Company
is duly qualified as a foreign corporation, and is in good standing, in each
jurisdiction listed on the Schedule 3.2 attached hereto, and in each other
jurisdiction where the character of its properties owned or held under lease
require it to be so qualified. Attached to Schedule 3.2 is a complete and
correct copy of the Company's Certificate of Incorporation, as amended to
date, certified by the Secretary of the State of Delaware, and the Company's
By-Laws, as currently in effect. This Agreement has been duly executed and
delivered on behalf of the Company and constitutes the valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to general equitable principles and except as the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws of general application
relating to creditors' rights.
3.3 The authorized capital stock of the Company consists of
30,000,000 shares of Common Stock, $.01 par value per share, of which
2,405,357 shares are issued and outstanding, 1,097,250 of which are owned of
record and beneficially by Crisp and Baylis and were pledged to the Bank to
secure certain obligations. The Company has further authorized capital stock
consisting of 1,000,000 shares of 7% cumulative convertible preferred stock,
of which 946,069 shares are issued and outstanding.. All outstanding shares
have been duly authorized and validly issued, are fully paid and
non-assessable and were not issued in violation of any preemptive rights.
There is outstanding no security, option, warrant, right, call, subscription,
agreement, commitment or understanding of any nature whatsoever, fixed or
contingent, that directly or indirectly (i) calls for the issuance, sale,
pledge or other disposition of any shares or of any other capital stock of the
Company or any securities convertible into, or other rights to acquire, any
such shares or other capital stock of the Company or (ii) obligates the
Company to grant, offer or enter into any of the foregoing or (iii) relates to
the voting or control of such shares, capital stock, securities or rights
except as disclosed in Schedule 3.3 attached hereto. No person has any right
to require the Company to register any of its securities under the '33 Act,
except as disclosed in Schedule 3.3 attached hereto.
3.4 Except as set forth in Schedule 3.4 attached hereto, the Company
is not involved in any pending litigation or governmental investigation or
proceeding and, to the best knowledge of the Company, no litigation, claims,
assessments, or governmental investigation or proceeding is threatened against
the Company, or its assets.
3.5 The Company has good and marketable title to all of the assets
and properties which it purports to own and which are reflected on the
Financial Statements contained in Schedule 3.1 hereof, free and clear of all
encumbrances, except for (a) liens for current taxes not yet due and payable
or for taxes the validity of which is being contested in good faith by
appropriate proceedings, and (b) encumbrances which individually or in the
aggregate do not materially and adversely affect the business, operations or
financial condition of the Company.
3.6 The Company has no debts, obligations or liabilities of whatever
kind or nature, either direct or indirect, absolute or contingent, matured or
unmatured, except debts, obligations and liabilities that are fully reflected
in, or reserved against on, the Financial Statements contained in Schedule 3.1
hereof.
3.7 Except as set forth in Schedule 3.7 attached hereto, or except as
otherwise contemplated by this Agreement, since the date of the Financial
Statements contained in Schedule 3.1 there has not been (a) any damage,
destruction or casualty loss to the physical properties of the Company
(whether covered by insurance or not); (b) any material change in the
business, operations or financial condition of the Company; (c) any entry into
any transaction, commitment or agreement including without limitation any
borrowing or capital expenditure) material to the Company's course of
business; (d) any redemption or other acquisition by the Company of the
Company's capital stock or any declaration, setting aside or payment of any
dividend or other distribution in cash, stock or property with respect to the
Company's capital stock; (e) any increase
<PAGE> 96
in the rate or terms of compensation payable or to become payable by the
Company to its directors, officers or employees or any increase in the rate or
terms of any bonus, pension, insurance or other employee benefit plan, payment
or arrangement made to, for or with any such directors, officers or key
employees; (f) any change in production schedules, acceleration of sales, or
reduction of aggregate administrative, marketing, advertising and promotional
expenses or research and development expenditures other than in the ordinary
course of business; (g) any sale, transfer or other disposition of any asset
of the Company to any party except for payment of third-party obligations
incurred in the ordinary course of business in accordance with the Company's
regular payment practices; (h) any termination or waiver of any rights of
value to the business of the Company; or (i) any failure by the Company to pay
its accounts payable or other obligations in the ordinary course of business
consistent with past practice.
3.8 Except as otherwise disclosed in the Company's Annual Report on
Form 10-K for the fiscal year ended March 25, 1995, the Company has complied
with all state, federal and local laws in connection with its formation,
issuance of securities, organization, capitalization and operations, and no
contingent liabilities have been threatened or claims made, and no basis for
the same exists with respect to said operations, formations or capitalization,
including claims for violation of any state or federal securities laws, except
that the Company is delinquent in its filings with the Securities and Exchange
Commission as set forth in Schedule 3.8 hereof.
3.9 Except as otherwise disclosed in Schedule 3.9 hereof, the Company
has filed and as of the Closing Date will have filed, all state, federal, and
local tax or related returns and reports due or required to be filed and has
paid and as of the Closing Date will have paid, all taxes or assessments which
have become due.
3.10 The Company has no subsidiary corporations other than as
disclosed in Schedule 3.10 attached hereto.
3.11 The execution of this Agreement will not violate or breach any
agreement, contract, or commitment to which the Company is a party and has
been duly authorized by all appropriate and necessary action.
3.12 The Company is registered under Section 12(g) of the Securities
Exchange Act of 1934 (the "Exchange Act") and its common stock is listed for
quotation by the OTC Bulletin Board.
4. REPRESENTATIONS AND COVENANTS OF BUYERS
EACH OF THE BUYERS HEREBY REPRESENTS AND WARRANTS THAT, EFFECTIVE THIS
DATE AND THE CLOSING DATE, THE REPRESENTATIONS LISTED BELOW ARE TRUE AND
CORRECT.
4.1 BUYER HAS MADE ALL REASONABLE INQUIRIES WITH RESPECT TO THE
COMPANY AND THE SALE SHARES AND IS FULLY AWARE OF THE CONDITION AND PROSPECTS,
FINANCIAL AND OTHERWISE, OF THE COMPANY, HAVING BEEN SUPPLIED WITH SUCH
FINANCIAL AND OTHER DATA RELATING TO THE COMPANY AS BUYER CONSIDERED NECESSARY
AND ADVISABLE TO ENABLE BUYER TO FORM A DECISION CONCERNING THE PURCHASE
HEREIN PROVIDED.
4.2 BUYER IS FULLY AWARE THAT THE SALE SHARES, WHEN DELIVERED, WILL
NOT HAVE BEEN REGISTERED UNDER THE ACT; THAT ACCORDINGLY NO SALE, OFFER TO
SELL OR TRANSFER OF THE SALE SHARES SHALL BE MADE BY BUYER UNLESS A
REGISTRATION STATEMENT UNDER THE '33 ACT WITH RESPECT TO THE SALE SHARES IS
THEN IN EFFECT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE '33
ACT IS THEN IN FACT APPLICABLE TO THE SALE SHARES OR, IN THE OPINION OF
COMPANY'S COUNSEL, REGISTRATION IS NOT REQUIRED.
4.3 BUYER HAS BEEN FULLY ADVISED BY THE BANK THAT THE BANK WILL SELL
THE SALE SHARES TO BUYER WITHOUT REGISTRATION UNDER THE '33 ACT ON THE BASIS
OF A STATUTORY EXEMPTION IN SECTION 4 OF THE '33 ACT AND THAT THE BANK'S
RELIANCE UPON THE STATUTORY EXEMPTION IS BASED IN LARGE PART UPON BUYER'S
REPRESENTATIONS MADE IN THIS AGREEMENT.
<PAGE> 97
4.4 BUYER IS ACQUIRING THE SALE SHARES FOR INVESTMENT FOR BUYER'S OWN
ACCOUNT AND NOT WITH A VIEW TO RESELL OR OTHERWISE DISTRIBUTE THE SALE
SHARES. IN MAKING THE FOREGOING REPRESENTATIONS, BUYER UNDERSTANDS THAT, IN
THE VIEW OF THE SECURITIES AND EXCHANGE COMMISSION, THE STATUTORY EXEMPTION
UNDER SECTION 4 OF THE '33 ACT WOULD NOT BE AVAILABLE IF, NOTWITHSTANDING
BUYER'S REPRESENTATIONS, BUYER HAD IN MIND MERELY ACQUIRING THE SALE SHARES
FOR RESALE UPON THE OCCURRENCE OR NONOCCURRENCE OF SOME PREDETERMINED EVENT.
4.5 BUYER HAS THE FULL RIGHT, POWER AND AUTHORITY TO PURCHASE THE
SALE SHARES IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT AND OTHERWISE TO
CONSUMMATE AND CLOSE THE TRANSACTION PROVIDED FOR IN THIS AGREEMENT IN THE
MANNER AND UPON THE TERMS HEREIN SPECIFIED.
4.6 EACH BUYER LISTED ON SCHEDULE A ATTACHED HERETO IS ACTING
INDEPENDENTLY OF EACH OTHER BUYER AND NONE OF THEM ARE ACTING JOINTLY OR IN
CONCERT FOR THE PURPOSE OF ACQUIRING OF THE SALE SHARES. ALL SUCH BUYERS HAVE
ACTED IN THE PREMISES THROUGH A BROKER-DEALER, ROBERT M. COHEN & CO., INC.
("RMCC") ACTING ON THEIR BEHALF. THE BANK HAS NO LIABILITY TO RMCC FOR
COMMISSIONS, FINDERS FEES, OR OTHERWISE IN CONNECTION WITH RMCC'S
PARTICIPATION IN THIS TRANSACTION. FOLLOWING SUCH PURCHASE OF THE SALE
SHARES, EACH BUYER WILL CONTINUE TO ACT INDEPENDENTLY, ONE FROM THE OTHER, AND
WILL NOWISE ACT JOINTLY OR IN CONCERT IN THE VOTING, PLEDGING, SALE OR OTHER
ACTIVITY OF ANY KIND RELATING TO THE SALE SHARES.
4.7 BUYER IS A SOPHISTICATED BUYER WITH RESPECT TO THE PURCHASE OF
THE SALE SHARES AND HAS ADEQUATE INFORMATION CONCERNING THE BUSINESS AND
FINANCIAL CONDITION OF THE COMPANY TO MAKE AN INFORMED DECISION REGARDING THE
PURCHASE OF THE SALE SHARES AND HAS INDEPENDENTLY AND WITHOUT RELIANCE UPON
THE BANK AND BASED ON SUCH INFORMATION BUYER HAS DEEMED APPROPRIATE, MADE HIS
OWN ANALYSIS AND DECISION TO ENTER INTO THIS AGREEMENT, EXCEPT THAT BUYER HAS
RELIED UPON THE REPRESENTATIONS, WARRANTIES, AGREEMENTS AND COVENANTS OF THE
COMPANY CONTAINED IN THIS AGREEMENT.
4.8 BUYER ACKNOWLEDGES AND AGREES TO THE BANK'S REPRESENTATIONS AND
STATEMENTS CONTAINED IN THE PARAGRAPH FOLLOWING SECTION 2.4 OF THIS
AGREEMENT. BUYER IS NOT RELYING ON ANY REPRESENTATIONS OF THE BANK, EXCEPT AS
EXPRESSLY PROVIDED IN SECTION 2. BUYER UNDERSTANDS THAT IT MAY LOSE ITS
ENTIRE INVESTMENT AND REPRESENTS THAT IT IS ECONOMICALLY ABLE TO SUSTAIN SUCH
LOSS. BUYER REPRESENTS THAT IT HAS HAD ADEQUATE OPPORTUNITY TO CONSULT WITH
COUNSEL AND OTHER SOPHISTICATED ADVISORS IN CONNECTION WITH THE PURCHASE OF
THE SALE SHARES. THE REPRESENTATIONS AND WARRANTIES OF BUYER CONTAINED IN
THIS SECTION 4 SHALL SURVIVE THE CLOSING DATE.
5. Closing Date
The Closing Date herein referred to shall be upon such date as the
parties hereto may mutually agree upon. At the Closing, Buyers will be
provided with and accept delivery of the Sale Shares, and in connection
therewith, will make payment of all sums due to the Bank. Certain closing
documents may be delivered subsequent to the Closing Date upon the mutual
agreement of the parties hereto.
In the event the Closing Date has not occurred on or prior to January 31,
1997, each party to this Agreement will have the right to terminated this
Agreement at any time thereafter upon written notice to the other parties and
thereafter no party to this Agreement will have any liability or obligation to
any other party to this Agreement.
6. Conditions Precedent To The Obligations Of The Bank
All obligations of the Bank under this Agreement are subject to the
fulfillment, prior to or at the closing on the Closing Date, of each of the
following conditions:
<PAGE> 98
6.1 The representations and warranties by Buyers and the Company
contained in this Agreement shall be true in all material respects at and as
of the time of Closing as though such representations and warranties were made
at and as of such time.
6.2 Buyers and the Company shall have performed and complied with all
covenants, agreements, and conditions required by this Agreement to be
performed or complied with by Buyers and the Company prior to or at the
Closing including the payment of the Price by Buyers in accordance with the
terms hereof, including the allocations set forth on Schedule A hereto.
7. Conditions Precedent To The Obligations Of Buyer
All obligations of Buyers under this Agreement are subject to the
fulfillment, prior to or at the Closing on the Closing Date, of each of the
following conditions:
7.1 The representations and warranties by the Bank and the Company
contained in this Agreement shall be true at and as of the time of Closing as
though such representations and warranties were made at and as of such time.
7.2 The Company and the Bank shall have performed and complied with
all covenants, agreements, and conditions required by this Agreement to be
performed or complied with by them prior to or at the Closing.
8. Documents At Closing
At the Closing, the following transactions shall occur, all of such
transactions being deemed to occur simultaneously:
8.1 The Bank will deliver the certificates and stock powers referred
to in Section 1.4 hereof.
8.2 The Company will deliver, or cause to be delivered, to Buyers the
following:
a.a copy of the most recent shareholder list of the Company in the
Company's possession certifying the number of shares outstanding. In the
event additional shares of the Company have been issued since the date of such
shareholder list, such issuances will be identified on a schedule attached to
the shareholder list.
b.such other instruments, documents and certificates, if any, as are
required to be delivered pursuant to the provisions of this Agreement or which
may be reasonably requested in furtherance of the provisions of this
Agreement;
8.3 Buyer will deliver or cause to be delivered to the Bank:
a.the Price.
b.such other instruments and documents as are required to be
delivered pursuant to the provisions of this Agreement or which may be
reasonably requested in furtherance of the provisions of this Agreement.
8.4 The Company will deliver or cause to be delivered to the Bank and
the Company's transfer agent, Continental Stock Transfer & Trust Company, an
opinion of counsel to the effect that the sale of the Sale Shares by the Bank
to the Buyers will be exempt from the registration requirements of the '33
Act.
<PAGE> 99
9. Miscellaneous
9.1 Further Assurances. At any time, and from time to time, after
the effective date, each party will execute such additional instruments and
take such action as may be reasonably requested by the other party to carry
out the intent and purposes of this Agreement.
9.2 Waiver. Any failure on the part of any party hereto to comply
with any of its obligations, agreements or conditions hereunder may be waived
in writing by the party to whom such compliance is owed.
9.3 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been given if delivered in person or
sent by prepaid first class registered or certified mail, return receipt
requested, fax or recognized courier to the following addresses:
To the Bank:
The Governor and Company
of the Bank of Scotland
The Mound
Edinburg, Scotland Attention: Legal Services
With copies to:
Sullivan & Worcester LLP
767 Third Avenue
New York, NY 10017
Attention: Paul R. Wiener, Esq.
Telephone: 212-486-8200
Fax: 212-758-2151
To the Company:
Corniche Group Incorporated
a Delaware corporation
Wayne Interchange Plaza I
145 Route 46 West
Wayne, NJ 07974
To Buyer:
See Schedule A
With copies to:
The Law Offices of John L. Milling
115 River Road, Bldg. 12
Edgewater, NJ 07020
Telephone: 201-313-1600
Fax: 201-313-7249
9.4 Headings. The section and subsection headings in this Agreement
are inserted for convenience only and shall not affect in any way the meaning
or interpretation of this Agreement.
9.5 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
9.6 Governing Law a. With respect to any suit, action, or
proceedings relating to this Agreement, each party irrevocably submits to the
exclusive jurisdiction of the English courts. This Agreement shall be
governed by English law.
<PAGE> 100
b. Each party waives any objection which it may have at
any time to the laying of venue of any proceedings in any such count, waives
any claim that such proceedings have been brought in an inconvenient forum and
further waives the right to object with respect to such proceedings, that such
court does not have jurisdiction over such party.
9.7 Binding Effect. This Agreement shall be binding upon the parties
hereto and inure to the benefit of the parties, their respective heirs,
administrators, executors, successors and assigns.
9.8 Entire Agreement. This Agreement is the entire agreement of the
parties covering everything agreed upon or understood in the transaction.
There are no oral promises, conditions, representations, understandings,
interpretations or terms of any kind as conditions or inducements to the
execution hereof.
9.9 Severability. If any part of this Agreement is deemed to be
unenforceable the balance of this Agreement shall remain in full force and
effect.
In Witness Whereof, the parties have executed this Agreement as of the
day and year first above written.
THE GOVERNOR AND COMPANY
OF THE BANK OF SCOTLAND
By /s/ John Kelly
CORNICHE GROUP INCORPORATED
By /s/ James F. Fyfe
JAMES FYFE, Vice President
BUYERS
/s/ David Abrams
/s/ Anthony J. Blazej
/s/ Ethel Blazej/AIB
/s/ Betty Charlson
/s/ Dr. Lawrence R. Gluck
/s/ Robert Gmuer
/s/ Lou Hammer
/s/ Danny Jacobson & Estelle Jacobson, JTWROS
/s/ Jeff Klein
/s/ Steve Miner
/s/ Wilfred Saint Jr.
/s/ Mary S. Saint
Sutton West Realty Pension Plan
By /s/ Steve Wacher - Trustee
<PAGE> 101
Schedule A - List of Buyers
<TABLE>
<CAPTION>
Buyer Number of Shares to be Purchased
<S> <C>
Lou Hammer 120,000
2 Cranberry Street
Parsipanny, NJ 07054
Steve Miner 120,000
193 Steele Road
West Hartford, CT 06119
Jeff Klein 50,000
52 Greenlawn Road
Clifton, NJ 07013
Wilfred Saint & Mary Sue Saint 50,000
14325 Shoreham Drive
Silver Spring, MD 20905
Robert Gmuer 100,000
3137 Holl Avenue
Bronx, NY 10467
Betty Chalson 100,000
53 Normandy B
Delray Beach, FL 33484
Ethel Blazej 50,000
62 Green Drive
Toms River, NJ 08755
Anthony Blazej 100,000
70 Lakeview Avenue
New Canaan, CT 06840
Danny & Estelle Jacobsen, JTWROS 100,000
17268 Hampton Blvd.
Boca Raton, FL 33496
Dave Abrams 50,000
35 E Cheryl Road
Pine Brook, NJ 07058
Larry Gluck 100,000
220 Currier Drive
Orange, CT 06477
Sutton West Realty Inc. Pension Plan 102,250
Steve Wacher - Trustee
100 E. 64th Street, Suite 270
New York, NY 10021 _________
Total Shares to be Purchased 1,042,250
</TABLE>
<PAGE> 102
SCHEDULE 3.1
3.1.1 MARCH 25, 1995 AUDITED FINANCIAL STATEMENT (1)
3.1.2 DECEMBER 31, 1995 UNAUDITED FINANCIAL STATEMENTS (2)
3.1.3 SEPTEMBER 30, 1996 UNAUDITED FINANCIAL STATEMENTS
________________
(1) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended March 25, 1995 filed with the Securities and Exchange
Commission.
(2) Incorporated by reference to the Company's Current Report on Form 10-Q
for the quarter ended December 31, 1995 filed with the Securities and Exchange
Commission.
