SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number
0-20514
CORPORATE RENAISSANCE GROUP, INC.
Exact name of Registrant as specified in its charter
Delaware 13-3701354
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1185 Avenue of the Americas 10036
18th Floor (Zip Code)
New York, New York
(Address of principal executive offices)
Registrant's telephone number: (212) 730-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) 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. [ ]
<PAGE>
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.
Yes X No
The number of shares outstanding of the Registrant's Common Stock is 944,400 (as
of December 16, 1996).
The aggregate market value of the voting stock held by non-affiliates of the
Registrant is approximately $6,549,231 (as of December 16, 1996).
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE>
Forward-Looking Statements
This Report contains, in addition to historical information, forward-
looking statements regarding Corporate Renaissance Group, Inc. (the "Company"),
which represent the Company's expectations or beliefs including, but not limited
to, statements concerning the Company's operations, performance, financial
condition, business strategies and other information. For this purpose, any
statements contained in this Report that are not statements of historical fact
may be deemed to be forward-looking statements. Without limiting the generality
of the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "intend," "could," "estimate," or "continue" or the negative or
other variations thereof or comparable terminology are intended to identify
forward-looking statements. The statements by their nature involve substantial
risks and uncertainties, certain of which are beyond the Company's control, and
actual results may differ materially depending on a variety of important
factors, including those described in this Report and the Company's other
filings with the Securities and Exchange Commission.
<PAGE>
PART I
ITEM 1. BUSINESS
Introduction
Corporate Renaissance Group, Inc. (the "Company") is a non-diversified,
closed-end management investment company which has elected to be treated as a
special type of investment company known as a business development company
("BDC") under the Investment Company Act of 1940 (the "1940 Act") as amended by
the Small Business Incentive Act of 1980. The Company's primary investment
objective is to achieve long-term capital appreciation through investments in
companies ("Portfolio Investments"), which the Company believes have viable
existing businesses generating substantial revenues in established markets, but
which have recently completed, are in the process of undergoing or are likely to
undergo a financial restructuring pursuant to bankruptcy or reorganization
proceedings or on a negotiated basis outside of bankruptcy or reorganization
proceedings (a "Reorganized Company") and where, as a result, the Company can
ultimately obtain an equity position (either common or preferred stock) at a
discount from market value for comparable companies that are not financially
troubled. Such investments are not generally available to the public because
they require large financial commitments and, in some cases, managerial
assistance. The Company may make these investments either on its own or,, more
likely, jointly with other investors, including investment partnerships managed
or advised by M.D. Sass Investors Services, Inc. (the "Investment Adviser") and
its affiliates. Any investments with affiliates of the Company will be subject
to restrictions under the 1940 Act and conditions set forth in an exemptive
order granted by the Securities and Exchange Commission (the "SEC"). In
addition to Portfolio Investments the Company may invest in other securities,
including securities of financially distressed companies, where the Company
believes that it can generate capital appreciation by engaging in portfolio
trading ("Other Investments").
The Company has retained the Investment Adviser as the Company's investment
adviser to identify, negotiate, manage and liquidate investments for the
Company. The Company invests only in transactions recommended by the Investment
Adviser. The activities of the Investment Adviser on behalf of the Company are
subject to supervision by the independent directors of the Company.
The Company is deemed to have commenced operations on November 1, 1994,
when the Company consummated an initial public offering ("IPO") and a
contemporaneous placement to foreign institutional investors (the "Overseas
Placement"). Since that time, the Company has made two Portfolio Investments.
In December 1994, the Company made an investment in the common stock of Leaseway
Transportation Corp. ("Leaseway"), a concern engaged in transportation of
automobiles, light, trucks, automotive parts and related services; dedicated
carriage for shippers; and leasing drivers and other personnel to industrial and
commercial customers. In April 1995 Leaseway was acquired for cash by Penske
Dedicated Logistics Corp. In August 1995 the Company made an investment in the
senior secured bank debt of Wherehouse Entertainment, Inc. ("Wherehouse"), which
operates a chain of entertainment retail stores in the Western U.S. Wherehouse
and its parent had filed a voluntary petition for relief under Chapter 11 of the
United States Bankruptcy Code. The Company sold its investment in Wherehouse to
a third party in June 1996.
In addition to the foregoing, since November 1, 1994 (commencement of
operations), the Company has invested, subject to applicable restrictions under
the 1940 Act, in Other Investments of equity and debt securities of various
companies.
On November 25, 1996, the Company's Board of Directors authorized the
implementation of an open market share repurchase program, pursuant to which the
Company, from time to time, may purchase up to an aggregate of 175,000 shares of
its Common Stock in open market transactions. As of December 16, 1996, the
Company had repurchased 11,700 shares pursuant to this program.
The Company was incorporated in Delaware on June 19, 1992. The Company's
executive offices are located at 1185 Avenue of the Americas, 18th Floor, New
York, New York 10036 and its telephone number is (212) 730-2000.