<PAGE> 103
SCHEDULE 3.1.3
SEPTEMBER 30, 1996 UNAUDITED FINANCIAL STATEMENTS
<PAGE> 104
CORNICHE CROUP INCORPORATED
Balance Sheet
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
<S> <C> <C>
Current assets:
Cash $398 $66
Notes receivable 0 125,000
Other receivables 0 10,000
Total current assets 398 135,066
Other assets:
Property and equipment, net 941 1,135
Total assets $1,339 $136,201
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY
Current liabilities:
Notes Payable $86,679 $11,679
Note Payable on debt compromise 77,630 77,630
Trade account payable 260,484 358,760
Dividends payable - preferred stock 122,565 89,453
Accrued liabilities 223,121 258,622
Total current liabilities 770,479 796,144
Stockholders' (deficiency) equity:
7% cumulative convertible preferred
stock authorized and issued 1,000,000
shares, and outstanding 946,069 shares 946,069 946,069
Common stock, $0.10 par value,
authorized - 30,000,000 shares,
issued 2,623,457 262,345 262,345
Additional paid-in capital 793,976 793,976
(Accumulated deficit) retained earnings (2,566,820) (2,457,623)
( 564,430) ( 455,233)
Treasury stock-at cost, 218,100
shares. ( 204,710) ( 204,710)
Total stockholders' (deficiency) equity ( 769,140) ( 659,943)
Total liabilities and stockholders'
(deficiency) equity $1,339 $136,201
</TABLE>
<PAGE> 105
CORNICHE CROUP INCORPORATED
Statement of Operations
(UNAUDITED)
<TABLE>
<CAPTION>
-- 3 Months Ended -- -- 6 Months Ended --
Sept 30, Sept 30, Sept 30, Sept 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 0 $ 0 $ 0 $ 0
Cost of sales 0 0 0 0
- - - -
Gross profit 0 0 0 0
- - - -
General & administrative
expenses (37,610) (183,503) (71,860) (271,201)
----------- ----------- --------- ------------
Operating loss (37,610) (183,503) (71,860) (271,201)
Interest (net) ( 2,425) 8,329 ( 4,225) 8,329
------------ ---------- ------------ ---------
Net loss before
Preferred Dividends (40,035) (175,174) (76,085) (262,872)
Preferred dividends (16,556) ( 20,377) (33,112) ( 35,660)
----------- ----------- ---------- -----------
Net loss $ (56,591) $(195,551) $(109,197) $(298,532)
Loss per share of
common stock $(0.02) $(0.73) $(0.05) $(1.39)
Weighted average
Number of common
shares outstanding 2,405,357 2,298,136 2,405,357 2,195,336
</TABLE>
<PAGE> 106
CORNICHE GROUP INCORPORATED AND SUBSIDIARY
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
------ 6 Months Ended ------
Sept 30, Sept 30,
1996 1995
<S> <C> <C>
Cash flows from operations:
Net loss $(109,197) $(298,532)
Adjusted to reconcile net loss
to net cash used in operations
activities:
Depreciation 194 858
Changes in assets and liabilities:
(Inc)/Dec in notes receivable 125,000 0
(Inc)/Dec in other receivables 10,000 ( 66,465)
(Inc)/Dec in prepaid expenses 0 ( 64,124)
(Inc)/Dec in accounts payable ( 98,276) 271,241
(Inc)/Dec in accrued liabilities ( 35,501) (266,038)
(Inc)/Dec in notes payable 75,000 ( 4,613)
Increase in dividends payable 33,112 35,660
Advances to subsidiary 0 (441,800)
------------- --------------
Net cash used in operations 322 (833,813)
------------- --------------
Cash flows from investing activities:
Payments to acquired fixed assets 0 ( 8,926)
- -------------
Net cash used in investing activities 0 ( 8,926)
- -------------
Cash flows from financing activities:
Issuance of common stock for cash 0 794,336
Issuance of common stock for
settlement of liabilities 0 50,000
- -----------
Net cash provided by financing activities 0 844,336
- -----------
Net increase in cash 322 1,597
Cash at beginning of period 66 100
--- ------
Cash at end of period $398 $1,697
==== ======
</TABLE>
<PAGE> 107
SCHEDULE 3.2
The Company is qualified to do business and is in good standing in the State
of New Jersey. A copy of the Company's Certificate of Incorporation, as
amended, and a copy of the Company's By-Laws, as amended, are incorporated by
reference to the Company's Annual Report on Form 10-K for the year ended March
31, 1996 (Exhibit 3(j)) and by reference to the Company's registration
statement on Form S-1 (File No. 33-42154) (Exhibit 3.10), respectively, as
filed with the Securities and Exchange Commission.
<PAGE> 108
SCHEDULE 3.3
OUTSTANDING STOCK OPTIONS AND WARRANTS
<TABLE>
<CAPTION>
WARRANTS
Issue Date Exercise Price # of Shares Expiration
$ Date
<C> <C> <C> <C>
February 1991 36.00 48,867 1/98
September 1993 46.40 9,375 4/99
March 1995 3.20 - 8.10 91,933 1/99 - 11/03
</TABLE>
<TABLE>
<CAPTION>
1986 Stock Option Plan
Issue Date Exercise Price # of Shares Expiration
$ Date
<C> <C> <C> <C>
August 1992 32.50 18,000
</TABLE>
<TABLE>
<CAPTION>
1992 Stock Option Plan
Issue Date Exercise Price # of Shares Expiration
$ Date
<C> <C> <C> <C>
May 1996 .18 1,500 2001
</TABLE>
<PAGE> 109
SCHEDULE 3.4
Pending Litigation, Governmental Investigations, Etc.
1. There are no outstanding legal proceedings. All matters referred to in the
Company's December 30, 1995 Report on Form 10-Q have been settled.
2. The IRS is currently conducting an audit of the Company's books and records
for the fiscal year ended September 30, 1993, with regard to the Company's
then wholly-owned subsidiary, Fidelity Medical Inc.
<PAGE> 110
SCHEDULE 3.7
3.7 (i)Since the receivership proceedings in February 1996 involving the
Company's UK subsidiaries, the Company has not been able to settle its
liabilities in a timely fashion. Accordingly, the liabilities included in the
Company's most recent financial statements are considerably past due.
<PAGE> 111
SCHEDULE 3.8
Delinquent SEC Filings
The Company is delinquent in its filing of the following reports with the SEC:
1. Annual Report on Form 10-K for the fiscal year ended March 31, 1996.
2. Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
3. Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.
<PAGE> 112
SCHEDULE 3.9
Delinquent Federal, State and Local Tax Returns
The Company is delinquent in the filing of Federal and State tax returns for
the fiscal years ended September 30, 1994 and September 30, 1995.
<PAGE> 113
SCHEDULE 3.10
Subsidiaries
Through February 1996 the following UK corporations were wholly-owned
subsidiaries of the Company:
Corniche Distribution Limited ("CDL")
The Stationery Company Limited (owned by CDL)
Chessbourne International Limited (owned by CDL)
All of the foregoing corporations are in receivership in the UK and have
either been liquidated or will be liquidated shortly. The Company has not
received and will not receive cash or any other assets or items of value in
connection with these liquidations.
<PAGE> 114
EXHIBIT 10(n)
<PAGE> 115
MUTUAL RELEASE
KNOW ALL MEN BY THESE PRESENTS:
That Whereas:
A. Corniche Group Incorporated, a Delaware corporation ("CGI")
borrowed UK£50,000 from The Bank of Scotland (the "Bank") and in
consideration therefor issued to the Bank CGI's promissory note dated in
February 1996 (the "Note") providing for, among other things, maturity in
August 1996 and an annual rate of interest calculated at 2% above the 3-month
London Interbank Offered Rate ('LIBOR") ascertained at specified times ; and
B. The Bank advised CGI that it would accept in full satisfaction and
discharge of all principal, accrued interest and any and all others sums which
may be due under the Note the sum of US$ 89,374.49, payable in lawful money
of the United States and in same day funds on the date hereof; and
C. CGI has this day made payment herewith to the Bank of the amount
set forth in Preamble B above, in accordance with the terms specified therein,
and in full satisfaction and discharge of the obligations specified therein.
Now, Therefor:
CORNICHE GROUP INCORPORATED
JAMES FYFE
(the said corporation and individuals,
together with their respective
executors, administrators, successors
and assigns collectively jointly, and
severally the "CGI Group")
and
THE GOVERNOR AND COMPANY OF
THE BANK OF SCOTLAND
(the said corporation together with its
successors and assigns, collectively,
jointly, and severally the "Bank Group")
for good and valuable consideration, the receipt of which is acknowledged each
from the other, have entered into the agreements of release set forth below.
<PAGE> 116
1. The CGI Group and each and every one of them respectively do, by
these presents, remise, release and forever discharge the Bank Group and each
and every one of them from all liabilities, accounts, causes of action, sums
of money, reckonings, contracts, controversies, agreements, damages,
judgments, executions, claims, demands, debts, obligations, promises,
covenants, actions and undertakings, in law or in equity, which against the
Bank Group and each and every one of them the CGI Group and each and every one
of them ever had, now have or hereafter can, shall or may have, for or by
reason of any matter, cause or thing whatsoever, up to and through the date
hereof.
2. The Bank Group and each and every one of them respectively do, by
these presents, remise, release and forever discharge the CGI Group and each
and every one of them from all liabilities, accounts, causes of action, sums
of money, reckonings, contracts, controversies, agreements, damages,
judgments, executions, claims, demands, debts, obligations, promises,
covenants, actions and undertakings, in law or in equity, which against the
CGI Group and each and every one of them the Bank Group and each and every one
of them ever had, now have or hereafter can, shall or may have, for or by
reason of any matter, cause or thing whatsoever, up to and through the date
hereof.
3. In the event the payment to the Bank referred to in Preamble B
must be returned, repaid or disgorged to the CGI Group, a trustee or any other
person, in whole or in part, Sections 1 and 2 hereof shall be null and void
and of no force or effect.
In Witness Whereof, the parties have caused these presents to be executed
by the following persons thereunto duly authorized as of January 30, 1997.
CORNICHE GROUP INCORPORATED
By: /s/ James Fyfe
JAMES FYFE, Vice President
/s/ James Fyfe
JAMES FYFE
THE GOVERNOR AND COMPANY OF
THE BANK OF SCOTLAND
By /s/ John Kelly
<PAGE> 117
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> MAR-31-1996 MAR-25-1995 MAR-27-1994
<PERIOD-START> MAR-26-1995 MAR-28-1994 APR-01-1993
<PERIOD-END> MAR-31-1996 MAR-25-1995 MAR-27-1994
<CASH> 66 108,438 9,940
<SECURITIES> 0 0 0
<RECEIVABLES> 200,000 3,938,702 3,442,136
<ALLOWANCES> 75,000 (345,108) (131,692)
<INVENTORY> 0 3,146,307 3,097,662
<CURRENT-ASSETS> 135,066 7,259,527 6,661,197
<PP&E> 1,426 1,047,899 1,273,207
<DEPRECIATION> 291 9,822,570 588,428
<TOTAL-ASSETS> 136,201 9,122,665 7,713,433
<CURRENT-LIABILITIES> 455,306 3,323,565 4,277,770
<BONDS> 0 0 3,167,055
0 946,069 0
909,267 211,985 0
<COMMON> 263,037 (4,037,219) 57,208
<OTHER-SE> 1,491,409 9,822,570 (54,767)
<TOTAL-LIABILITY-AND-EQUITY> 136,201 21,048,151 7,713,433
<SALES> 0 21,048,151 7,585,360
<TOTAL-REVENUES> 0 15,531,102 7,585,360
<CGS> 0 15,531,102 5,121,884
<TOTAL-COSTS> 0 8,011,378 5,121,884
<OTHER-EXPENSES> 185,115 349,231 2,224,361
<LOSS-PROVISION> 75,000 538,646 71,832
<INTEREST-EXPENSE> 600 (3,404,160) 164,070
<INCOME-PRETAX> (323,510) (3,404,160) 3,213
<INCOME-TAX> 0 (9,508) 1,409
<INCOME-CONTINUING> (325,510) (3,394,652) 1,804
<DISCONTINUED> (3,432,032) 0 0
<EXTRAORDINARY> 5,466,636 0 0
<CHANGES> 0 0 0
<NET-INCOME> 1,711,094 (3,394,652) 1,804
<EPS-PRIMARY> .74 (2.05) .00
<EPS-DILUTED> .74 (2.05) .00
</TABLE>
EXHIBIT 99 (a)
<PAGE> 119
Smithsons 79 Mosley Street
- - ---------------------------- Manchester
S O L I C I T O R S M2 3LT
Telephone: 0161 237 9283
Our Ref: AGS/AS/C31-1/cgi1 Facsimile: 0161 237 9284
Your Ref: DX: 18574 Manchester 7
7 March 1997
J J Fyfe Esq
Corniche Group Incorporated
Wayne Interchange Plaza I
3rd Floor
145 Route 46 West
WAYNE, NJ 07470, USA
Dear Sir
Corniche Distribution Limited (In Administrative Receivership)
The Stationery Company Limited (In Administrative Receivership)
We have been asked to give a legal opinion as to the status of the above
subsidiary companies of Corniche Group Incorporated ("CGI") as a result of
receivership proceedings. This opinion is based upon the information and copy
documents supplied by CGI and the other sources referred to in this opinion.
1 Background
Corniche Distribution Limited (In Administrative Receivership) ("CDL"") and
The Stationery Company Limited (In Administrative Receivership) ("TSCL")
borrowed considerable sums of money from The Bank of Scotland. It is the
normal practice in England for banks, when advancing sums of money to limited
companies, to obtain security for those borrowings by means of mortgages over
fixed assets ("Fixed Charges') and debentures over pools of assets which by
their nature will change from time to time ("Floating Charges"). This
security is taken in one document known as a Fixed and Floating Charge. CDL
executed a Fixed and Floating Charge in favour of The Bank of Scotland dated 7
April 1995 and TSCL similarly executed such a document in favour of The Bank
of Scotland dated 16 November 1993.
A copy of the charge executed by TSCL has been supplied by CGI and is annexed
to this opinion. We are informed by officers of CGI that the charges executed
by CDL and Chessbourne International Limited ("CIL") are in substantially the
same form. We refer to paragraph 3.1 of the charge and are of the opinion
that all the assets set out in the Summaries referred to below are caught by
the security created by those charges.
We have considered the copy document supplied to us and on the basis that all
charges are in the form annexed, we are of the opinion that all the assets of
CDL and TSCL are the subject of security in favour of The Bank of Scotland as
a result of such charges.
A G Smithson R K Wilson (Notary Public)
REGULATED BY THE LAW SOCIETY IN THE CONDUCT OF INVESTMENT BUSINESS
also at 6 Raymond Buildings, Gray's Inn, London WC1R 5DA.
<PAGE> 120
We have been supplied with copy Summaries of Assets and Liabilities at the
date of the appointment of the relevant administrative receiver of CDL, TSCL
and CIL by CGI and it can be seen that the liabilities secured by the charge
in favour of the Bank far outweigh the value of the assets in each of the two
companies. In the case of CDL the estimated deficiency was £4,276,456,
in the case of TSCL the estimated deficiency was £4,041,333 and in the
case of CIL the estimated deficiency was £5,137,617. The administrative
receivers referred to in paragraph 2 below prepared statutory reports on the
companies. Copies of these reports are annexed to this opinion together with
a copy of the report on CIL which is referred to in paragraph 10 below. These
reports, while disagreeing with certain of the figures on the Summaries,
conclude that there will be deficiencies in the receiverships. We have also
been supplied with this information in the case of CIL and it is reported by
the administrative receivers (who are common to all three companies) that
there is a deficiency of assets over liabilities in CIL.
2. Administrative Receivership
The two Fixed and Floating Charges executed by CDL and TSCL in favour of The
Bank of Scotland plc ("the Charges") contain powers for the bank to appoint an
administrative receiver of the assets covered by the security.
The appointment of an administrative receiver was effected on 7 February 1996
in the case of TSCL and 28 February 1996 in the case of CDL.
The role of administrative receivers is to collect and realize the assets of
the security to the extent necessary to repay the chargeholder (i.e. Bank of
Scotland). Given that the liabilities exceed the assets, all the assets of
CDL and TSCL are to be realized by the administrative receivers under the
charge and the net proceeds of disposal are to be paid to the bank as payment
against the liabilities owed to the bank by CDL and TSCL.
3 Effect of Receivership on the Officers of the Company
The officers of companies in England and Wales comprise the company secretary
(whose function is purely administrative) and the directors who are the
officers charged with the day to day management of the company. The powers of
the directors are set out in the Company's memorandum and articles of
association, and in the case of CDL and TSCL, the Companies Act 1985.
Statute is silent as to the effect of administrative receivership on the
powers of the directors of companies placed in administrative receivership but
the matter fell to be decided by the English Courts on a number of occasions
and the most recent case, Gomba Holdings UK Limited -v- Homa in 1986, held
that the appointment of a receiver suspends the powers of a company and its
directors to deal with the assets which are the subject of the charge. The
effect of the suspension of the powers of CDL, TSCL and their respective
directors, were complete since all the assets of the two companies were caught
by the Charges.
The powers of administrative receivers are contained partly in the Charges and
are also contained in statute, namely the Insolvency Act 1986, s.42 (1) and
Schedule 1. The powers contained in the Charges and Schedule I Insolvency Act
1986 are far reaching and replace in all material respects the powers formerly
enjoyed by CDL, TSCL and their directors for the duration of the receivership.
<PAGE> 121
4 Effect of Receivership on CGI
CGI is the holder of the entire issued share capital of CDL and through CDL it
is the holder of the entire issued share capital of TSCL. Such a relationship
does not create any obligations on the part of CGI in respect of the
liabilities secured by the Charges save insofar as any guarantee of the
obligations of CDL and TSCL were given by CGI to the bank. We are informed by
the officers of CGI that no such guarantees have been given to the bank by CGI
and consequently we confirm that no liability can attach to CGI by virtue of
the charges.
We have been supplied with a copy of a mutual release which the officers of
CGI inform us has been executed by The Bank of Scotland and CGI. A copy of
this mutual release, in the form signed by CGI, is attached to this opinion
and clause 2 of that document releases CGI from any liabilities to The Bank of
Scotland.
Similarly, the appointment of administrative receivers in respect of the
assets of CDL and TSCL have no effect on the assets of CGI. We acted for CGI
in connection with claims made against CGI by the receivers of CDL in
connection with sums allegedly owed by CGI to CDL on the intercompany
accounts. All such liabilities were compromised between CGI and CDL. We
attach a copy of the compromise agreement and are of the opinion that the
agreement is enforceable on its terms and has the effect of releasing CGI from
all liability to CDL on performance by CGI of its obligations under that
agreement. It is open to a subsequently appointed liquidator to question
transactions carried out by a receiver. The only basis upon which the
compromise agreement could be attacked would be that it was a transaction at
an under value. The valuation letter from Baker Tilley makes any such attack
most unlikely. Even if such an attack were launched we are of the opinion
that it would be unsuccessful.
5. Statutory Obligations of the Companies
The status and nature of the company does not change in law upon the
appointment of an administrative receiver, and consequently strictly speaking
the company remains liable to file annual returns and statutory accounts. In
practice this is not done and the Registrar of Companies (the government
official in England and Wales responsible for overseeing companies) will not
enforce such an obligation. It would be normal for directors to resign
shortly after receivership although their obligation to assist with the
process continues. A receiver would have no responsibility for compliance
with the regulatory requirements and consequently in practice there is no one
against whom the Registrar could proceed for a breach of the company's filing
requirements. Even if the directors remained in office the Registrar, as a
matter of practice, does not require the filing of annual returns or statutory
accounts since to take enforcement proceedings in that regard might adversely
affect the receivership. The Registrar takes the view that such proceedings
would be inappropriate.
This is a matter of practice and there is nothing in statute which relieves
the company from these filing obligations. We have, in providing this
opinion, spoken with the appropriate regulatory authorities at Companies House
who have confirmed this practice to us over the telephone.
The obligation to file accounts on a company is one on the officers of the
company and there is no responsibility on the part of CGI, as holding company,
to ensure that returns and accounts are filed with Companies House by either
CDL or TSCL.
<PAGE> 122
It follows therefore that the preparation of financial statements is
impractical since the receivers have control of the books and papers of the
companies. Preparation of such financial statements will also be costly and
in practice no auditor could be found to prepare the financial statements.
6 Length of Receivership
There is no minimum or maximum time specified for a receivership and as a
result some receiverships can go on for a number of years. The receivership
will end when the receivers have disposed of all the assets under the Charges
and applied the proceeds of such disposals.
7 Position post-receivership
Once the receivership of CDL and TSCL is at an end the companies will have no
assets remaining. CDL and TSCL will therefore be placed into liquidation
after the conclusion of the receivership. The liquidation will be a
liquidation by order of the Court, known as a compulsory winding up, and the
powers of the directors of CDL and TSCL cease upon the Court making a
compulsory winding up order. Upon liquidation there will be restrictions
under Companies Act 1985 which will prevent CGI from dealing with or disposing
of the shares in CDL and TSCL without consent of either the liquidator or the
Court as appropriate. After liquidation, CDL and TSCL will be dissolved
automatically by virtue of the Insolvency Act 1986 s.205 at the end of the
period of three months beginning with the day of registration of a notice of
the final meeting of creditors and vacation of office by the liquidator.
Dissolution of a company results in the company ceasing to exist as a legal
entity.
8 Trading post-receivership
We have specifically been asked to advise whether or not the business of CDL
and TSCL ran continue during the receivership. The business may be continued
by the administrative receiver within a specific power so to do contained in
the Insolvency Act 1986 Schedule 1 paragraph 14. The power of the directors
of CDL and TSCL, having been suspended by virtue of the receivership, prevents
them from continuing to trade CDL or TSCL.
The summaries of the assets and liabilities of CDL and TSCL demonstrate that
the liabilities of both companies exceed the assets. As a result, the
receivership is insolvent. CDL was a holding company and never traded. TSCL
was a trading company and the receiver ceased trading in TSCL on the date of
their appointment, namely 7 February 1996 following a sale of 18 of the 22
shops to Stationery Box Limited. There are consequently no circumstances in
which either CDL or TSCL could re-commence trading given the net deficiency in
assets over liabilities. In the event that, at the end of the receivership of
CDL and TSCL, there is no application made for an appointment of a liquidator,
the receiver should report the situation to the Registrar of Companies. Under
Companies Act 1985 s.652 the Registrar of Companies will initiate proceedings
resulting in the company being struck off the Register of Companies and
thereby ceasing to exist.
<PAGE> 123
In practice the receiver is almost certain to hand the resulting empty husk of
CDL and TSCL to a government official known as the Official Receiver who will
act as liquidator of the companies. The reason that receivers take this
course of action is that they no longer have any power to destroy or dispose
of books and records of the Company and this power now lies solely with the
liquidator. The appointment of a liquidator, albeit the Official Receiver, is
in the interests of receivers so as to dispose of unwanted books and records.
9. Summary
We can confirm that the effect of the above is that the shareholders of an
English company placed in receivership in England have no further control of
any kind over the company during the entire period that the administrative
receivership continues and that such shareholders will never regain effective
control of the company where, upon the termination of the administrative
receivership, the company will be left with material liabilities and no
assets. Under such circumstances it would follow that the company would be liqu
idated and thereafter the company's existence would be terminated.
The position in summary, therefore, is that:-
(i) CDL and TSCL have lost control of their assets
(ii) It is effectively impossible for the companies to prepare financial
statements for the year ended 31 March 1996 or any period thereafter
(iii) In the light of the deficiency in assets over liabilities and the
fact that the companies do not trade, the winding up of the companies is
inevitable.
10 Chessbourne International Limited
CIL was a company within the CGI group of companies. CIL is registered in
Scotland and accordingly the laws of England do not apply to such a company.
As English solicitors we can give no opinion on Scots law. As a general
matter we can however state that all material provisions of the Companies Act
1985 are common to companies registered in England and Scotland. The
provisions of the Insolvency Act relating to administrative receivership are
not common in the two jurisdictions and there are separate provisions for
England and Scotland.
We have reviewed the different provisions in the Insolvency Act and, without
giving any opinion as to Scots law, can see nothing in the provisions of
Chapter 11 Insolvency Act 1986 (s.50 to 71 inclusive) which contain the
provisions which relate exclusively to Scotland, that would lead to any
different result in Scotland. The only exception to this is that it would
appear that, whereas in England receivership will be completed before
liquidation takes place, it is possible for liquidation to have taken place in
Scotland and for the receivership to take place in parallel with the
liquidation.
The powers of administrative receivers in England and Wales are set out in
Schedule 1 Insolvency Act 1986 and the powers for administrative receivers in
Scotland are set out in Schedule 2 Insolvency Act 1986. The powers are
identical in many respects save for differences arising from the powers
necessary to effect dispositions of land in the two
<PAGE> 124
jurisdictions. Furthermore, in England the receivers have power to create
subsidiaries and transfer assets within newly created subsidiaries. This
power does not exist in Scotland.
Finally, it should be noted that the two jurisdictions are sufficiently
similar for there to be provision in s.72 Insolvency Act 1986 which states
that where a receiver is appointed in either part of Great Britain (i.e. in
England and Wales or Scotland) that receiver may exercise his powers which
arise from a charge created in one part of Great Britain over assets situated
in the other part of Great Britain.
We have been provided with a copy of the report of the receivers on CIL and
can confirm from that report that the receivers were appointed on 7 February
1996. We can confirm that the receivers effectively ceased trading in CIL on
the date of their appointment save for asset disposals referred to in the
report.
Yours faithfully
/S/ Smithsons
Smithsons
encs
<PAGE> 125
D E B E N T U R E
by
THE STATIONERY COMPANY LIMITED
in favor of
THE GOVERNOR AND COMPANY OF
THE BANK OF SCOTLAND
GFL2W463/15
<PAGE> 126
1. THE STATIONERY COMPANY LIMITED (registered in England and Wales with No.
02731602) (hereinafter called "the Company") whose registered office is at 79
MOSLEY STREET, MANCHESTER, M2 3LT hereby covenants that it will, on demand in
writing made to the Company, pay or discharge to the Governor and Company of
the Bank of Scotland (hereinafter called "the Bank") all moneys liabilities
which shall for the time being (and whether on or at any time after such
demand) be due, owing or incurred in whatsoever manner to the Bank by the
Company, whether actually or contingently and whether solely or jointly with
any other person and whether as principal or surety and whether or not the
Bank shall have been an original party to the including interest, discount,
commission and relevant transaction, and including interest, discount,
commission and other lawful charges or expenses which the Bank may in the
course of its business charge in respect of any of the matters aforesaid or
for keeping count, and so that interest shall be computed and the Company's
account, and so that interest shall be computed and compounded according to
the usual mode of the Bank as well after as before any demand made or judgment
obtained hereunder.
2. A demand for payment or any other demand or notice under this Debenture may
be made or given by any manager or officer of the Bank or of any branch
thereof by letter addressed to the Company and sent by post to or left at the
registered office of the Company or its existing or its last known place of
business (or if more than one any one of such places), and so that such demand
or notice if sent by post shall be deemed to have been made or given at noon
on the day following the day the letter was posted.
3.1. The Company as beneficial owner hereby charges with the payment or
discharge of all moneys and liabilities hereby covenanted to be paid or
discharged by the Company:-
3.1.1 by way of legal mortgage, all the freehold and leasehold property
of the Company now vested in it, whether or not the title thereto is registered
at H.M. Land Registry, including that which is described in the Schedule
hereto, together with all buildings and fixtures (including trade and tenant's
fixtures) now and hereafter thereon and all plant and machinery now and
hereafter annexed thereto for whatever purpose;
3.1.2 by way of fixed charge, all freehold and leasehold property
hereafter belonging to the Company together with all buildings and fixtures
(including trade and tenant's fixtures) thereon and all plant and machinery
annexed thereto for whatever purpose;
3.1.3 by way of fixed charge, all interests not hereinbefore effectively
charged now or hereafter belonging to the Company in or over land or the
proceeds of sale of land, all licences now or hereafter held by the Company to
enter upon or use land, and the benefit of all other agreements relating to
land to which the Company is or may become party or otherwise entitled, and
all trade and tenant's fixtures, plant and machinery now and hereafter annexed
for whatever purpose to all freehold and leasehold property, an interest in
which stands charged hereunder;
<PAGE> 127
3.1.4 by way of fixed charge, all the goodwill and uncalled capital for
the time being of the Company;
3.1.5 by way of fixed charge, all stocks, shares and other securities now
or hereafter owned (whether at law or in equity) by the Company, and all
rights and interests of the Company in and claims under all policies of
insurance and assurance now or hereafter held by or inuring to the benefit of
the Company;
3.1.6 by way of fixed charge, all patents, trade marks, patent
applications, brand names, service marks, copyrights, rights in the nature of
copyright, design rights, registered designs and other intellectual property
rights and agreements relating to the use by the Company of patents and trade
marks to which the Company is now or may hereafter become entitled and all
agreements under which the Company is now or may become entitled -to the
payment of any royalty fee or similar income;
3.1.7 by way of fixed charge, all book and other debts of the Company
whether now or hereafter existing and whether presently payable or hereafter
falling due for payment and all rights and claims of the Company against third
parties now or hereafter existing and capable of being satisfied by the
payment of money (save as charged under sub-clause 3.1.5. hereof);
3.1.8 by way of floating charge all the Assets (as defined in Clause 19
hereof) whatsoever and wheresoever not hereinbefore effectively charged by way
of fixed charge, including (without limitation) any immovable property of the
Company situate in Scotland, and any Assets falling within any of the types
mentioned in sub-clauses 3.1.3 to 3.1.7 inclusive situate in Scotland but so
that the Company is not to be at liberty to create otherwise than in favor of
the Bank any mortgage or fixed or floating charge or other security upon and
so that no lien (other than a lien arising through operation of law in the
ordinary course of business) shall in any case or in any manner arise on or
affect any part of such Assets either in priority to or pari passu with the
floating charge hereby created, and further that the Company shall have no
power without the consent of the Bank to part with or dispose of any part of
such Assets except by way of sale in the ordinary course of its business.
3.2. The Bank may from time to time by notice in writing to the Company convert
the floating charge created pursuant to sub-clause 3.1.8 into a fixed charge
as regards any Assets thereby charged as specified in any such notice and such
floating charge shall automatically be converted into a fixed charge:
3.2.1 in respect of any Assets which shall become subject to a fixed
charge in favor of any other person or to a disposition otherwise than by way
of sale in the ordinary course of the Company's business immediately upon such
charge or disposition; and
<PAGE> 128
3.2.2 in respect of all the Assets thereby charged if and when the Company
shall cease to carry on business or to be a going concern;
but so that this sub-clause 3.2 shall not apply to any Assets situate in
Scotland.
3.3. The Company shall not without the previous written consent of the Bank
create or purport or attempt to create any mortgage, charge or encumbrance on
any freehold or leasehold property of the 'Company or any other Asset subject
to a fixed charge hereunder, nor in any way dispose of the equity of
redemption thereof or any interest therein, and the Company hereby applies to
the Chief Land Registrar for a restriction to be entered on the register of
title of all present and future registered freehold and leasehold property to
the Company in the following terms:-
"Except under an order of the Registrar no disposition by the
proprietor of the land is to be registered without the consent
of the proprietor for the time being of (the charge hereby
created)".
3.4. The Company shall, subject to the rights of any prior mortgagee, deposit
with the Bank and the Bank during the continuance of this security shall be
entitled to hold, all deeds and documents of title relating to the Company's
freehold, leasehold and heritable property and stocks, shares and other
securities and all policies of insurance or assurance.
3.5. The Company shall on demand in writing made to the Company by the Bank, at
the cost of the Company:
3.5.1 execute a valid legal mortgage in the Bank's standard form for the
time being, or in such other form as the Bank may reasonably require, of any
freehold or leasehold property presently belonging to the Company which is not
by this Debenture effectively charged by way of legal mortgage and of any
freehold or leasehold property hereafter acquired by the Company;
3.5.2 execute and deliver a standard security or other valid fixed
security acceptable to the Bank over heritable or other property, land and
buildings wherever situate;
3.5.3 execute a valid fixed charge or assignation in security in such form
as the Bank may reasonably require of any Asset subject to a floating charge
hereunder; and
3.5.4 do and concur in all such other acts or things as the Bank may deem
necessary to vest in the Bank title to all or any of the Assets.
3.6. Any fixed mortgage, charge or other security hereafter created by the
Company in favor of the Bank shall have priority over the floating charge
created by this Debenture, except insofar as the Bank shall declare otherwise
whether at or after the time of creation of such fixed security.
<PAGE> 128
3.7. The Company shall pay into the Company's account with the Bank or as the
Bank may direct all moneys which it may receive in respect of any policies of
insurance or assurance, royalties or book or other debts or any other of the
rights and claims hereinbefore charged to the Bank under subclauses 3.1.5,
3.1.6 and 3.1.7 and until such payment hold all moneys so received upon trust
for the Bank, and shall not without the prior written consent of the Bank
charge, factor, discount or assign any of the said policies, royalties, debts,
rights or claims in favor of any other person or purport so to do.
4. This security shall be a continuing security to the Bank notwithstanding any
settlement of account or other matter or thing whatsoever, and shall be
without prejudice and in addition to any other right, remedy or security,
whether by way of mortgage equitable charge or otherwise howsoever, which the
Bank may now or at any time hereafter or, but for the charges hereby created,
would have on or in respect of the Assets or any part thereof for or in
respect of the moneys hereby secured or any part thereof.
5. During the continuance of this security the Company shall:
5.1 furnish to the Bank copies of the trading and profit and loss account
and audited balance sheet in respect of each financial year of the Company,
its holding company (if any) and every subsidiary of the Company, forthwith
upon the same becoming available and not in any event later than the
expiration of three months from the end of such financial year, and also from
time to time such other financial statements and information respecting the
assets and liabilities of the Company, its holding company and every such
subsidiary as the Bank may reasonably require;
5.2 maintain the aggregate value of the Company's book debts (excluding
debts owing by any Group Company (as defined in Clause 19 hereof) or any other
company from time to time specified by the Bank) and cash in hand as appearing
in the Company's books and of its stock according to the best estimate that
can be formed without it being necessary to take stock for the purpose, at a
level to be fixed by the Bank from time to time and whenever required by the
Bank shall obtain from the Managing Director of the Company for the time being
or, if there shall be no Managing Director, then from one of the Directors of
the Company and furnish to the Bank a certificate showing the said aggregate
value;
5.3 forthwith notify the Bank of the acquisition of any freehold,
leasehold or heritable property by the Company;
5.4 not, without the previous written consent of the Bank, redeem or
purchase any of its own shares or issue any redeemable shares.
6.1. The Company hereby covenants with the Bank that the Company will.
6.1.1 keep all buildings and all fixtures and fittings, plant, machinery
and other effects in good and substantial repair and in good working order
and condition, and will maintain all such insurances as are normally
maintained by prudent companies carrying on similar
<PAGE> 130
businesses, and in particular will insure and keep insured such of its
Assets as are insurable with an insurance office or underwriters to be
approved by the Bank in writing from time to time in the name of the Company
with the interest of the Bank noted on the policy, or, at the option of the
Bank, in the joint names of the Company and the Bank, against loss or damage
by fire and such other risks (and with the policy containing such provisions
for the protection of the Bank) as the Bank may from time to time require in
their full replacement value for the time being.
6.1.2 pay all premiums and other moneys necessary for effecting and
keeping up such insurances within one week of the same becoming due, and will
on demand produce to the Bank the policy or policies of such insurance and the
receipt for every such payment.
6.2. If the Company shall make default in keeping such buildings,. fixtures and
fittings, plant, machinery and other effects in good and substantial repair
and in good working order and condition, or in effecting or keeping up such
insurances as aforesaid, the Bank may, as it shall think fit, repair and keep
in repair the said buildings and other Assets or any of them (with liberty for
that purpose by itself or its agents to enter upon the freehold and leasehold
property of the Company) or effect or renew any such insurances as aforesaid.
6.3. The Bank shall be entitled to be paid the proceeds of any such policy of
insurance (other than in respect of employers' or public liability) and the
Company hereby irrevocably instructs any insurer in respect of any such policy
to pay such proceeds to the Bank and undertakes to the Bank to issue such
further instructions to that effect as the Bank may require.
6.4. All moneys received on any insurance whatsoever (other than as.,aforesaid)
shall, as the Bank requires, be applied either in. making good the loss or
damage in respect of which the money is received, or in or towards discharge
of the moneys for the time being hereby secured.
6.5. The Company will permit any authorized representative of the Bank at all
reasonable times to enter upon any part of the freehold and leasehold property
of the Company and of any other property where the Company may be carrying out
any contract or other works.
7.1. The Company will at all times observe and perform, and ensure the
observance and performance by any other person or company at any time
occupying the freehold and leasehold property of the Company or any part
thereof of, all restrictive and other covenants to which the same or any part
thereof may from time to time be subject, all obligations on the part of the
Company in any lease or tenancy agreement, all building regulations, and all
restrictions, conditions and stipulations for the time being affecting the
same or any part thereof or the mode of user or enjoyment of the same and
provide to the Bank on request such evidence of such
<PAGE> 131
observance or performance as the Bank shall require, and within three days
will deliver to the Bank any notice or proceedings served by any landlord and
relating to any alleged breach of the terms of the relevant lease or tenancy.
7.2. The Company will on request produce to or provide for the Bank such
documents or information relating to the freehold and leasehold Property of
the Company or the development thereof as the Bank shall require.
8.1. At any time after the Bank shall have demanded payment of any moneys
hereby secured (and whether or not the Company shall have been accorded
sufficient or any time in which to satisfy the same) or (notwithstanding the
terms of any other agreement between the Company and the Bank save only an
express exclusion of this provision by reference to this Debenture) after the
presentation of a petition applying for an administration order to be made in
relation to the Company pursuant to Section 9 of the Insolvency Act 1986, or
if requested by the Company, the Bank may appoint by writing any person or
persons to be an administrative receiver or administrative receivers
(hereinafter called "the Receiver' which expression shall where the context so
admits include the plural, and any substituted administrative receiver or
administrative receivers, and so that where more than one administrative
receiver is appointed they shall have power to act severally unless the Bank
shall in the appointment specify to the contrary) of all or any part of the
Assets hereby charged. Such an appointment over part only of the Assets
hereby charged shall not preclude the Bank from making any subsequent
appointment of a Receiver over any part of the Assets over which an
appointment has not previously been made by the Bank.
8.2. The Bank may from time to time determine the remuneration of the Receiver
and may (subject to the application of Sections 45 of the Insolvency Act 1986)
remove the Receiver from all or any part of the Assets of which he is the
Receiver, and, at any time after the Receiver shall have vacated office or
ceased to act in respect of any of the Assets, appoint a further Receiver over
all or any part of the Assets or of the part thereof in respect of which he
shall have ceased to act.
8.3. The Receiver shall be the agent of the Company (which shall be solely
liable for his acts, defaults and remuneration) unless and until the Company
goes into liquidation, whereafter he shall act as principal and shall not
become the agent of the Bank, and shall have and be entitled to exercise in
relation to the Company all the powers set out in Schedule 1 to the Insolvency
Act 1986 and all the powers conferred from time to time on Receivers by
statute and in particular b way of addition to but without hereby limiting
such powers (and without prejudice to the Bank's powers) the-Receiver shall
have powers to do the following things namely:
8.3.1 to sell, let or lease or concur in selling, letting or leasing and
to vary the terms or determine, surrender or accept surrenders of leases or
tenancies of, or grant options and licences over. all or any part of the
Assets and so that any such sale may be made for cash payable by instalments
or for shares or securities of another company and the Receiver may promote or
concur in promoting a company to purchase the Assets to be sold;
8.3.2 to sever any fixtures from the property of which they form part;
8.3.3 to exercise all voting and other rights attaching to stocks, shares
and other securities owned by the Company;
<PAGE> 132
8.3.4 to make and effect all repairs and improvements;
8.3.5 to redeem any prior encumbrance and co settle and pass the accounts
of the encumbrancer; any accounts so settled and passed shall (subject to any
manifest error) be conclusive and binding on the Company and the moneys so
paid shall be deemed to be an expense properly incurred by the Receiver;
8.3.6 to do all such other acts and things as may be considered by the
Receiver to be incidental or conducive to any of the matters or powers
aforesaid, or otherwise incidental or conducive to the preservation,
improvement or realization of the Assets.
8.4. A person dealing with the Receiver in good faith and for value shall not
be concerned to enquire whether the Receiver is validly appointed or acting
within his powers.
9. The Company hereby irrevocably appoints the Bank (whether or not the
Receiver has been appointed) and also (as a separate appointment) the Receiver
severally the Attorney and Attorneys of the Company, for the Company and in
its name and on its behalf and as its act and deed or otherwise to execute and
deliver and otherwise perfect any deed, assurance, agreement, instrument or
act which may be required of the Company hereunder or may be deemed proper for
any of the purposes aforesaid, and to convey or transfer a legal estate to any
purchaser of any freehold, leasehold or heritable property hereby charged.