Investment Objectives and Policies
The Company generally seeks to acquire a controlling (25% or greater)
equity interest (either common or preferred stock) in a Reorganized Company by
investing directly in a company either by acquiring common or preferred stock
from existing stockholders (in the case of a Reorganized Company which has
completed a Restructuring) or debt from existing creditors (in the case of a
company which is in the process of undergoing a Restructuring) which it
anticipates will then be converted to common or preferred stock in the
Restructuring.
In selecting Portfolio Investments, the Company targets potential companies
that satisfy the following criteria, among others:
- -- $50 million in annualized revenues generated by a core business in an
established market;
- -- operating profitability (earnings before interest and taxes) of the core
business or the potential to achieve operating profitability within 12 months of
the Restructuring;
- -- a credible Restructuring plan developed or capable of being developed,
which in the opinion of the Investment Adviser, will result in the Company
realizing positive cash flow within a reasonable period of time following the
implementation thereof;
- -- competent operating management in place or to be retained in connection
with the Restructuring;
- -- ability of the Company to obtain a controlling position in the equity
securities of a portfolio company at a discount from market value for comparable
companies which are not financially troubled; and
- -- potential to develop a liquid market for the securities held by the Company
in the Reorganized Company within 12 months of the Restructuring.
The Company's investment objectives (other than its election to be treated
as a BDC and its primary investment objective of making Portfolio Investments in
Reorganized Companies) may be changed by the Board of Directors without the
approval of holders of a majority of the Company's outstanding voting securities
as defined in the 1940 Act. The withdrawal of the Company's election to be
treated as a BDC would require such stockholder approval and the Company will
not change its primary investment objective without stockholder approval.
The Company believes that because of the proliferation of leveraged buy-
outs in the 1980's, the economic recession of the early 1990's and the record
levels of high-yield debt issuances during the past several years, there are a
large number of companies that have undergone, are undergoing or will undergo a
Restructuring over the next several years in order to remain viable. Such
companies typically undertake Restructurings because of high levels of debt
and/or problems with operating management. Additional capital may be required
by a Reorganized Company to effect a Restructuring or finance post-Restructuring
operations. Further, a Reorganized Company may require managerial assistance in
certain instances to negotiate the terms of a proposed Restructuring,
renegotiate the terms of a completed Restructuring where debt service
requirements continue to adversely affect operating results, retain new
operating management and/or favorably renegotiate existing contractual
commitments. In a Restructuring, creditors are often issued equity securities
in a Reorganized Company (generally common or preferred stock) for which there
may be no or only a limited market. Certain creditors, in particular senior
lenders, may not desire to or may be restricted in their ability to hold such
equity securities for extended periods of time.
The Company believes that it will be able to invest in Reorganized
Companies at discounts from market values for comparable companies which are not
financially troubled, because it may be offering necessary capital to a
Reorganized Company in the case of a direct investment and liquidity to holders
of equity, bank debt, debt securities and/or trade credits in a Reorganized
Company in the case of a purchase from such parties. Although the Company is
focusing its efforts on Reorganized Companies which have completed or are
undergoing a Restructuring, the Company may seek to invest in financially
troubled companies which intend to undergo a Restructuring and where a credible
plan to effect such Restructuring has been, or in the opinion of the Company,
can be developed. The Company only invests in transactions recommended by the
Investment Adviser.
Up to 30% of the Company's total assets may be invested in Other
Investments including securities of Reorganized Companies or other financially
distressed companies, where the Company's objective is not to obtain a
controlling interest, but rather where it believes capital appreciation can be
achieved by engaging in portfolio trading. Income or realized gains from this
portion of the Company's portfolio will be used in part to pay the Company's
operating expenses, including legal and auditing fees, taxes and fees to the
Investment Adviser.
Given the amount of its capital resources (including that which may be
available from co-investors as described below), the Company estimates that it
will be able to make Portfolio Investments in between one and four Reorganized
Companies at any one time and therefore will most likely not be able to
diversify its portfolio. However, in order to provide as much diversification
as possible, the Company will likely make its investments jointly with other
investors including affiliates of the Investment Adviser. Any investments with
affiliates of the Company will be subject to restrictions under the 1940 Act and
conditions set forth in an exemptive order granted by the SEC.
Following an initial investment, the Company anticipates that it may
provide additional funds to a company. Follow-on investments may be made
pursuant to rights to acquire additional securities or otherwise in order to
increase the Company's position in a successful or promising portfolio company.
The Company may also be called upon to provide follow-on investments for a
number of other reasons, including providing additional capital to a company to
implement fully its business plans, to develop a new line of business or to
recover from subsequent unexpected business problems. The Company may use
leverage (i.e., borrowed funds or senior securities) to raise all or a portion
of the funds required to make follow-on investments, subject to certain
restrictions. The Company may also borrow to fund general working capital needs
including paying operating expenses. In addition, the Company may issue its
securities to purchase the assets of or a controlling interest in another
company or companies.