10. Any moneys received under the powers hereby conferred shall, subject to the
repayment as far as necessary of any claims having priority to this Debenture,
be paid or applied in the following order of priority:-
10.1 in satisfaction of all costs, charges and expenses properly incurred
and payments properly made by the Bank or the Receiver, and of the
remuneration of the Receiver;
10.2 in or towards satisfaction of the moneys outstanding and secured by
this Debenture in such order as the Bank may at its discretion require;
10.3 as to the surplus (if any), to the person or persons entitled
thereto.
Provided that the Receiver may retain any moneys in his hands for so long as
he shall think fit, and the Bank is also to be at liberty, without prejudice
to any other rights the Bank may have at any time and from time to time, to
place and keep for such time as the Bank may think prudent, any moneys.
received, recovered or realized under or by virtue of this Debenture to or at
a separate or suspense account to the credit either of the Company or of the
Bank, as the Bank shall think fit without any intermediate obligation on the
Bank's part to apply the same or any part thereof in or towards the discharge
of the moneys due or owing to the Bank as aforesaid by the Company.
<PAGE> 132
11. During the continuance of this security:
11.1 no statutory or other power of granting or agreeing to grant or of
accepting or agreeing to accept surrenders of leases or tenancies of the
freehold and leasehold property hereby charged or any part thereof shall be
capable of being exercised by the Company without the previous written consent
of the Bank;
11.2 the Company shall not be entitled to part with possession (otherwise
than on the determination of any lease, tenancy or licence) of any property
hereby charged, or to share the occupation thereof with any other person or
persons, or to surrender or purport to surrender or permit to be forfeited the
lease of any leasehold property hereby charged without such consent as
aforesaid;
11.3 Section 93 of the Law of Property Act 1925 dealing with the
consolidation of mortgages shall not apply to this security.
12.1 Section 103 of the Law of Property Act 1925 shall not apply to this
security but the statutory power of sale, shall as between the Bank and a
purchaser from the Bank, arise on and be exercisable at any time after the
execution of this security, provided that the Bank shall not exercise the said
power of sale until payment of moneys hereby secured has been demanded or the
Receiver has been appointed, but this proviso shall not affect a purchaser or
put him upon inquiry whether such demand or appointment has been validly made.
12.2 The statutory powers of sale, leasing and accepting surrenders exercisable
by the Bank hereunder are hereby extended so as to authorize the Bank, whether
in its own name or in that of the Company to grant a lease or leases of the
whole or any part or parts of the freehold and leasehold property of the
Company with such rights relating to other parts thereof and containing such
covenants on the part of the Company and generally on such terms and
conditions (including the payment of money to a lessee or tenant or on a
surrender) and whether or not at a premium as the Bank shall think fit.
13. All costs, charges and expenses incurred hereunder by the Bank, and all
other moneys paid by the Bank or by the Receiver in perfecting or otherwise in
connection with this security or in respect of the Assets, including (without
prejudice to the generality of the foregoing) all moneys expended by the Bank
under Clauses 6 and 17 hereof and all costs of the Bank (on a solicitor and
own client basis) of all proceedings for the enforcement of this security or
for obtaining payment of moneys hereby secured or arising out of or in
connection with the acts authorized by Clause 8 hereof and all costs and
losses to the Bank arising in consequence of any default by the Company in the
performance of its obligations and all administrative charges of the Bank
based on the time spent by it in connection with any of the foregoing shall be
recoverable from the Company as a debt and may be debited to any account of
the Company and shall bear interest accordingly and shall be charged on the
Assets.
14. On receiving notice that the Company has encumbered or disposed of the
Assets or any part thereof the Bank shall be entitled to close the Company's
then current account or accounts and to open a new account or accounts
<PAGE> 134
with the Company, and (without prejudice to any right of the Bank to combine
accounts) no money paid in or carried to the Company's credit in any such new
account shall be appropriated towards or have the effect of discharging any
part of the amount due to the Bank on any such closed account. If the Bank
does not open a new account or accounts immediately on receipt of such notice
it shall nevertheless be treated as if it had done so at the time when it
received such notice and as from that time all payments made by the Company to
the Bank shall be credited or be treated as having been credited to such new
account or accounts and shall not operate to reduce the amount due from the
Company to the Bank at the time when it received such notice.
15. The Company agrees that any moneys from time to time standing to its credit
on any account with the Bank may be retained as cover for and, at any time
without notice to the Company, applied by the Bank in or towards payment or
satisfaction of any moneys or liabilities now or hereafter from time to time
due owing or incurred by the Company to the Bank in whatsoever manner whether
presently payable or not, whether actually or contingently, whether solely or
jointly with any other person And whether as principal or surety.
16. The Bank may from time to time seek from any other person having dealings
with the Company such information about the Company and its affairs as the
Bank may think fit, and the Company hereby authorizes and requests any such
person to provide any such information to the Bank and agrees to provide such
further authority in this regard as the Bank may from time to time require.
17. The Company shall at its own cost at any time if so requested by the Bank
appoint an accountant or firm of accountants nominated by the Bank to
investigate the financial affairs of the Company and/or any subsidiary of the
Company and report thereupon to the Bank, and hereby authorizes the Bank
itself at any time to make such appointment on behalf of the -Company or on
its own account as it shall think fit, and in every such case the fees and
expenses of such accountant or firm shall be paid by the Company and may be
paid by the Bank on behalf of the Company, and the Bank may at the time of
such appointment or thereafter guarantee payment by the Company of such fees
and expenses.
18. It is hereby certified that the security created by this Debenture, both in
respect of freehold and leasehold property of which the Company is registered
at H.M. Land Registry as proprietor and otherwise, does not contravene any of
the provisions of the Memorandum and Articles of Association of the Company.
19. In this Debenture where the context so admits:-
19.1 the expression 'the Bank" shall include persons deriving title under
the Bank;
19.2 any reference to any statute or any section of any statute shall be
deemed to include reference to any statutory modification or re-enactment
thereof for the time being in force;
<PAGE> 135
19.3 "Assets" shall mean all the undertaking, property and assets of the
Company whatsoever and wheresoever present and future;
19.4 "Group Company" shall mean any company which is a subsidiary company
or a holding company (as such terms are defined in Section 736 of the
Companies Act 1985 which definitions shall apply for all the purposes hereof)
of the Company or a subsidiary of any such holding company or any company
which has 50% or more of the holders of its equity share capital in common
with the Company.
<PAGE> 136
IN WITNESS WHEREOF this Debenture has been executed by the Company as a deed
and signed on behalf of the Bank this sixteenth day of November 1993.
THE SCHEDULE ABOVE REFERRED TO
County and District Title No.(s)
(or London Borough) (if registered land) Address or Description
________________________________________________________________________
EITHER
THE COMMON SEAL of the Company was
hereunto affixed pursuant to a resolution of the
Board of Directors in the presence of:
Director /s/ Brain John Baylis
Director/Secretary /s/ Susan A.M. Crisp
OR
Executed and Delivered as a deed by the
Company (pursuant to a resolution of its
Board of Directors) acting by
Director____________________________
Director/Secretary____________________
Signed on behalf of the Bank by
/s/ Anne Mc Queen
Anne Mc Queen
The address for service of the Bank in the case of any registered land is:
Bank of Scotland,
Legal Services Department
Teviot House
41 South Gyle Crescent
EDINBURGH
EH12 9DR
Revised 21.9.93
<PAGE> 137
[REGISTRAR SEAL]
CERTIFICATE OF THE REGISTRATION
OF A MORTGAGE OR CHARGE
Pursuant to section 401(2) of the Companies Act 1985
COMPANY No.02731602
THE REGISTRAR OF COMPANIES FOR ENGLAND AND WALES HEREBY CERTIFIES THAT A
DEBENTURE DATED THE 16th NOVEMBER 1993 AND CREATED BY THE STATIONERY COMPANY
LIMITED FOR SECURING ALL MONIES DUE OR TO BECOME DUE FROM THE COMPANY TO THE
GOVERNOR AND THE COMPANY OF THE BANK OF SCOTLAND ON ANY ACCOUNT WHATSOEVER WAS
REGISTERED PURSUANT TO CHAPTER 1 PART XII OF THE COMPANIES ACT 1985 ON THE
30th NOVEMBER 1993.
GIVEN AT COMPANIES HOUSE, CARDIFF THE 2nd DECEMBER 1993.
/s/ P. Jones
for the Registrar of Companies
[DEPARTMENT STAMP APPEARS
HERE DATED 6 DECEMBER 1996]
CH
COMPANIES HOUSE HC026
<PAGE> 138
CHESSBOURNE INTERNATIONAL
SECTION 4
4.1 Statement of Affairs
<PAGE> 139
<TABLE>
<CAPTION>
Rule 3.2 The Insolvency Act of 1986 Form 3.1 (scot)
<S> <C>
NOTICE REQUIRING SUBMISSION OF RECEIVERSHIP
STATEMENT OF AFFAIRS
Pursuant To Section 66(1) and (4) of the Insolvency Act 1986 and
Rule 3.2(1) of the Insolvency (Scotland) Rules 1986
(a) Insert name of (a) CHESSBOURNE INTERNATIONAL LIMITED
the company in --------------------------------------------------------------
receivership
(b) Insert full name Take note that I, (b) IAIN T WATTERS
of receiver require you (c) ___________________________________________
to submit statement as to the affairs of the company by
(c) Insert date by (d) 6 MARCH 1996
which statement
required to
submit statement
(d) Insert date by
which statement
must by The statement shall be in the prescribed form of which a copy is
submitted under attached.
section 66(a) and
(5)
Dated this 13th day of the FEBRUARY 1996
Signed________________________________________________
Warning
If without reasonable excuse you fail to comply with any
obligation under Section 66, you will be liable:
(i) On summary conviction to fine not exceeding the
statutory maximum and, for the continued contravention, to a daily
default fine not exceeding one-tenth of the statutory maximum.
(ii) On conviction on indictment to a fine.
</TABLE>
<PAGE> 140
<TABLE>
<CAPTION>
<S> <C> <C>
Pursuant to sections 95, 99 and 131 of the Insolvency Act 1986
and Rule 4.7 and 4.8 of the Insolvency (Scotland) Rules 1986
Insert name of the Statement as to affairs of
company CHESSBOURNE INTERNATIONAL LTD.
- - ---------------------------------------------------------------------------------------------
Affidavit
This affidavit must be sworn/affirmed before Notary Public, Justice
of the Peace or Commissioner for Oaths or other person duly
authorised to administer oaths, when you have completed the rest
(a) Insert full of this form.
name(s) and
occupation(s) of I/WE (a) BRIAN JOHN BAYLIS
deponents ___________________________________________________________________
(b) Insert full of (b) DARAT ALKHAIT, BEECHCROFT,
address(es) CHISLEHURST, KENT, BR7 5DB
do swear/affirm that the statement set out overleaf and the list A
to G annexed and signed as relative hereto are to the best of my/our
knowledge and belief a full, true and complete statement as to the
affairs of the above named company as at
(c) Insert date of (c) 7th February 1996.
commencement
of the winding up
which is:
(i) in a
voluntary
winding up the
date of the Sworn/affirmed at 30 High Street Chislehurst in the London Borough
resolution by the of Bromley
company for Date 19th day of March 1996
winding up Signature(s) of deponent(s) /s/ Brian John Baylis
[section 86]. and
(ii) in a winding
up by the court,
the date of the Before me /s/ John Harrison
presentation of Person administering the oath of affirmation
of the petition for
winding up JOHN HARRISON
unless it is A SOLICITOR EMPOWERED
preceded by a TO ADMINISTER OATHS
resolution for
voluntary The person administering the oaths or affirmation IS particular
winding up under requested, before swearing the affidavit, to make sure that the full
(1) [section 129], name, address and description of the Deponent(s) are stated, and
but in the case of to ensure that any crossings-out or alterations in the printed form are
a creditors' initialled.
voluntary
winding up the
date inserted
should be the
nearest NOTE
practicable date This affidavit should be sworn/affirmed and the statement made out
before the date and submitted:
of the meeting of (1) in a winding up by the court by any person required to do so
creditors under under section 131 of the Act by the Liquidator;
section 98. (2) in a members' voluntary winding up which becomes a
creditors' voluntary winding up section 95 and 96, by the Liquidator
under Section 95; and
(3) in a creditors' voluntary winding up by the directors.
</TABLE>
<PAGE> 141
<TABLE>
<CAPTION>
Rule 4.7 Form 4.4 (Scot)
4.8 (contd)
STATEMENT as to affairs of the company as at [INSTRUCTIONS]
Estimated Please do not
Realisable Value write in
£
<S> <C> <C> <C>
Assets £ the margin
Assets not specifically secured (as per List "A") 554,800 Please complete
legibly, preferably in
Assets specifically secured (as per List "B") black type, or
bold black lettering
Estimated realisable value 196,176
Less: Amount due to secured creditors 196,176
Estimated surplus ---
Estimated Total Assets available for preferential creditors,
holders of floating charges and unsecured creditors 554,800
LIABILITIES
Preferential creditors (as per List "C") 129,193
Estimated balance of assets available for
holders of floating charges and unsecured creditors 430,607
Holders of floating charges (as per List "D") 3,155,635
Estimated surplus/deficiency as regards
holders of floating charges (2,725,028)
Unsecured Creditors
£
Trade accounts (as per List "E") 738,500
Bills payable (as per List "F") ---
Contingent or other liabilities (as per List "G") 147,274
Total unsecured creditors 885,834
Estimated Surplus/Deficiency as regards creditors (3,610,867)
Issued and Called-up Capital 1,526,750
Estimated Surplus/Deficiency as regards members 5,137,617
These figures must be read subject to the following:-
[(a) There is no unpaid capital liable to be called up]: delete as
[(b) The nominal amount of unpaid capital liable to be called appropriate
up is £_______________ estimated to produce
£______________ which is/is not charged in favour of the
holders of Floating Charges
The estimates are subject to expenses of the Liquidation and to any
surplus or deficiency
on trading pending realisation of the Assets. Page 2
</TABLE>
<PAGE> 142
<TABLE>
<CAPTION>
Please do not Statement of Affairs LIST "A"
write in Assets not specifically secured
the margin
Please complete
legibly, preferably in
black type, or
bold black lettering
Particulars of assets Book Value Estimated to produce
£ £
<C> <S> <C> <C>
Balance at bank --- ---
Cash in hand --- ---
Marketable Securities (as per schedule I) --- ---
Bills receivable (as per schedule II) --- ---
Trade debtors (as per schedule III) 333,139 136,000
Loans and advances (as per schedule IV) 1,428,872 ---
Unpaid calls (as per schedule V) ---- ---
Stock in trade 659,343 400,000
_________________________
other debts and prepayment 111,359 8,800
Work in progress ---- ----
______________________
______________________
Heritable property
Leasehold property 241 ---
Plant, machinery and vehicles 92,258 15,000
Furniture and Fittings, etc. --- ---
Patents, trade marks, etc. --- ---
Investments other than marketable securities --- ---
Other property --- ---
Total 2,625,212 554,800
</TABLE>
Signed /s/ Brian John Baylis Dated 18/3/96
Brian John Baylis
THIS AND THE FOLLOWING 21 PAGES IS LIST A REFERRED TO IN THIS AFFIDAVIT OF
BRIAN JOHN BAYLIS SWORN BEFORE ME ON THE 19TH DAY OF MARCH 1996
/S/ JOHN HARRISON
JOHN HARRISON
A SOLICITOR EMPOWERED
TO ADMINISTER OATHS
<PAGE> 143
Please do not
write in
the margin
Please complete SCHEDULE I TO LIST "A"
legibly, preferably Statement of Affairs
in black type, or Marketable Securities
bold black lettering
Names to be arranged in alphabetical order and numbered
consecutively
<TABLE>
No Name of organization in which Details of Book Value Estimated
securities are held securities held to produce
£ £:
<C> <C> <C> <C> <C>
---- ----
</TABLE>
Signed /s/ Brian John Baylis Dated 18/3/96
Brian John Baylis
<PAGE> 144
Please do not
write in
the margin
Please complete SCHEDULE I TO LIST "A"
legibly, preferably Statement of Affairs
in black type, or Bills of exchange, promissory notes, etc. available as
assets
bold black lettering
Names to be arranged in alphabetical order and numbered
consecutively
<TABLE>
No Name and address Amount of Date Estimated Particulars of any
of acceptor of bill bill or note when to produce property held as
or note due security for payment
£ £ of bill or note
<C> <C> <C> <C> <C> <C>
----
</TABLE>
Signed /s/ Brian John Baylis Dated 18/3/96
Brian John Baylis
<PAGE> 145
CHESSBOURNE INTERNATIONAL LTD
Minutes of a meeting of the Board of Directors
held on Monday 18th March 1995
Present Mr.B.J.Baylis
Mrs.S.A.M.Crisp
Mr M.Holland
Mrs. K.Sparkes
1. BJB reminded the Board that under section 66 of the Insolvency Act 1986
that they were required to submit a Statement of Affairs of the Company. With
the agreement of the Receivers, a Statement had been prepared by Ian Mills
which to the best of our knowledge is a true and fair representation of the
Company's affairs as at 7th February 1996.
2. In the interests of expediency BJB had consulted Mr. Alan Pepper, The
Receivers representative who after in turn consulting their own legal advisers
confirmed that it would be in order for one member to swear the statement on
behalf of The Board.
3. IT WAS RESOLVED that the Statement of Affairs as prepared be adopted
and that BJB be instructed to Swear on behalf of the Board.
4. The being no other business, the meeting ended.
/s/ B.J.Baylis
B.J.Baylis
<PAGE> 146
Please complete SCHEDULE III TO LIST "A"
legibly, preferably Statement of Affairs
in black type, or Trade debtors
bold black lettering
Names to be arranged in alphabetical order and numbered
consecutively
<TABLE>
<CAPTION>
No Name and address Particulars Amount of Estimated to
of debtor of any debt produce
Securities
held for
debt £ £
<C> <C> <C> <C> <C>
As per Listing 333,139 136,000
</TABLE>
Note:
If the debtor to the company is also a creditor, but for a lesser amount than
his indebtedness, the gross amount due to the company and the amount of the
contra account should be shown in the third column and only the balance be
inserted in the fourth column. No such claim should be included in List "E"
Signed /s/ Brian John Baylis Dated 18/3/96
Brian John Baylis
<PAGE> 147
CORNICHE DISTRIBUTION
SECTION 4
4.1 Statement of Affairs
<PAGE> 148
AA&Co
Intraoffice memorandum
==========================================================================
To To (for reply)
THE FILES
___________________________________________________________________________
From Ext. Date From Ext. Date
NEIL A BOYD 21/10/96
____________________________________________________________________________
Subject
ATTACHED STATEMENT OF AFFAIRS: CORNICHE
____________________________________________________________________________
[ ] Follow up please [ ] Prepare reply for [ ] As requested
[ ] Note and return my signature [ ] For your review
[ ] Note and forward [ ] Send me information [ ] For your information
to files required to answer [ ] As per conversation
[ ] See (phone) me re [ ] For signature, if
attached you approve
____________________________________________________________________________
The attached statement of affairs has been marked "COPY" in error.
This is the ORIGINAL.
========
Disregard the over-writing of "COPY".
/s/ Neil
Please call me - extension [ ]
<PAGE> 149
COPY COPY COPY COPY COPY COPY COPY COPY
<TABLE>
<C> <C>
/s/ B Baylis No. of 19__
Statement of Affairs IN THE HIGH COURT OF JUSTICE
No. 2.9 (incorporating
Forms 2.9, 3.2, 4.18
and 4.19) (Rules 2.12, Chancery Division
3, 4, 4.34 - CVL)
(1)(1) Delete title of the
Court and number
where appropriate. Companies Court
(2) Insert name of IN THE MATTER OF (2) CORNICHE DISTRIBUTION LTD.
Company.
AND
IN THE MATTER of the Insolvency Act of 1986.
Statement as to Affairs of (2) CORNICHE DISTRIBUTION LTD.
(3) Delete as
appropriate. on the 28th February 1996 the date of the (3)
[administration order] [THE ADMINISTRATIVE
[WHAT IS IN RECEIVER'S APPOINTMENT] [resolution for winding-up]
UPPERCASE IS [opinion formed by the liquidator under Section 95 of the
WHAT THE COMPANY Insolvency Act 1986].
CHOOSE OR FILLED IN.]
__________________________________________________
Affidavit
This affidavit must be SWORN or affirmed before a Solicitor or
Commissioner of Oaths when you have completed the rest of this form
(4) Insert name and I(4) BRIAN JOHN BAYLIS - COMPANY DIRECTOR
occupation.
(5) Insert full address. of DARAT ALKHAIR, BEECHCROFT, CHISLEHURST, KENT, BR7 5DE
make oath and say that the several pages exhibited hereto and marked
are to the best of my knowledge and belief a full, true and complete
statement as to the affairs of the above named company as at 28th FEBRUARY
1996, the date (3) [of the administration order] [of the appointment of the
Administrative Receiver] [of the resolution for winding-up] [I formed the
opinion that the company would be unable to pay its debts in full (together
with interest) within the period stated in the directors' declaration of
solvency made under Section 89 of the Insolvency Act 1986]
and that the said company carried on business as
Sworn at 30 High Street Chislehurst
in the London Borough of Bromley
Date 19th March 1996 /s/ B Baylis
Before me /s/ John Harrison
JOHN HARRISON
A SOLICITOR or Commissioner of Oaths A SOLICITOR EMPOWERED
TO ADMINISTER OATHS
Before swearing the affidavit the SOLICITOR or Commissioner is
particularly requested to make sure that the full name,
address and description of the Deponent are stated, and to initial
602.94 1 of 4 any crossings-out or other alterations in the printed form. A deficiency in
the affidavit in any of the above respects will mean that it
SUED 01/94 is refused by The court, and will need to be re-sworn.
</TABLE>
<PAGE> 150
<TABLE>
<CAPTION>
Corniche Distribution Limited (in Administrative Receivership)
Al - Summary of Liabilities
<S> <C> <C>
Estimated to
Realise
£
Estimated total assets available for preferential creditors
(carried forward from Page A) £ (118,098)
Liabilities
Preferential creditors:
£
Employees 4,566
Inland Revenue 51,501
Customs & Excise 3,825
59,892
Estimated deficiency/surplus as regards preferential creditor
£ (177,990)
Debts secured by a floating charge: £
-----
Estimated deficiency/surplus of assets available for non-
(177,990)
preferential creditors
Non-preferential claims: £
Trade creditors 290,597
Other creditors 164,534
Amounts due to group companies 195,562
Royal Bank of Scotland 16,579
Employees 776,934
Directors Loan 100,000
1,544,206
Estimated deficiency/surplus as regards creditors £ (1,722,196)
Issued and called up capital:
£
Ordinary shares 2,500,000
2,500,000
Estimated total deficiency/surplus as regards members £ (4,222,196)
</TABLE>
Signature /s/ B Baylis Date 18/3/96
<PAGE> 151
<TABLE>
<CAPTION>
Corniche Distribution Limited (in Administrative Receivership)
A - Summary of Assets
<S> <C> <C>
Book Estimated to
Value Realise
£ £
Assets
Assets specifically pledged:
Lloyds Bank PLC:
Freehold property - Old Bank Mill, Leek 164,000 150,000
Mortgage loan (86,162) (86,162)
£ 63,838
Bank of Scotland plc:
Investment in Chessbourne International Limited 291,360 ---
Investment in The Stationery Company Limited 1,000,000 ---
Investment in Kassel Limited 9,597 ---
Other debtors and prepayments 22,432 ---
Amount due from Corniche Group, Inc. 1,990,112 ---
Bank of Scotland loan account (191,936) (191,936)
£ (128,098)
Assets not specifically pledged:
Plant, machinery and equipment 8,800 2,000
Motor vehicles 718 8,000
£ (118,098)
Estimated total assets available for preferential creditors (118,098)
</TABLE>
Signature /s/ B Baylis Date 18/3/96
This and the preceding page is the statement referred to in the affidavit of
Brian John Baylis sworn before this 19th day of March 1996.
/s/ John Harrison
JOHN HARRISON
A SOLICITOR EMPOWERED
TO ADMINISTER OATHS
<PAGE> 152
CORNICHE DISTRIBUTION LTD.
Minutes of a meeting of the Board of Directors
held on Monday 18th March 1995
Present Mr.B.J.Baylis
Mrs.S.A.M.Crisp
1. BJB reminded the Board that under Section 47 of the Insolvency Act 1986
that they were required to submit a Statement of Affairs of the Company. With
the agreement of the Receivers, a Statement had been prepared by Ian Mills
which to the best of our knowledge is a true and fair representation of the
Company's affairs as at 28th February 1996.
2. In the interests of expediency BJB had consulted Mr. Alan Pepper, The
Receivers representative who after in turn consulting their own legal advisers
confirmed that it would be in order for one member to swear the statement on
behalf of The Board.
3. IT WAS RESOLVED that the Statement of Affairs as prepared be adopted
and that BJB be instructed to Swear on behalf of the Board.
4. The being no other business, the meeting ended.
/s/ B.J.Baylis
B.J.Baylis
<PAGE> 153
<TABLE>
<CAPTION>
Corniche Distribution Limited (in Administrative Receivership)
A - Summary of Assets
<S> <C> <C>
Book Estimated to
Value Realize
£ £
Assets
Assets specifically pledged:
Lloyds Bank PLC:
Freehold property - Old Bank Mill, Leek 164,000 164,000
Mortgage loan (86,162) (86,162)
£ 77,838
Bank of Scotland plc:
Investment in Chessbourne International Limited 291,360 ---
Investment in The Stationery Company 1,000,000 ---
Investment in Kassel Limited 9,597 ---
Plant, machinery and equipment 8,800 5,000
Motor vehicles 718 5,000
Other Debtors and prepayments 22,432 ---
Amount due from Corniche Group, Inc. 1,990,112 ---
Bank of Scotland loan account (191,936) (191,936)
£ (104,098)
Assets not specifically pledged:
Estimated total assets available for preferential creditors (130,358)
</TABLE>
Signature Date
<PAGE> 154
<TABLE>
<CAPTION>
Corniche Distribution Limited (in Administrative Receivership)
Al - Summary of Liabilities
<S> <C> <C>
Estimated to
Realise
£
Estimated total assets available for preferential
creditors (carried forward from Page A) (130,358)
Liabilities
Preferential creditors: £
Employees 1,337
Inland Revenue 51,501
Customs & Excise 3,825
56,663
Estimated deficiency/surplus as regards
preferential creditor £ (187,021)
Debts secured by a floating charge: £
---
Estimated deficiency/surplus of assets available for non- £ (187,021)
preferential creditors
Non-preferential claims: £
Trade creditors 290,597
Other creditors 164,534
Amounts due to group companies 195,562
Royal Bank of Scotland 16,579
Directors Loan 100,000
767,272
Estimated deficiency/surplus as regards creditors £ (954,293)
Issued and called up capital: £
Ordinary shares 2,500,000
2,500,000
Estimated total deficiency/surplus as regards members £ (3,454,293)
</TABLE>
Signature________________________________ Date _____________
<PAGE> 155
Corniche Distribution Ltd
<TABLE>
<CAPTION>
Statement of Affairs workings
Nominal Account Amount
<S> <C>
Investment in Chessbourne International 291,360.00
Investment in The Stationery Company 1,000,000.00
Investment in Kassel 9,597.45
Fixtures & fittings - cost 20,036.80
Fixtures & fittings - depn. (17,961.08)
Plant & Machinery - cost 15,665.18
Plant & Machinery - depn. (8,940.54)
BMW 318i - cost 15,000.00
BMW 318i - depn. (15,000.00)
Volvo - cost 1,000.00
Volvo - depn. (282.00)
Freehold property - cost 165,897.94
Freehold property - depn. (1,897.94)
Other debtors 17,004.41
Loan account - E. WARD 665.81
Insurance recharge suspense 4,748.21
Petty cash 14.25
Recharges - Chessbourne (8,451.56)
Bank of Scotland - loan (191,936.42)
Royal Bank of Scotland - Current (18,165.32)
Royal Bank of Scotland - High Interest 1,586.92
Royal Bank of Scotland - No. 2 (0.60)
Lloyds Bank mortgage (86,162.21)
Creditors Control (575,517.66)
BJB Directors Loan (100,000.00)
VAT Paid (27,359.52)
VAT Inputs 249.46
VAT Outputs (4,047.71)
Salary Control (1,337.37)
PAYE Control account (27,099.97)
NI Control account (24,400.63)
HP Agreement control (485.49)
current account - Chessbourne (21,285.23)
Current account - Stationery Company (69,361.41)
Current account - Kassel Ltd. (128,237.57)
Current account - Corniche Group Inc. 1,990,111.79
Ordinary shares (2,500,000.00)
(113,725.73)
Accrued against PL debit balances (1,288)
(115,014)
</TABLE>
<PAGE> 156
Corniche Distribution Ltd
<TABLE>
<CAPTION>
Statement of Affairs workings
Nominal Account Amount
<S> <C>
Investment in Chessbourne International
Investment in The Stationery Company
Investment in Kassel
Fixtures & fittings - cost
Fixtures & fittings - depn.
Plant & Machinery - cost
Plant & Machinery - depn.
BMW 318i - cost
BMW 318i - depn.
Volvo - cost
Volvo - depn.
Freehold property - cost
Freehold property - depn.
Other debtors
Loan account - E. WARD
Insurance recharge suspense
Petty cash
Recharges - Chessbourne (8,451.56)
Bank of Scotland - loan
Royal Bank of Scotland - Current
Royal Bank of Scotland - High Interest
Royal Bank of Scotland - No. 2
Lloyds Bank mortgage
Creditors Control (406,875.14)
BJB Directors Loan
VAT Paid (27,359.52)
VAT Inputs 249.46
VAT Outputs (4,074.71)
Salary Control (1,337.71)
PAYE Control account (27,099.97)
NI Control account (24,400.63)
HP Agreement control (485.49)
current account - Chessbourne
Current account - Stationery Company 69,361.43
Current account - Kassel Ltd. (128,237.57)
Current account - Corniche Group Inc. 1,990,111.79
Ordinary shares (2,500,000.00)
1,990,111.79
1,990,112.00
Accrued against PL debit balances 1,990,112.00
</TABLE>
<PAGE> 157
THE STATIONERY COMPANY
SECTION 4
4.1 Statement of Affairs
<PAGE> 158
<TABLE>
<C> <C>
No. of 19
Statement of Affairs IN THE HIGH COURT OF JUSTICE
No. 2.9 (incorporating
Forms 2.9, 3.2, 4.18
and 4.19) (Rules 2.12, Chancery Division
3. 4, 4.34 - CVL)
(1)(1) Delete title of the
Court and number
where appropriate. Companies Court
(2) Insert name of IN THE MATTER OF (2) THE STATIONERY COMPANY LTD.
Company.
AND
IN THE MATTER of the Insolvency Act of 1986.
Statement as to Affairs of (2) THE STATIONERY COMPANY LTD.
(3) Delete as
appropriate. on the 7th February 1996 the date of the (3)[administration order]
[THE ADMINISTRATIVE RECEIVER'S APPOINTMENT] [resolution for winding-up]
[opinion formed by the liquidator under Section 95 of the
Insolvency Act 1986].
__________________________________________________
Affidavit
This affidavit must be sworn or affirmed before a Solicitor or
Commissioner of Oaths when you have completed the rest of this form
(4) Insert name and I(4) BRIAN JOHN BAYLIS - COMPANY DIRECTOR
occupation.
(5) Insert full address. of DARAT ALKHAIR, BEECHCROFT, CHISLEHURST, KENT, BR7 5DE
make oath and say that the several pages exhibited hereto
and marked are to the best of my knowledge and belief a full,
true and complete statement as to the affairs of the above named
company as at 7th February 1996, the date (3) [of the administration
order] [of the appointment of the Administrative Receiver] [of the
resolution for winding-up] [I formed the opinion that the company would
be unable to pay its debts in full (together with interest) within
the period stated in the directors' declaration of solvency made under
Section 89 of the Insolvency Act 1986]
and that the said company carried on business as
Sworn at 30 High Street Chislehurst
in the London Borough of Bromley
Date 19th March 1996 /s/ B Baylis
Before me /s/ John Harrison
JOHN HARRISON
A Solicitor or Commissioner of Oaths A SOLICITOR EMPOWERED
TO ADMINISTER OATHS
Before swearing the affidavit the Solicitor or Commissioner is
particularly requested to make sure that the full name, address and
602.94 1 of 4 description of the Deponent are stated, and to initial any
crossings-out or other alterations in the printed form. A deficiency
in the affidavit in any of the above respects will mean that it is
SUED 01/94 refused by the court, and will need to be re-sworn.
</TABLE>
<PAGE> 159
The Stationery Company Limited (in Administrative Receivership)
A - Summary of Assets
<TABLE>
<CAPTION>
Book Estimated to
Value Realise
£ £
<S> <C> <C>
Assets
Assets specifically pledged:
Freehold 18,656 ---
Short Leasehold 800,573 500,000
Plant & Equipment 5,530 ---
Fixtures & Fittings Cost 334,902 ---
Trademarks 1,177 ---
Stocks 348,300 ---
Trade Debtors 1,394,106 155,000
Other Debtors 311,560 15,000
Amounts due from Group Companies 52,175 ---
3,266,979 670,000
Debts secured by a Fixed Charge 233,170
Bank of Scotland 233,170
3,033,809 436,830
Assets not specifically pledged:
New Store-set-up costs 17,858 ---
Estimated total assets available for
preferential creditors 3,051,394 436,830
</TABLE>
Signature /s/ Brian John Baylis Date 18/3/96
This and the following five pages are the statement referred to in the
affidavit of Brian John Baylis sworn before me on this 19th day of March 1996.
/s/ John Harrison
JOHN HARRISON
A SOLICITOR EMPOWERED
TO ADMINISTER OATHS
<PAGE> 160
<TABLE>
<CAPTION>
The Stationery Company Limited (in Administrative Receivership)
A1 - Summary of Liabilities
<S> <C> <C>
Estimated to
Realise
£
Estimated total assets available for
preferential creditors carried forward from Page A) 436,830
Liabilities
Preferential creditors: £
Employees 100,475
Inland Revenue 120,639
Customs & Excise 165,099
Pension Scheme 322
386,535
Estimated deficiency/surplus as
regards preferential creditor £ 50,295
Debts secured by a floating charge: £
Estimated deficiency/surplus of £ 50,295
assets available for non-preferential creditors
Non-preferential claims: £
Trade creditors 1,634,067
Other creditors 183,331
Amounts due to group companies 1,274,230
3,091,628
Estimated deficiency/surplus as regards creditors £ (3,041,333)
Issued and called up capital:
Ordinary shares 1,000,000
"B" Ordinary shares ---
Preference shares ---
1,000,000
Estimated total deficiency/surplus as regards members £ (4,041,333)
</TABLE>
Signature /s/ Brian John Baylis Date 18/3/96
<PAGE> 161
NOTE You must identify creditors under hire-purchase, chattel leasing or
conditional sale agreements and customers claiming amounts paid in advance of
the supply of goods or services and creditors claiming retention of title over
property in the company's possession. If there is insufficient space,
continuation sheets should be used and annexed hereto securely to the rest of
the form.
<TABLE>
<CAPTION>
Name of creditor Address Amount Details of any security Date security Value of
or claimant (with postcode) Of debt held by creditor Given security
<C> <C> <C> <C> <C> <C>
Tippex Limited Unit 5 Admiralty Way 1,824,95
Southern Trade Centre
Camberley
Surrey
Handley Printers
Limited Crosland Industrial Estate 21,933.96
125 Stockport Road West
Bredbury
Stockport
Helix Limited P.O. Box 15 16,049.86
Engine Lane
Lye
Stourbridge
West Midlands
Euro Packaging
Plc Unit m 6,432.54
Waterloo Road
Yardley
Birmingham
Artcare Limite Challenger House 9,934.47
194 Clerkenwell Close
London
Platignum Ltd 20 Greenfield 20,398.84
Royston
Herts
SG85XX
</TABLE>
Signature /s/ Brian John Baylis Date 18/3/97
<PAGE> 161
NOTE You must identify creditors under hire-purchase, chattel leasing or
conditional sale agreements and customers claiming amounts paid in advance of
the supply of goods or services and creditors claiming retention of title over
property in the company's possession. If there is insufficient space,
continuation sheets should be used and annexed hereto securely to the rest of
the form.
<TABLE>
<CAPTION>
Name of creditor Address Amount Details of any security Date security Value of
or claimant (with postcode) Of debt held by creditor Given security
<C> <C> <C> <C> <C> <C>
Holland Enterprises Ltd 18 Bourne Court 614.96
Southend Road
Woodford Green
Essex IG8 8HD
Framemaker Products Ltd Stanley Street 693.73
Buton-on-Trent
Staffs.
Maxpress Limited Danebridge Mill 7,424.89
Mill Street
Congleton
Chesshire CW12 1XX
William B Harris 5 Lea Road 39,227.50
Abingdon
Northampton NN1 4PE
Brown Watson Ltd The Old Mill 8,171.95
76 Fleckney Road
Kibworth Beauchamp
Leicester LE8 0HG
Kibworth Books 2,667.00
(MacMillan
Distribution Ltd) Houndsmills
Basingstoke
Hants. RG1 6XS
Kaleidoscope P.O. Box 76 29,480.28
Raynesway
Derby DE21 7BL
</TABLE>
Signature /s/ Brian John Baylis Date 18/3/97
<PAGE> 163
NOTE You must identify creditors under hire-purchase, chattel leasing or
conditional sale agreements and customers claiming amounts paid in advance of
the supply of goods or services and creditors claiming retention of title over
property in the company's possession. If there is insufficient space,
continuation sheets should be used and annexed hereto securely to the rest of
the form.
<TABLE>
<CAPTION>
Name of creditor Address Amount Details of any security Date security Value of
or claimant (with postcode) Of debt held by creditor Given security
<C> <C> <C> <C> <C> <C>
Flipfile Limited Unit 3, Oaktree Place 1,019.87
Matford Business Place
Exeter
Devon EX2 8WA
Silver Lynx Products Ltd Lynx House 6,501.83
10/11Amber Business Village
Amber Close
Tamworth, Staffs.
Illusion P.O. Box 481 5,549.12
Carshalton
Surrey SM5 2AB
Woolbro Distributors Ltd Prospect House 3,405.11
Victoria Road
Morley
Leeds LS27 9DB
Lambourne Limited Crossing Gates 3,674.23
Oaston Road
Nuneaton
Warwickshire CV11 6JX
Tollit & Harvey Ltd Old Meadow Road 4,148.37
Hardwick Industrial Estate
Kings Lynn
Norfolk
PE30 4LW
</TABLE>
Signature /s/ Brian John Baylis Date 18/3/97
<PAGE> 164
<TABLE>
<CAPTION>
Name of creditor Address Amount Details of any security Date security Value of
or claimant (with postcode) Of debt held by creditor Given security
<C> <C> <C> <C> <C> <C>
Gustav Botkai 21 Belfield Road 995.49
Didsbury
Manchester M20 0BJ
NES Arnold Limited Ludlow Hill Road 1,203.98
West Bridgford
Nottingham NG2 6HD
N Yeomans & Co Ltd Valley Road 5,811.94
Clacton on Sea
Essex CO15 4AG
Grandreams Ltd Jadwin House 5,236.80
205/211 Kentish Town Road
London NW5 2JU
Porth Innovations Ltd Caemawr Industrial Estate 14,471.68
Treorchy
Mid Glamorgan CF42 6EJ
Virgin Euro-
Magnetic Products Unit 5, Salbrook Road 4,304.08
Salfords
Redhill
Surrey RH1 5DY
Cathian Leather
Company Compstall Mills Estate 753.18
Andrew Street
Compstall
Stockport SK6 5HN
</TABLE>
Signature /s/ Brian John Baylis Date 18/3/97
<PAGE> 165
<TABLE>
<CAPTION>
Name of creditor Address Amount Details of any security Date security Value of
or claimant (with postcode) Of debt held by creditor Given security
<C> <C> <C> <C> <C> <C>
RMS International Ltd Unit 18, Orton Way -----
Hayward Industrial Park
Chester Road
Castle Bromwich
Birmingham
Prestige Balloon Co Ltd Unit B6 Mercia Way 9,701.06
Park Gram Road
Foxhills Industrial Estate
Scunthscope
DN15 8RE
David Halsall Plc Eastham House 28,766.18
Copse Road
Fleetwood
Lansc. FY7 7NY
Heritage Youngsley Ltd Heritage House 11,105.38
Unit 3 Marshgate Lane
London E15 2NG
</TABLE>
Signature /s/ Brian John Baylis Date 18/3/97
<PAGE> 166
THE STATIONERY COMPANY LTD
Minutes of a meeting of the Board of Directors
held on Monday 18th March 1995
Present Mr.B.J.Baylis
Mrs.S.A.M.Crisp
Mr.B.Pearson
Mr.M.Holland
In attendance Mrs. J.Lucas
1. BJB reminded the Board that under section 47 of the Insolvency Act 1986
that they were required to submit a Statement of Affairs of the Company. With
the agreement of the Receivers, a Statement had been prepared by Ian Mills
which to the best of our knowledge is a true and fair representation of the
Company's affairs as at 7th February 1996.
2. In the interests of expediency BJB had consulted Mr. Alan Pepper, The
Receivers representative who after in turn consulting their own legal advisers
confirmed that it would be in order for one member to swear the statement on
behalf of The Board.
3. IT WAS RESOLVED that the Statement of Affairs as prepared be adopted and
that BJB be instructed to Swear on behalf of the Board.
4. The being no other business, the meeting ended.
/s/ B.J.Baylis
B.J.Baylis
<PAGE> 167
Arthur
Andersen
Arthur Andersen & Co. SC
29 March 1996 ___________________
18 Charlotte Square
Edinburgh EH2 4DF
0131 225 4554 Telephone
0131 226 3948 Facsimile
Direct Line 0131 469 6246
Our ref AHP/MM/CDL/U-1
Your Ref
TO ALL CREDITORS
Dear Sirs
CORNICHE DISTRIBUTION LTD
(IN ADMINISTRATIVE RECEIVERSHIP)
Following our appointment as joint Administrative Receivers of the above
company on 28 February 1996, we are required by Section 48(2) of the
Insolvency Act 1986 to call a meeting of the unsecured creditors of the
company. The purpose of the meeting is to formally present a report covering
the events leading up to our appointment and the progress of the
receivership. We enclose formal notice of that meeting along with a copy of
the report which will be presented.
Please note this meeting is being convened solely to comply with the
requirements of Section 48(2) of the Insolvency Act 1986. It is not for the
purpose of appointing a liquidator to the company nor is it a meeting which
the directors are required to attend. No information will be presented to the
meeting other than that contained in the report.
We enclose a form of proxy for your use in connection with this meeting.
Yours faithfully
/s/ Alan D Pepper
Alan D Pepper
for lain T Watters
Joint Administrative Receiver
<PAGE> 168
NOTICE OF MEETING OF CREDITORS
CORNICHE DISTRIBUTION LTD
(IN ADMINISTRATIVE RECEIVERSHIP)
NOTICE IS HEREBY GIVEN, in pursuance of Section 48 of the Insolvency, Act
1986, that a meeting of the creditors of the above-named company will be held
at the Manchester Airport Hilton Hotel on Monday, the 15th of April 1996 at
1200pm for the purpose of having an account laid before them, showing the
events leading up to the appointment of the Joint Administrative Receivers,
the manner in which the administrative receivership has been conducted and the
property of the company disposed of, and of hearing any explanation that may
be given by the joint Administrative Receivers. A copy of the report is
enclosed with this notice.
Creditors whose claims are wholly secured are not entitled to attend or be
represented at the meeting.
A person is entitled to vote at the meeting only if
1. he has given to the Joint Administrative Receivers, not later than 12.00
hours on the business day before the day fixed for the meeting, details in
writing of the debt that he claims to be due to him from the company, and the
claim has been duly admitted.
2. there has been lodged with the Joint Administrative Receiver, any proxy
which the creditor intends to be used on his behalf.
DATED this 21st day of March 1996
/s/ Iain T Watters
Iain T Watters
Joint Administrative Receiver
<PAGE> 169
<TABLE>
<CAPTION>
<S> <C> <C>
Rule 8.1 Insolvency Act 1986 Form S.
Proxy (Administrative Receivership)
Notes to help completion
of the form
Please give full name and Name of Creditor____________________________________________
address for communication Address___________________________________________________
__________________________________________________________
__________________________________________________________
Please insert name of person Name of proxy-holder________________________________________
(who must be 18 or over) or __________________________________________________________
the "Chairman of the meeting". __________________________________________________________
If you wish to provide for __________________________________________________________
alternative proxy-holders in __________________________________________________________
the circumstances that your __________________________________________________________
first choice is unable to attend __________________________________________________________
please state the name(s) of __________________________________________________________
the alternatives as well __________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
Please delete words in I appoint the above person to be my/the creditors proxy-holder at the
brackets if the proxy-holder meeting of creditors to be brackets if theproxy-holder held on - or at any
is only to vote as directed adjournment of that meeting. The proxy-holder is to purpose or vote as
he has no discretion instructed below (and in respect of any resolution for which no specific
instruction is given, may vote or abstain at his/her discretion)
__________________________________________________________
Voting instruction for resolutions
for the appointment of ________________________________________
of ________________________________________________________
representing _______________________________________________
as a member of the Creditors' committee
This form must be signed Signature_______________________ Date________________________
Name in CAPITAL LETTERS __________________________________
Only to be completed if the Position with creditor or relationship to creditor or other authority for signature
creditor has not signed
in person
__________________________________________________________
Remember: there may be resolutions on the other side of this form
</TABLE>
FU 302.94
Issued 01/94
<PAGE> 170
Arthur
Andersen
Arthur Andersen & Co. SC
29 March 1996 ___________________
18 Charlotte Square
Edinburgh EH2 4DF
0131 225 4554 Telephone
0131 226 3948 Facsimile
Direct Line 0131 469 6246
Our ref ADP/CDL/U-1 cc SE
TO ALL KNOWN CREDITORS
Your Ref
Dear Sirs
Corniche Distribution Limited (In Administrative Receivership) ("Corniche")
1. INTRODUCTION
1.1 I, lain T Watters and my partner, Gordon Christie of Arthur Andersen
were appointed Joint Administrative Receivers of Corniche Distribution Ltd
("the Company") by the Bank of Scotland ("the Bank") on 28 February 1996 under
the powers contained in a Debenture dated 7 April 1995.
As required by Section 48 of the Insolvency Act 1986, we now present our
report to the creditors. The remainder of the report is set out as follows:
2. Background to the Company
3. Events, so far as we are aware, leading to our appointment
4. Directors' Statement of Affairs
5. Carrying on of the Company's business and disposal of assets
6. Amounts due to security holders
7. Amounts payable to preferential creditors
8. Amounts likely to be available for the payment of a dividend
to other creditors
9. Directors' conduct
2. BACKGROUND TO THE COMPANY
2.1 The principal activity of the Company was that of a holding company
for its two trading subsidiaries, The Stationer), Company Limited and
Chessbourne International Limited, to which we were appointed Administrative
Receivers/Receivers prior to our appointment to Corniche. The Company
operated from an office in Wallington, Surrey and owned a property in Leek,
Staffordshire from which the subsidiaries operated.
<PAGE> 171
TO ALL KNOWN CREDITORS 29 March 1996
2.2 The Company was incorporated on 30 March 1992 in order to exploit
opportunities in the retail stationery and allied business sectors. Corniche
subsequently acted as the holding company for two trading companies, The
Stationery Company Ltd, set up in September 1992 and Chessbourne International
Ltd, which became a subsidiary in October 1993. As a result of a reverse
takeover in March 1995, the directors, and sole shareholders, of the Company
became the majority shareholders in Corniche Group Inc., the Company's parent
which is registered in the USA and quoted on the NASDAQ securities market.
2.3 Latterly, the Company was a party to a conditional sale agreement for
the purchase of the shares of Kassel Ltd ("Kassel"), a small retail stationery
chain. The conditions were never fulfilled and the shareholders of Kassel
rescinded the agreement in January of this year.
2.4 The Directors holding, office during the period of 3 years prior to
our appointment, to the best of our knowledge, were as follows:-
Date of Appointment Date of Resignation
Brian J Baylis 22/04/92 -
Susan A M Crisp 22/04/92 -
2.5 The shareholders of the Company at the date of our appointment and at
the filing of the last accounts (27 March 1994) were as follows:-
Date of Appointment 27 March 1994
Brian J Baylis 80
Susan A M Crisp 20
Corniche Group Inc. 2,500,000
2.6 The following financial information has been extracted from the
accounts of the Company:-
<TABLE>
<CAPTION>
Draft Management
Accounts for the Draft Accounts Audited accounts
24 weeks to for the year ended for the year ended
9 September 1995 25 March 1995 27 March 1994
£ £ £
<S> <C> <C> <C>
Directors'
Remuneration Not Available 60,932 60,932
Fixed Assets 2,155,643 1,569,158 593,624
Current Assets 1,993,968 2,653,666 17,100
Creditors
and Provisions (1,674,722) (1,781,885) (446,156)
NET Assets 2,474,889 2,440,939 161,568
</TABLE>
<PAGE> 172
TO ALL KNOWN CREDITORS 29 March 1996
3. EVENTS, SO FAR AS WE ARE AWARE, LEADING TO OUR APPOINTMENT
3.1 The Company carried out no trading activities, its sole activity
being that of a holding company with its only material assets consisting of its
investments in the two subsidiaries, the property at Leek and amounts
receivable from its US parent company, Corniche Group Inc. ("CGI"). As a
result of the losses being made by its subsidiaries, the Company in turn had
incurred losses over a number of years.
3.2 With the appointment of Administrative Receivers/Receivers to the two
subsidiary companies it became obvious that the investments in these companies
were worthless and with their write down to nil value, combined with doubts as
to the recoverability of monies due from the parent company, the Company
became insolvent on a balance sheet basis. Furthermore, the Company no longer
had access to funding from its subsidiaries' operations and no other sources
of finance were available.
3.3 As a result, the directors requested the Bank to appoint
Administrative Receivers and, accordingly, we were appointed Joint
Administrative Receivers on 28 February 1996.
4. DIRECTORS' STATEMENT OF AFFAIRS
4.1 The Directors have complied with their responsibilities in accordance
with Section 47 of the Insolvency Act 1986 and ha ve provided us with a
Statement of Affairs of the Company in the prescribed form, which is
summarised in Appendix 1.
4.2 The following aspects of the Statement of Affairs prepared by the
Directors are, in our opinion, incorrectly stated:-
* The valuation of the property is based on a valuation carried out
in excess of one year ago. Our agents have valued the property at
£100,000
* The Statement of Affairs does not provide for the necessary costs
of preservation and realisation of the Company's assets.
* The figures stated for the banks' debt do not accord with the
claims received from the banks as disclosed in Section 6 below.
<PAGE> 173
TO ALL KNOWN CREDITORS 29 March 1996
4.3 As a consequence of the above, the statement is inaccurate in
relation to dividend prospects for the various classes of creditors. At
present, notwithstanding that there are a number of substantial matters
remaining outstanding in this case , it is clear that there will be no funds
available to ordinary creditors.
5. CARRYING ON OF THE COMPANY'S BUSINESS AND DISPOSAL OF ASSETS
5.1 The Company's sole business was that of an intermediary holding
company and, with the business and assets of the subsidiary companies under
the control of Receivers/Administrative Receivers, no operational business
remained.
5.2 The sole substantive asset of the Company is a property located in
Leek, Staffordshire, over which Lloyds Bank plc holds a fixed charge. This
property was used as the operational base for both The Stationery Company Ltd
and Chessbourne International Ltd. With the cessation of the business of both
companies, the property is no longer in use and we are making efforts to sell
it.
5.3 As at the date of our appointment, the Company's records showed a
receivable from the US parent company, CGI of £1,990,112 in respect of a
contested share issue. The financial position of CGI is uncertain given that
it has no substantive assets other than its investments in the UK
subsidiaries. and accordingly we have agreed a settlement of £50,000 in
respect of the unpaid debt. This settlement figure was the subject of an
affirmative opinion by an independent accountant after analysis of CGI's most
recent balance sheet. There is unlikely to be any further recovery from this
source.
5.4 The remaining assets, including motor vehicles and furniture have
been disposed of.
6. AMOUNTS DUE TO SECURITY HOLDERS
6.1 Lloyds Bank plc holds a prior ranking fixed charge over the property
at Leek. The amount outstanding at the date of our appointment was
£92,464.
6.2 The amount due to Bank of Scotland plc at the date of our appointment
was as follows:-
Capital £194,635
Interest has continued to accrue on the outstanding balance since our
appointment and is covered under the Bank's Debenture.
<PAGE> 174
TO ALL KNOWN CREDITORS 29 March 1996
7. AMOUNTS PAYABLE TO PREFERENTIAL CREDITORS
7.1 At the date of our appointment to the Company the preferential
creditors were estimated as follows:-
£
Inland Revenue - PAYE/NIC 51,501
H M Customs &- Excise - VAT 3,825
Employees 4,566
Total 59,892
7.2 Whilst Crown creditors have yet to lodge their formal preferential
claims, we are not aware at this stage of any reason why these should
significantly vary from the above.
8. AMOUNTS LIKELY TO BE AVAILABLE FOR THE PAYMENT OF A DIVIDEND TO OTHER
CREDITORS
8.1 Based on current estimates the prior ranking fixed charge holder will
be paid in full. It is clear, however, that there will be a shortfall as
regards the second fixed char-e holder. In addition there is no prospect
whatsoever of a dividend being available to preferential or ordinary
creditors.
8.2 Creditors should note that they may recover VAT on supplies made
after 1 April 1989 providing that the debt is over six months old and has been
fully written off in their accounts. Full details of the reclaim procedure are
available from HM Customs & Excise on request.
9. DIRECTORS' CONDUCT
9.1 In terms of the Directors Disqualification Act 1986, Receivers are
required to prepare a report on the conduct of those individuals who have been
directors, or shadow directors, of an insolvent company in the three year
period prior to their appointment. If any creditor is aware of any matters
which they believe should be brought to our attention in this regard, they
should supply details to us in writing.
Yours faithfully
/s/ Iain T Watters
lain T Watters
Joint Administrative Receiver
<PAGE> 175
<TABLE>
<CAPTION>
Corniche Distribution Ltd. (In Administrative Receivership) APPENDIX 1
Directors' Statement of Affairs as at 28 February 1996
BOOK ESTIMATED
VALUE TO REALISE
<S> <C> <C>
ASSETS SPECIFICALLY PLEDGED
Freehold Property 164,000 150,000
164,000 150,000
MORTGAGE HOLDER - LLOYDS BANK (86,162) (86,162)
SURPLUS/DEFICIT AS REGARDS MORTGAGE HOLDER 77,838 63,838
ASSETS SUBJECT TO FIXED CHARGE
Investment in Chessbourne International Limited 291,360 0
Investment in the Stationery Company Limited 1,000,000 0
Investment in Kassel Limited 9,597 0
Other debtors and prepayments 22,432 0
Amount due from Corniche Group, Inc. 1,990,112 0
3,313,501 0
FIXED CHARGE HOLDER - BANK OF SCOTLAND (191,936) (63,838)
SURPLUS AS REGARDS FIXED CHARGE HOLDER 3,199,403 0
ASSETS SUBJECT TO FLOATING CHARGE
Plant, machinery & equipment 8,800 2,000
Motor vehicles 718 8,000
9,518 10,000
AVAILABLE TO PREFERENTIAL CREDITORS 3,253,609 10,000
PREFERENTIAL CREDITORS
Inland Revenue (51,501) (51,501)
HMC&E (3,825) (3,825)
Employees (4,566) (4,566)
(59,892) (59,892)
AVAILABLE TO FLOATING CHARGE HOLDER 3,193,717 (49,892)
FLOATING CHARGE HOLDER - BANK OF SCOTLAND (128,098)
AVAILABLE TO UNSECURED CREDITORS 3,193,717 (177,990)
UNSECURED CREDITORS (1,544,206)(1,544,206)
DEFICIT AS REGARDS UNSECURED CREDITORS 1,649,511 (1,721,196)
</TABLE>
<PAGE> 176
Arthur
Andersen
Arthur Andersen & Co. SC
7 May 1996 ___________________
18 Charlotte Square
Edinburgh EH2 4DF
0131 225 4554 Telephone
0131 226 3948 Facsimile
Direct Line 0131 469 6246
Our ref ADP/CDL/U-1 cc SE
TO ALL KNOWN CREDITORS
Your Ref
Dear Sirs
Corniche Distribution Limited (In Administrative Receivership)
1. Meeting of Creditors
In accordance with Section 48 of the Insolvency Act 1986 a meeting of
Creditors of the above Company was held at the Manchester Airport Hilton
Hotel in Manchester on 15 April 1996.
2. Committee of Creditors
The Creditors present at the meeting decided not to elect a Committee of
Creditors.
3. VAT Bad Debt Relief
I refer to Section 8.2 of the Creditors Report previously circulated
regarding the recovery of VAT on bad debts.
Yours faithfully
/s/ Iain T Watters
Iain T Watters
Joint Administrative Receiver
<PAGE> 177
Arthur
Andersen
Arthur Andersen & Co. SC
29 March 1996 ___________________
18 Charlotte Square
Edinburgh EH2 4DF
0131 225 4554 Telephone
0131 226 3948 Facsimile
Direct Line 0131 469 6246
Our ref ADP/SCL/U-1 cc SE
TO ALL KNOWN CREDITORS
Your Ref
Dear Sirs
The Stationery Company Limited (In Administrative Receivership) ('SCL')
1. INTRODUCTION
1.1 I, Iain T Watters and my partner, Gordon Christie, of Arthur
Andersen were appointed Joint Receivers of The Stationery Company Limited (the
Company') by the Bank of Scotland ("the Bank") on 7 February 1996 under powers
contained in a Debenture dated 16 November 1993.
1.2 As required by Section 48 of the Insolvency Act 1986, we now present
our report to the creditors. The reminder of the report is set out as
follows:-
2. Background to the Company;
3. Events, so far as we are aware, leading to our appointment
4. Directors' Statement of Affairs;
5. Carrying on of the company's business and disposal of assets;
6. Amounts due to the Debenture Holder,
7. Amounts due to preferential creditors,
8. Amounts likely to be available for the payment of a dividend to
other creditors;
9. Directors' conduct.
2. BACKGROUND TO THE COMPANY
2.1 The Stationery Company Limited was incorporated on 15 July 1992 with
its principal activity being the retail sale of stationery products. The
Company's strategy was for growth through acquisition and it subsequently
acquired the businesses of two smaller retail stationery chains, Memo and
Stationery Plus. Ultimately it operated from 22 leased retail sites spread
throughout England and had its head office and warehouse in lease premises in
Leek, Staffordshire.
<PAGE> 178
TO ALL KNOWN CREDITORS 29 March 1996
2.2 The Directors holding office during the period of 3 years prior to our
appointment, to the best of our knowledge, were as follows:-
<TABLE>
<CAPTION>
Date of Appointment Date of Resignation
<S> <C> <C>
Julie P Lucas 23/11/94 08/01/96
Brian J Baylis 16/09/92 -
Susan A M Crisp 16/09/92 -
Bruce Pearson 01/01/94 -
Martin Holland 23/11/94 -
</TABLE>
2.3 No directors had an interest in shareholdings in the Company, except as
nominee. The shareholders at the date of our appointment were:-
Shareholding
Corniche Distribution Ltd 999,999
Corniche Distribution Ltd &
Brian J Baylis 1
2.4 The following financial information has been extracted from the accounts
of the Company:-
<TABLE>
<CAPTION>
Management Accounts Draft Accounts Audited Accounts
for 32 Weeks to for the year ended for the year ended
3 November 1995 25 March 1995 27 March 1994
£ £ £
<S> <C> <C> <C>
Turnover 3,150,372 4,234,117 346,816
Profit/(Loss)
before Tax (956,394) (373,112) (206,590)
Directors'
Remuneration Not available 47,344 27,925
Fixed Assets 659,592 709,117 692,626
Current Assets 3,561,999 2,682,592 776,690
Creditors and
Provisions (4,076,547) (2,539,599) (924,557)
Net Assets/
(Liabilities) 145,044 85,110 544,752
</TABLE>
<PAGE> 179
TO ALL KNOWN CREDITORS 29 March 1996
3. EVENTS, SO FAR AS WE ARE AWARE, LEADING TO OUR APPOINTMENT
3.1 The Company had encountered trading difficulties for some considerable
time and was suffering significant cash flow difficulties partly as a result
of non payment of a debt due from an associated company, Kassel Ltd. As a
result of these difficulties the Company was unable to stock its retail units
to an appropriate level and accordingly, sales declined to the extent that
many of the retail units, except for peak sales periods, could not generate
sufficient funds to cover local fixed overheads. As a result, and as
indicated above, the Company incurred significant trading losses in the period
to 3 November 1995.
3.2 It Is our understanding that from October 1995 the Directors attempted
to refinance the Company with a view to ensuring the survival of the
business. In this regard, the Directors held discussions with the Board of
the ultimate parent company, Corniche Group Inc., a company registered in the
USA, along with that company's investment bankers. Unfortunately, funds were
not forthcoming from this source and the Bank was not willing to advance any
further funds based on their existing security.
3.3 In the absence of any other sources of funding and in the face of
mounting pressure from creditors, the Directors were forced to request the
Bank to appoint A Administrative Receivers under the terms of its Debenture.
Accordingly, we were appointed Joint Administrative Receivers on 7 February
1996.
4. DIRECTORS' STATEMENT OF AFFAIRS
4.1 The Directors have complied with their responsibilities under Section
47 of the Insolvency Act, 1986, and provided us with a Statement of Affairs of
the Company in the prescribed form which is summarised in Appendix 1.
4.2 The following aspects of the Statement of Affairs prepared by the
Directors are, in our opinion, incorrectly stated:-
* Leasehold assets are significantly overvalued at book value due to
the inclusion of a number of shops recently purchased at values
significantly in excess of the assets assumed. In addition, the
value of the assets includes large capital costs which are coverable.
This has resulted in a significant overstatement in the reasonable
value of leasehold assets.
<PAGE> 180
TO ALL KNOWN CREDITORS 29 March 1996
* The reasonable value of stock is shown as nil. As noted below, our
subsequent sale of the business included the sale of the Company's
stationery stock from both the stores and the Company's warehouse
at a reasonable discount on cost.
* Trade debtors assumes a substantial recovery from the previously
associated company, Kassel Ltd which we consider unlikely, after a
review of that company's recent financial statements.
* The Statement of Affairs does not provide for the necessary costs
of preservation and realisation of the Company's assets including
specifically substantial costs associated with the sale of the
business.
4.3 As a consequence of the above, the statement is inaccurate in relation
to dividend prospects for the various classes of creditors. At present,
notwithstanding that there are a number of substantial matters remaining
outstanding in this case, there is little likelihood that there will be funds
available to ordinary creditors.
5. CARRYING ON THE COMPANY'S BUSINESS AND DISPOSAL OF ASSETS
5.1 Immediately on appointment and because of the time constraints that
existed in order to maintain the goodwill and viability of the business and
thus the value of the Company's assets, we entered into negotiations with a
third party who had expressed an interest in purchasing the business prior to
our appointment. It became readily apparent that concluding this agreement
would be in the interests of the creditors as it was at a value far higher
than would have been anticipated had we been required to trade the business
and to enter into negotiations with a number of parties. A quick sale also
precluded the associated costs of trading the business over an extended
period. Accordingly, the business and assets of 18 of the Company's 22
remaining operational stores were sold to Stationery Box Ltd with effect from
the date of our appointment along with all of the Company's stock.
5.2 As stated above, the bulk of the business and assets of the Company
were sold to Stationery Box Ltd. We were advised by our agents that the
remaining leased retail units had no market value and we are currently in the
process of surrendering these leases to the respective landlords.
5.3 There have been a number of other minor realisations including the
sale of plant, machinery and equipment and the recovery of some small
outstanding debts.
<PAGE> 181
TO ALL KNOWN CREDITORS 29 March 1996
6. AMOUNTS DUE TO THE DEBENTURE HOLDER
6.1 The amount due to the Bank of Scotland plc at the date of our
appointment was as follows:-
Overdraft £ 234,117
Interest has continued to accrue on the outstanding balance
since our appointment and is covered under the Bank's Debenture.
7. AMOUNTS DUE TO PREFERENTIAL CREDITORS
7.1 At the date of our appointment to the Company the preferential
creditors were estimated as follows:-
£
Inland Revenue - PAYE/NIC 120,639
H M Customs & Excise - VAT 165,099
Employees 100,475
Pension Scheme 322
TOTAL 38,535
7.2 Whilst Crown creditors have yet to lodge their formal preferential claims,
we are not at this stage aware of any reason why these should significantly
vary from the above.
8. AMOUNTS LIKELY TO BE AVAILABLE FOR THE PAYMENT OF A DIVIDEND TO OTHER
CREDITORS
8.1 Based on current estimates it is clear that the Fixed Charge holder
will be paid In full. It is likely, however, that there will be a significant
shortfall to the preferential creditors, Accordingly, there is little
likelihood of a dividend being available to ordinary creditors.
8.2 Creditors should note however, that they may recover VAT on supplies
made after 1 April 1989 providing that the debt is over six months old and has
been fully written off in their accounts. Full details of the VAT reclaim
procedure are available from HM Customs & Excise on request.
<PAGE> 182
TO ALL KNOWN CREDITORS 29 March 1996
9. DIRECTORS' CONDUCT
9.1 In terms of the Directors Disqualification Act 1986, Receivers are
required to prepare a report on the conduct of those individuals who have been
Directors, or Shadow Director, of an insolvent company in the three year
period prior to their appointment. If any creditor is aware of any matters
which they believe should be brought to our attention in this regard, they
should supply details to us in writing.
Your faithfully
/s/ Iain T Watters
lain T Watters
Joint Administrative Receiver
<PAGE> 183
<TABLE>
<CAPTION>
The Stationery Company Ltd (In Administrative Receivership) Appendix 1
Directors' Statement of Affairs as at 7 February 1996
ESTIMATED
BOOK VALUE TO REALISE
<S> <C> <C>
ASSETS SUBJECT TO FIXED CHARGE
Freehold 18,656 0
Leasehold Assets 800,573 500,000
Fixtures & Fitting 344,902 0
Plant & Equipment 5,530 0
Trademarks 1,177 0
Stocks 348,300 0
Trade Debtors 1,394,106 155,000
Other debtors 311,560 15,000
Amounts due from Group Companies 52,175 0
3,266,979 670,000
AVAILABLE TO FIXED CHARGE HOLDER 3,266,979 670,000
FIXED CHARGE HOLDER - BANK OF SCOTLAND (233,170) (233,170)
SURPLUS/(DEFICIT) AS REGARDS FIXED CHARGE HOLDER 3,033,809 436,830
ASSETS NOT SPECIFICALLY PLEDGED
New store set up cost 17,585 0
AVAILABLE TO PREFERENTIAL CREDITORS 3,051,394 436,830
PREFERENTIAL CREDITORS
Inland Revenue (120,639) (120,639)
HMC&E (165,099) (165,099)
Employees (100,475) (100,475)
Pension Scheme (322) (322)
(368,535) (386,535)
AVAILABLE TO UNSECURED CREDITORS 2,644,859 50,249
UNSECURED CREDITORS (3,091,628) (3,091,628)
DEFICIT AS REGARDS TO UNSECURED CREDITORS
(426,769) (3,041,333)
</TABLE>
<PAGE> 184
Arthur
Andersen
Arthur Andersen & Co. SC
29 March 1996 ___________________
18 Charlotte Square
Edinburgh EH2 4DF
0131 225 4554 Telephone
0131 226 3948 Facsimile
Direct Line 0131 469 6246
Our ref ADP/CHE/U-1 cc SE
TO ALL KNOWN CREDITORS
Your Ref
Dear Sirs
Chessbourne International Limited (In Receivership)
1. INTRODUCTION
1.1 I, lain T Watters and my partner, Gordon Christie, of Arthur Andersen
were appointed joint Receivers of Chessbourne International Limited ('the
Company") by the Bank of Scotland (the Bank) on 7 February 1996 under the
powers contained in a Floating Charge dated 27 March 1987.
As required by Section 67 of the Insolvency Act 1996, we now present our
report to the creditors. The remainder of the report is set out as follows:-
2. Background to the Company
3. Events, so far as we are aware, leading to our appointment
4. Directors' Statement of Affairs
5. Carrying on of the Company's business and disposal of assets
6. Amounts due to the Floating Charge Holder
7. Amounts payable to preferential creditors
8. Amounts likely to be available for the payment of a dividend to
other creditors
9. Directors' conduct
2. BACKGROUND TO THE COMPANY
2.1 The Company was incorporated on 22 January 1987 as Hope Sixteen (No.
105) Ltd in order to acquire the wholesale stationery business of the Okhai
Group in a management buyout. It subsequently became it subsidiary of Corniche
Distribution Limited in October 1993.
<PAGE> 185
TO ALL KNOWN CREDITORS 29 March 1996
2.1 The principal activity of the Company continued to be the wholesale of
stationery products, ultimately operating from premises in Leek,
Staffordshire; Wallington, Surrey and third party warehouse facilities in
Stanton, Essex.
2.2 The Directors holding office during the period of 3 years prior to our
appointment, to the best of our knowledge, were as follows:-
<TABLE>
<CAPTION>
Date of Appointment Date of Resignation
<S> <C> <C>
Martin Holland 12/03/87 -
Brian J Baylis 20/07/92 -
Susan A M Crisp 07/10/93 -
David A Crisp 07/10/93 28/04/95
David D Ferguson 01/04/95 01/12/95
Karen Sparkes 16/12/94 -
Alan Barclay 26/06/91 08/10/93
David A Walker 12/03/87 15/10/93
Bruce Linton 12/03/87 06/05/94
Alasdair MacCallum 01/05/87 06/05/94
</TABLE>
2.3 Shareholders as at the date of our appointment were as follows:
<TABLE>
<CAPTION>
Ordinary "B" Ordinary CRPS
<S> <C> <C> <C>
Ash Ltd 186,138 14,737
Bank of Scotland plc 675,000 75,000
Corniche Distribution Ltd 127,500 186,138 14,737
Dundee Property Company Ltd 199,750 9,164
Martin Holland 17,794 412
Bruce Linton 10,774 666
Ronatree Ltd 122,500
David Walker 10,774 666
Total 250,000 1,286,386 115,382
</TABLE>
<PAGE> 186
TO ALL KNOWN CREDITORS 29 March 1996
2.4 The following financial information has been extracted from the
accounts of the Company:-
<TABLE>
<CAPTION>
Draft Accounts for
Management Accounts the 15 months Audited Accounts
for 32 Weeks to ended for the year ended
3 November 1995 26 March 1995 27 March 1993
£ £ £
<S> <C> <C> <C>
Turnover 3,587,669 11,202,955 10,960,640
Profit/(Loss)
before Tax (804,378) (443,609) (5,453)
Directors'
Remuneration 216,466 22,855 136,724
Fixed Assets 106,347 152,770 97,315
Current Assets 3,008,179 4,000,750 3,743,437
Creditors and
Provisions (4,370,378) (4,590,961) (3,834,584)
Net Assets/
(Liabilities) (1,255,852) (437,441) (6,168)
</TABLE>
3. EVENTS, SO FAR AS WE ARE AWARE, LEADING TO OUR APPOINTMENT
3.1 The Company had encountered trading difficulties for some considerable
time, primarily as a result of large intercompany sales to its sister company,
The Stationery Company Limited and to an associated company, Kassel Ltd for
which payment had not been received. Consequently the Company's records at
the date of our appointment showed debts due from The Stationery Company Ltd
of £1,281,515 and Kassel Ltd of £147,357. As a consequence of the
cash flow ties caused, the Company was unable to source an appropriate level
and range of stock from its suppliers and this was reflected in a marked
reduction in turnover as demonstrated in the historical financial information
shown above.
3.2 It is our understanding that in the period from October 1995 until our
appointment the Directors had been seeking to conclude a refinancing agreement
which would have resulted in the survival of the business. However, the
parties involved in these discussions, being Corniche Group Inc., the
Company's ultimate parent and that company's investment bankers failed to
agree a rescue package and the Directors were thus forced, due to the lack of
alternative sources of funding, to request the bank to
<PAGE> 187
TO ALL KNOWN CREDITORS 29 March 1996
appoint Receivers under the terms of their Floating Charge. Accordingly, we
were appointed Joint Receivers on 7 February 1996.
4. DIRECTORS' STATEMENT OF AFFAIRS
4.1 The Directors have complied with their responsibilities in accordance
with Section 66 of the Insolvency Act 1986 and provided us with a Statement of
Affairs of the Company In the prescribed form, which is summarised in Appendix
1.
4.2 The following aspects of the Statement of Affairs prepared by the
Directors are, in our opinion, incorrectly stated:-
* Trade Debtors includes items which were intended to be written off
in the Company's accounts and are irrecoverable. The book value shown
also includes the debt due from Kassel which, as noted below in para
5.5, is unlikely to be recovered.
* Stock held at the date of our appointment was of poor quality and
consisted mainly of old, non-marketable lines of which there were bulk
quantities. Accordingly the amount recoverable from the disposal of this
stock will be considerably less than that shown in the Statement of
Affairs.Furthermore, as shown below, our estimate of the book value
of this stock varies from that incorporated in the Statement of Affairs.
* HM Customs & Excise have submitted a preferential claim amounting
to £39,489, approximately £20,000 greater than that shown
on the Statement of Affairs.
4.3 As a consequence of the above, the statement is inaccurate in relation
to dividend prospects for the various classes of creditors. At present,
notwithstanding that there are a number of substantial matters remaining
outstanding in this case, it is clear that there will be no funds available to
ordinary creditors.
5. CARRYING ON OF THE COMPANY'S BUSINESS AND DISPOSAL OF ASSETS
5.1 As noted above, the Company's business had been eroded to such an
extent that no viable business remained. Nevertheless, we contacted it number
of parties in the stationery business with a view to selling the remaining
business and assets as a going concern. Unfortunately, no interest was
forthcoming and we have had no option but to carry on limited trading by way
of stock disposal in order to preserve the value of the assets.
<PAGE> 188
TO ALL KNOWN CREDITORS 29 March 1996
5.2 Approximately £550,000 (at cost) of stationery stock was located
at the Company's third party warehouser McGregor Cory, at the date of our
appointment. At that date McGregor Cory were owed £38,134 in respect of
unpaid storage and distribution charges and under the terms of the National
Association of Warehousers Conditions of Contract had exercised a valid lien
over the goods contained in the warehouse. We were forced to agree a
settlement prior to being able to dispose of the stock. In addition one
supplier, Farfalla Trading Ltd, held a valid retention of title claim over
£1 18,500 worth of stock (this is disclosed in the Directors' Statement
of Affairs as it specifically asset with a book value of £189,591 which
does not accord with our valuation; the Statement of Affairs also discloses as
specifically secured a trade debtor of £7,170 due to Farfalla on which
we are currently taking legal advice). There was no equity in this stock and
accordingly it was returned to Farfalla. The bulk of the remainder of the
stationery stock has now been disposed of and we are currently exploring
avenues for the disposal of the final stock items.
5.3 A small quantity of furniture held at the Company's leased warehouse
in Bailleston, Glasgow has also been disposed of.
5.4 The vast bulk of the debts due at the date of our appointment related
to The Stationery Company Ltd and Kassel Ltd. We were also appointed Joint
Administrative Receivers of The Stationery Company Ltd on 7 February 1996, and
our initial investigations have shown that there is little prospect of a
dividend from that company in respect of the debt due.
5.5 Kassel Ltd was managed by The Stationery Company Ltd under a
management agreement which was treated by the directors of Kassel on or about
the middle of January 1996. The Company's records at the date of our
appointment showed a receivable of £147,297 from Kassel; however, our
investigations have shown that Kassel is currently in an uncertain financial
position and accordingly it is our opinion that there is little prospect of a
recovery in that area.
5.6 Third party debtors at the date of our appointment amounted to
£220,523 consisting of 170 accounts. The Company had, however, failed
to process a number of adjustments amounting to £124,388 of debt which
had been identified to be written off. Accordingly, the maximum amount
recoverable would be £96,135, We are aggressively attempting to recover
this money, however, the very nature of the debts (small amounts owed by small
Companies) prohibits costly recovery action being taken. Accordingly, we do
not expect to recover more than £66,600 from this area.
<PAGE> 189
TO ALL KNOWN CREDITORS 29 March 1996
6. AMOUNTS DUE TO THE FLOATING CHARGE HOLDER
6.1 The amount due to Bank of Scotland plc at the date of our
appointment was as follows--
Term Loan £2,063,440
Overdraft 1,063,259
Wages Account 72,794
Total £3,199,493
Interest has continued to accrue on the outstanding balance since our
appointment and is covered under the Bank's Floating Charge.
7. AMOUNTS PAYABLE TO PREFERENTIAL CREDITORS
7.1 At the date of our appointment to the Company the Directors estimated
the preferential creditors as follows:-
£
Inland Revenue - PAYE 91,890
H M Customs & Excise - VAT 19,712
Employees 19,712
Pension Scheme 2,612
Total £133,926
7.2 While all Crown creditors have yet to lodge their formal preferential
claims, with the exception of HM Customs & Excise who, as noted at para 4.2
have lodged a claim in excess of that shown, we are not aware at this stage of
any reason why any of the other balances should significantly vary from the
above.
8. AMOUNTS LIKELY TO BE AVAILABLE FOR THE PAYMENTS OF A DIVIDEND
TO OTHER CREDITORS
8.1 Based on current estimates it is clear that whilst preferential
creditors are likely to be paid in full there will be a substantial shortfall
to the Floating Charge holder. Accordingly, there is no prospect whatever of
a dividend being available to ordinary creditors.
8.2 Creditors should note that they may recover VAT on supplies made after
1 April 1989 providing that the debt is over six months old and has been fully
written off in their accounts. Full details on the reclaim procedure are
available from HM Customs & Excise an request.
<PAGE> 190
TO ALL KNOWN CREDITORS 29 March 1996
9. DIRECTORS' CONDUCT
9.1 In terms of the Directors Disqualification Act of 1986, Receivers are
required to prepare a report on the conduct of those individuals who have been
directors, or shadow directors, of an insolvent company in the three year
period prior to their appointment. If any creditor is aware of any matter
which they believe should be brought to our attention in this regard, they
should supply details to us in writing.
Yours faithfully
/s/ lain T Watters
lain T Watters
Joint Receiver
<PAGE> 191
<TABLE>
<CAPTION>
Chessbourne International Ltd (In Receivership) Appendix 1
Directors' Statement of Affairs as at 7 February 1996
ESTIMATED
BOOK VALUE TO REALISE
<S> <C> <C>
ASSETS SPECIFICALLY SECURED
Stock 189,591 198,591
Trade Debtors 7,170 7,170
196,761 196,761
AMOUNTS DUE TO SECURITY HOLDER (196,761) (196,761)
SURPLUS AS REGARDS SPECIFIC SECURITY HOLDER 0 0
ASSETS SUBJECT TO FLOATING CHARGE
Trade Debtors 333,139 136,000
Loans and Advances 1,428,872 0
Stock 659,343 400,000
Other debtors and prepayments 111,359 8,800
Leasehold Property 241 0
Plant, Machinery and vehicles 92,258 15,000
2,625,212 559,800
AVAILABLE TO PREFERENTIAL CREDITORS 2,625,212 559,800
PREFERENTIAL CREDITORS
Inland Revenue (91,890) (91,890)
HMC&E (19,712) (19,712)
Employees (19,912) (19,712)
Pension Scheme (2,612) (2,612)
(133,926) (133,926)
AVAILABLE TO FLOATING CHARGE HOLDER 2,491,286 425,874
FLOATING CHARGE HOLDER - BANK OF SCOTLAND (3,155,635) (3,155,635)
DEFICIT AS REGARDS FLOATING CHARGE HOLDER (664,349) (2,729,761)
UNSECURED CREDITORS (885,839) (885,839)
DEFICIT AS REGARDS UNSECURED CREDITORS (1,550,188) (3,615,600)
</TABLE>
<PAGE> 193
MUTUAL RELEASE
KNOW ALL MEN BY THESE PRESENTS:
That Whereas:
A. Corniche Group Incorporated, a Delaware corporation ("CGI")
borrowed UK£50,000 from The Bank of Scotland (the "Bank") and in
consideration therefor issued to the Bank CGI's promissory note dated in
February 1996 (the "Note") providing for, among other things, maturity in
August 1996 and an annual rate of interest calculated at 2% above the 3-month
London Interbank Offered Rate ('LIBOR") ascertained at specified times; and
B. The Bank advised CGI that it would accept in full satisfaction and
discharge of all principal, accrued interest and any and all others sums which
may be due under the Note the sum of US$ 89,374.49, payable in lawful money
of the United States and in same day funds on the date hereof; and
C. CGI has this day made payment herewith to the Bank of the amount
set forth in Preamble B above, in accordance with the terms specified therein,
and in full satisfaction and discharge of the obligations specified therein.
Now, Therefor:
CORNICHE GROUP INCORPORATED
JAMES FYFE
(the said corporation and individuals,
together with their respective
executors, administrators, successors and
assigns collectively jointly, and severally
the "CGI Group")
and
THE GOVERNOR AND COMPANY OF
THE BANK OF SCOTLAND
(the said corporation together with its
successors and assigns, collectively,
jointly, and severally the "Bank Group")
for good and valuable consideration, the receipt of which is acknowledged each
from the other, have entered into the agreements of release set forth below.
<PAGE> 193
1. The CGI Group and each and every one of them respectively do, by
these presents, remise, release and forever discharge the Bank Group and each
and every one of them from all liabilities, accounts, causes of action, sums
of money, reckonings, contracts, controversies, agreements, damages,
judgments, executions, claims, demands, debts, obligations, promises,
covenants, actions and undertakings, in law or in equity, which against the
Bank Group and each and every one of them the CGI Group and each and every one
of them ever had, now have or hereafter can, shall or may have, for or by
reason of any matter, cause or thing whatsoever, up to and through the date
hereof.
2. The Bank Group and each and every one of them respectively do, by
these presents, remise, release and forever discharge the CGI Group and each
and every one of them from all liabilities, accounts, causes of action, sums
of money, reckonings, contracts, controversies, agreements, damages,
judgments, executions, claims, demands, debts, obligations, promises,
covenants, actions and undertakings, in law or in equity, which against the
CGI Group and each and every one of them the Bank Group and each and every one
of them ever had, now have or hereafter can, shall or may have, for or by
reason of any matter, cause or thing whatsoever, up to and through the date
hereof.
3. In the event the payment to the Bank referred to in Preamble B
must be returned, repaid or disgorged to the CGI Group, a trustee or any other
person, in whole or in part, Sections 1 and 2 hereof shall be null and void
and of no force or effect.
In Witness Whereof, the parties have caused these presents to be executed
by the following persons thereunto duly authorized as of January 30, 1997.
CORNICHE GROUP INCORPORATED
By: /s/ James Fyfe
JAMES FYFE, Vice President
/s/ James Fyfe
JAMES FYFE
THE GOVERNOR AND COMPANY OF
THE BANK OF SCOTLAND
By /s/ John Kelly
<PAGE> 194
AGREEMENT
among
CORNICHE GROUP INCORPORATED
CORNICHE DISTRIBUTION LIMITED
(IN ADMINISTRATIVE RECEIVERSHIP)
and
THE RECEIVERS THEREOF
Dorman Jeffrey & Co
Solicitors
Glasgow
4/AGG.159/ym
<PAGE> 195
<TABLE>
<CAPTION>
INDEX
Clause Heading Page
<C> <C> <C>
Parties 1
Preambles 1
1. Interpretation
2. Conditions Predent
3. Completion
4. Settlement of the Claim
5. Receivers
6. Exclusion of Representation and Warranties
7. Costs
8. Claims by CGI
9. Notice
10. Entire Agreement
11. Transferability
12. Spirit, Aims and intent
13. Severability
14. Waivers
15. Announcement
16. Lex Loci and jurisdiction
</TABLE>
<PAGE> 196
AN AGREEMENT made the 4th day of March 1996 AMONG,
1. CORNICHE GROUP INCORPORATED, a corporation organized under the laws of
the State of Delaware (hereinafter called "CGI") of Wayne Interchange Plaza 1,
145 Route 46 West, Wayne, NJ 07470
2. CORNICHE DISTRIBUTION LIMITED (IN ADMINISTRATIVE RECEIVERSHIP), a
company incorporated under the Companies Act (no. 2701498) and having its
Registered Office at 272 London Road, Wallington, Surrey, SM6 7DJ (hereinafter
called "CDL") acting through its joint Receivers, IAIN THOMAS WATTER and
GORDON CHRISTIE both of 18 Charlotte Square, Edinburgh, both Chartered
Accountants and partners of Arthur Andersen, appointed by virtue of an
instrument of appointment by the Bank (as hereinafter defined) dated 28
February 1996 pursuant to a Debenture in favour of the Bank by CDL dated 7
April 1995 and registered 12 April 1995 (hereinafter together called "the
Receivers")
and
3. THE RECEIVERS, in their capacity as Receivers of CDL.
WHEREAS:
(1) CDL is in Administrative Receivership and has agreed to discharge the CDL
Claims (as hereinafter defined) in consideration of the Settlement Sum (as
hereinafter defined); and
(2) In consideration of CDL discharging the CDL Claims (as hereinafter
defined), CGI has agreed to discharge the CGI claim (as hereinafter defined).
NOW THEREFORE THE PARTIES HERETO HEREBY CONTRACT AND DO HEREBY AGREE as
follows:
1. INTERPRETATION
1.1 In this Agreement the following words, phrases, team and expressions shall
bear the followings meanings:
"Bank" means the Governor and Company of the Bank of Scotland
"Business Day" means a day other than a Saturday or Sunday on which the Bank
is open for business both in Glasgow and London.
<PAGE> 197
"CDL Claims' means all and any claims competent to CDL against CGI in
connection with the Shares.
"CGI Claims" means all and any claims competent to CGI against CDL of
whatsoever nature and howsoever arising including but not limited to the CGI
inter company account.
"Completion" means completion in terms of this Agreement.
"Completion Date" means the date of this Agreement.
"Receivers' Bank" means the client account of the Receivers' Solicitors held
at the Bank, Account Number 00300805, Sort Code 80-07-48.
"Receivers' Solicitors" means Dorman Jeffrey & Co., Solicitors, Glasgow and
Edinburgh.
"Settlement Sum" means the sum of FIFTY THOUSAND POUND (£50,000)
STERLING.
"Shares" means 2,499,900 shares of £1 each in the capital of CDL, which
prior to the date hereof were allotted or alleged to have been allotted to
CGI.
1.2 The provisions of the Interpretation Act 1978 with respect to the
interpretation and Construction of this Agreement shall apply mutatis
mutandis.
1.3 References to Clauses, unless the contrary intention appears, are to the
Clauses of this Agreement.
1.4 The headings contained herein are for convenience only and shall not be
construed as forming part of this Agreement or be taken into account in the
interpretation hereof.
<PAGE> 198
1.5 This Agreement may be executed in any number of counterparts and all such
counterparts taken together shall be deemed to constitute one and the same
document.
2. CONDITIONS PRECEDENT
2.1 This Agreement is conditional in all respect upon the following conditions
having been implemented in full:
2.1.1 The Receiver having received from Baker Tilly a letter (addressed to
the Receiver) setting out details as to the current financial Position of CGI,
the terms of which (in the opinion of the Receiver) are satisfactory to the
Receivers; and
2.1.2 The Receivers having received from the Board of CGI a letter
(addressed to the Receivers) setting out details as to the basis of CGI
disputing the CDL Claims, the terms of which (in the opinion of the Receivers)
are satisfactory to the Receivers, and which makes reference to the letter
referred to in Clause 2.1.1 above.
2.2 The conditions precedent contained in Clause 2.1 hereof are for the sole
and exclusive benefit of the Receivers and may only be waived by the
Receivers.
3. COMPLETION
3.1 The Settlement Sum shall be paid to CDL on the Completion Date by CGI by
way of telegraphic transfer to the Receivers' Bank Account or otherwise as
agreed by the Parties.
3.2 The provisions of Clause 4 shall only come into force and have effect upon
the provisions of Clause 2 and Clause 3.1 both having been implemented in
full.
<PAGE> 199
4. SETTLEMENT OF THE CLAIMS
4.1 In consideration of the Settlement Sum CDL, hereby irrevocably and
unconditionally discharges the CDL Claims.
4.2 In consideration of CDL discharging CDL Claims, CGI hereby irrevocably and
unconditionally discharges the CGI Claims.
5. RECEIVERS
5.1 It is essential condition of this Agreement:
5.1.1 that the Receivers contract solely as agents of CDL and shall incur
no personal liability of whatsoever nature (whether directly or indirectly,
express or implied) and howsoever arising including without prejudice to the
foregoing generate, personal liability in respect of any action or actions of
whatsoever nature and howsoever arising in pursuance respectively of CDL's
rights and/or obligations under this Agreement and whether such claim is
formulated in contract and/or tort or by reference to any other remedy or
right and in whatever jurisdiction or forum;
5.1.2 that no claim which may be or become competent to CGI arising
directly or indirectly from this (or under any deed or other document executed
in consequence of hereof or on or under any associated or collateral agreement
or arrangement) will lie against the Receivers personally and the Receivers
shall be entitled at any time to have any claims, documents or others amended
to include an exclusion of personal liability in terms of this Clause 5;
5.1.3 that any personal liability of the Receivers which would in terms of
the Insolvency Act 1986 arise but for the provisions of this Clause 5 is
hereby expressly excluded,
<PAGE> 200
5.2 Nothing in this Agreement shall constitute a waiver of any right of the
Receiver to be indemnified by, or to exercise a lien, whether under the provisio
n of the Insolvency Act 1986 or otherwise howsoever.
5.3 The Receivers have joined in as parties to this Agreement solely for the
purpose of obtaining the benefit of the provisions of Clause 2 and this Clause
5 and any other provisions in this Agreement in their favour.
5.4 For the purpose of this Agreement references to "the Receivers" where the
context so permits shall mean and include their present and future firm or
firms, partners and employees, and any legal entity or partnership using in
its name the words "Arthur Andersen" and the partners, shareholders, officers
and employees of any such entity or partnership.
6. EXCLUSION OF REPRESENTATIONS AND WARRANTIES
CGI agrees that in entering into this Agreement it is not relying upon any
information, warranty, statement, representation or silence on the part of the
Receivers or the Receivers' Solicitors and that CGI is not relying upon any
other written or oral representation made to it or to its representatives or
agents by the by the Receivers or their representatives or agents.
7. COSTS
Each party shall be responsible for its own legal costs in connection with the
negotiation, preparation, execution and delivery of this Agreement and all
documents and instruments executed pursuant to this Agreement.
8. CLAIMS BY CGI
8.1 Any claim by CGI whether arising pursuant to this Agreement or otherwise
shall be against CDL and not the Receivers; and then shall only be an
unsecured claim against CDL.
8 2 Any claim by against CDL and/or the Receivers whether arising pursuant to
this agreement or otherwise shall be irrevocably waived unless made in writing
by notice by CGI to the Receivers not later than one month after the
Completion Date, the first day of such one month period to be the Completion
Date, time being of the essence.
<PAGE> 201
9. NOTICE
9.1 All notices, requests, demands or other communications by the respective
parties may be served by Recorded Delivery Post, personally or by fax to the
parties' respective addresses hereinstated (in the case of CDL and the
Receivers to the Receivers at their office at 18 Charlotte Square, Edinburgh)
or to such other addresses as they may respectively from time to time notify
to the other parties. A confirmation copy of the document sent by fax shall
also be sent to the addressee by first class post within one Business Day
after the date of transmission by fax.
9.2 Any such notice, request, demand or communication shall:
9.2.1 if delivered personally be deemed to have been received at the time of
delivery, or if delivery is not on a Business Day on the Business Day
following such delivery;
9.2.2 if given by Recorded Delivery Post be deemed to have been received in the
case of CDL and the Receivers on the second Business Day occurring and in case
of CGI on the seventh Business Day occurring after the date of posting; and
9.2.3 if sent by fax be deemed to have been received on the date of
transmission, or if said transmission is not on a Business Day on the Business
Day following such transaction.
10. ENTIRE AGREEMENT
This Agreement forms the entire agreement between the parties relating to the
subject matter of this Agreement. It is agreed that any future variation
hereof may only take the form of a formal variation of this Agreement. In
particular it is agreed that this Agreement supersedes all earlier meetings,
discussions, correspondence,
<PAGE> 202
facsimile transmission, telexes, letters and communications, understandings
and arrangements of any kind, and that there are no collateral or
supplemental agreements at the date of this Agreement.
11. TRANSFERABILITY
This Agreement shall be binding upon and enure for the benefit of the
successors of the parties or their personal representatives (as the case may
be) but neither party shall be entitled to assign, novate or transfer the
whole or any part of its rights, or obligations hereunder without the prior
written consent of the other, except that the Receivers may assign without
consent, the benefit of this Agreement, to any Liquidator of CDL.
12. SPIRIT AIMS AND INTENT
The parties hereto undertake to do all acts and things necessary or expedient
for the purpose of giving full force and effect to the provisions of this
Agreement and the spirit, aims and intent of the arrangements contemplated
herein.
13. SEVERABILITY
In the event that any clause or any Sub-clause or any part of any clause or
subclause of this Agreement shall be determined Invalid, unlawful or
unenforceable, in any extent such term or condition or provision shall be
severed from the remaining terms and conditions which shall continue to be
valid and enforceable to the fullest extent permitted by law.
14. WAIVERS
No failure or delay by any party in exercising any right, power or privilege
hereunder, shall operate as waiver thereof or prejudice any other or further
exercise by such party of any of its rights or remedies hereunder.
<PAGE> 203
15 ANNOUNCEMENTS
No party shall make any public announcement or the like, or issue any press or
other release, statement or the like in relation to this Agreement without
first agreeing the terms of any such announcement or release with the others
beforehand, except that the Receivers shall be entitled to make a full report
of all matter to the Bank, any of the parties may reveal such information to
any party as may be required by law or any regulatory authority and CGI may
reveal such information in connection with all filings, releases and
announcements advised by US Securities Counsel in connection with Federal,
State and Securities law and regulations in the United States.
16. LEX LOCI AND JURISDICTION
This Agreement shall be governed by and construed in accordance with the law
of England and each of the parties hereto submits to the exclusive
jurisdiction of the English Courts as regards any matter or claim arising
under or in connection with this Agreement.
IN, WITNESS WHEREOF, this Agreement consisting of this and the seven
preceding pages is signed and witnessed as follows on this page and the
following additional pages:
SIGNED for and on behalf of the said
CORNICHE GROUP INCORPORATED
at Roseland on the 4th day of March
Nineteen hundred and ninety six by
James Joseph Fyfe one of its directors
in the presence of:-
Witness /s/ Alan Wovsaniker
Full Name Alan Wovsaniker
Address 65 Livingston Ave. /s/ James Fyfe
Roseland, NJ James Fyfe, Director
USA
<PAGE> 204
SIGNED for and on behalf of
CORNICHE DISTRIBUTION LIMITED
(IN ADMINISTRATIVE RECEIVERSHIP)
by lAIN THOMAS WATTERS one of its
Receivers, (as agent and without
personal liability for either of the
Receivers) at an the Glasgow on
the fourth day of March Nineteen
hundred and ninety six in the
presence of:
Witness /s/ Ian Jardine Cuthbertson
Full Name Ian Jardine Cuthbertson
Address Bly Blythswood Square
Glasgow
/s/ Iain Thomas Watters
Iain Thomas Watters
SIGNED for and on behalf of THE
RECEIVERS at Glasgow on the
Forth day of March Nineteen hundred
and ninety six by IAIN THOMAS
WATTERS one of the joint receivers
(without incurring personal liability for
either Receivers) in the presence of :
Witness /s/ Ian Jardine Cuthbertson
Full Name Ian Jardine Cuthbertson
Address Bly Blythswood Square
Glasgow
/s/ Iain Thomas Watters
Iain Thomas Watters
<PAGE> 205
EXHIBIT 99(b)
<PAGE> 206
James J. Fyfe
- - ------------------------------------------------------------------------------
April 15, 1997
Corniche Group Incorporated
145 Route 46 West
Wayne, NJ 07470
Dear Sirs,
Re: Auditor's Report
In connection with the preparation of the Annual Report of Comiche Group
Incorporated (the 'Company') on Form 10-K for the fiscal year ended March 31,
1996, the Company is required to provide manually signed reports by its
independent auditors with respect to the financial statements included in the
Annual Report. In situations such as the present where there have been
changes in auditors or where audited financial statements prepared by more
than one accounting firm are being relied upon and included, a manually signed
report is required of each such auditor even where such report has been
previously executed and relates to financial statements which have been
prepared in connection with a previously filed document.
The March 31, 1996 Annual Report contains financial statements respecting the
Company's former United Kingdom operating subsidiaries, audited by the London,
England branch of Coopers & Lybrand L.L.P. ("Coopers"). The report page
relating to such financial statements was originally prepared and signed by
Coopers.,in connection with the Company's Annual Report on Form 10-K for the
year ended March 25, 1995. Coopers has advised the Company on several
occasions however, that it cannot and will not provide the Company with a
newly signed report page with respect to such audit for purposes of the March
31, 1996 Form 10-K. This cannot be done for the following reasons:
1. Coopers has rigorous review procedures to be fully completed prior to the
re-signing of any audit opinion. These procedures include visiting the
entities which were the subject of the audit to, among other things, review
the activities of such entities subsequent to the audit period. This review
includes discussions
<PAGE> 207
with management and a review of financial books and records. In view of the
current status of these former subsidiaries such a review could not be
conducted to the extent required by Coopers to enable them to re-sign their
audit report. This conclusion is based upon the problems, as described below,
which would be confronted by Coopers in attempting to obtain information
regarding the former operating subsidiaries. All of these problems relate to
the February 1996 appointment of receivers to the operating subsidiaries and
the related discontinuance of the operations of such operating subsidiaries.
Following the appointment of the receivers, (i) the subsidiaries ceased
operating; (ii) the directors and other employees of the former operating
subsidiaries ceased all activities theretofore being conducted by them on
behalf of such entities and their employment contracts were terminated; (iii)
all administrative facilities being operated by such entities were closed;
(iv) all books and records of such entities were transferred and delivered to
the receivers where they remain, and will continue to remain during the entire
term of of the receivership, under the exclusive control of the receivers; and
(v) conventional accounting records for the periods subsequent to the date of
such appointments were not maintained.
2. Even ff the review referred to above were possible, Cooper's would require
A substantial fee, in advance, to complete such a review. The Company is
unable to pay such a fee and even ff it were, Coopers would not undertake
such a review without receipt of an additional payment representing all or a
substantial part of the fees due from the former operating subsidiaries.
Coopers was owed accounting fees in excess of $100,000 by the former operating
subsidiaries at the time of the February 1996 receivership proceedings
involving each of such subsidiaries. Coopers made no recovery of any such
sums in the receivership proceedings. Although, the Company is not obligated
to pay the liabilities of its former subsidiaries to Coopers, ft has
materially effected Coopers willingness to cooperate with the Company.
The foregoing factors lead me to the inevitable conclusion that Coopers review
procedures, even if undertaken, could not be satisfied. Consequently, Coopers
will not be providing a re-signed audit report for the purposes of the March
31, 1996 Form 10-K.
Very truly yours,
/s/ James J. Fyfe
James J. Fyfe
<PAGE> 208
EXHIBIT 99(c)
<PAGE> 209
MCRP
MAHONEY COHEN RASHBA & POKART, CPA, PC
April 15, 1997
Mr. James Fyfe
Chief Executive Officer
Corniche Group Incorporated
Wayne Interchange Plaza I
3rd Floor
145 Route 46 West
Wayne, NJ 07470
Dear Mr. Fyfe:
You have requested that Mahoney Cohen Rashba & Pokart, CPA, PC (MCRP)
reissue their opinion on the financial statements Corniche Group Incorporated
(formerly Fidelity Medical, Inc.) (the 'Company") for the year ended March 25,
1995 to be included in the Company's Form 10-K for the year ended March 31,
1996.
In our report dated July 25, 1995, we made reference to the report of
other auditors (Coopers & Lybrand, located in the United Kingdom), as a basis,
in part, for our opinion. We had informed you that due to the significance of
the Coopers & Lybrand ("C&Y") audit report on the United Kingdom subsidiary to
the consolidated financial statements, we would need among other items, for
C&Y to reissue their March 25, 1995 audit report to us. You have informed us
that C&L will not reissue their audit report. Accordingly, we are precluded
by professional standards from reissuing our report for the year ended March
25, 1995 until C&L reissues their report.
Yours truly,
/s/ Kenneth L. Steckler
KLS/gnc Kenneth L. Steckler
<PAGE> 210