Regulation
The following is a summary description of the 1940 Act as modified by the
Incentive Act as applied to BDCs. The Company elected to be treated as a BDC on
August 3, 1992. The Company may not withdraw its election without first
obtaining the approval of a majority of its outstanding voting securities.
Generally, to be eligible to elect BDC status, a company must be primarily
engaged in the business of furnishing capital and managerial expertise to
companies which do not have ready access to capital through conventional
financial channels and/or are in financial difficulty, which companies are
termed "portfolio companies." More specifically, in order to qualify as a BDC,
a company must (i) be a domestic company; (ii) have registered a class of its
equity securities or have filed a registration statement with the SEC pursuant
to Section 12 of the Securities Exchange Act; (iii) operate for the purpose of
investing in the securities of certain types of portfolio companies, namely,
immature or emerging companies and businesses suffering or just recovering from
financial distress; (iv) extend significant managerial assistance to certain
portfolio companies; (v) have a majority of "disinterested" directors (as
defined in the 1940 Act); and (vi) file (or, under certain circumstances, intend
to file) a proper notice of election with the SEC.
An eligible portfolio company generally is a United States company that is
not an investment company and that (i) does not have a class of securities
registered on an exchange or included in the Federal Reserve Board's over-the-
counter margin list; (ii) has total assets of $4.0 million or less and capital
and surplus of more than $2.0 million (with respect to which category of
portfolio company no managerial assistance need be offered); (iii) is actively
controlled by a BDC and has an affiliate of a BDC on its board of directors; or
(iv) meets such other criteria as may be established by the SEC. Control under
the 1940 Act is presumed to exist where a BDC owns 25% of the outstanding voting
securities of the portfolio company.
The 1940 Act prohibits or restricts the Company from investing in certain
types of companies, including brokerage firms, insurance companies, investment
banking firms and investment companies. Moreover, while the 1940 Act
contemplates that a BDC will invest in concerns other than "eligible portfolio
companies," the type of assets that the Company may acquire is limited to
"qualifying assets" and certain assets necessary for its operations (such as
office furniture, equipment and facilities) if, at the time of the acquisition,
less than 70% of the value of the Company's assets consists of qualifying
assets. Qualifying assets include: (1) securities of companies that were
eligible portfolio companies at the time the Company acquired their securities;
(2) certain securities of bankrupt or insolvent companies that are not otherwise
eligible portfolio companies; (3) securities acquired as follow-on investments
in companies that were eligible portfolio companies at the time of the Company's
initial acquisition of their securities but are no longer eligible, provided
that the Company has maintained a substantial portion of its initial investment
in those companies; (4) securities received in exchange for or distributed on or
with respect to any of the foregoing; and (5) cash items, government securities
and high-quality short-term debt. The 1940 Act also places restrictions on the
nature of the transactions in which, and the person from whom, securities can be
purchased in order for the securities to be considered qualifying assets. Such
restrictions include limiting purchases to transactions not involving a public
offering and acquiring securities from either the portfolio company or their
officers, directors or affiliates.
The Company is permitted by the 1940 Act, under specified conditions, to
issue multiple classes of senior debt, a single class of preferred stock and
other senior securities. The Company currently has no policy regarding the
issuance of senior securities.
The Company may sell its securities at a price that is below the prevailing
net asset value per share only upon the approval by the holders of a majority of
its outstanding voting securities, including a majority, of the voting
securities held by non-affiliated persons. As defined in the 1940 Act, the term
'majority of the Company's outstanding voting securities' means the vote of
(i) 67% or more of the Company's Common Stock present at a meeting, if the
holders of more than 50% of the outstanding Common Stock are present or
represented by proxy, or (ii) more than 50% of the Company's outstanding Common
Stock, whichever is less.
Most of the transactions involving the Company and its affiliates (as well
as affiliates of those affiliates) which were prohibited without the prior
approval of the SEC under the 1940 Act prior to its amendment by the Incentive
Act now require the prior approval of a majority of the Company's independent
directors and a majority of the directors having no financial interest in the
transactions. However, certain transactions involving certain closely
affiliated persons of the Company, including its directors, officers and
employees, may still require the prior approval of the SEC. In general, (i) any
person who owns, controls or holds with power to vote, more than 5% of the
Company's outstanding Common Stock; (ii) any director, officer or general
partner of that person; and (iii) any person who directly or indirectly
controls, is controlled by, or is under common control with, that person, must
obtain the prior approval of a majority of the Company's independent directors
and, in some situations, the prior approval of the SEC, before engaging in
certain transactions involving the Company or any company controlled by the
Company. See "Conflicts of Interest" above with respect to an exemptive order
granted by the SEC in November 1994 which sets forth certain conditions for co-
investments with affiliates. In accordance with the 1940 Act, a majority of the
members of the Company's Board of Directors are independent. See "Management --
Officers and Directors." The 1940 Act generally does not restrict transactions
between the Company and portfolio companies in which the Company invest.
The Company may seek to maximize stockholder value by dissolving or merging
with another corporation (including a company in which it has made a Managed
Investment) and withdraw its election to be treated as a BDC. While a BDC may
change the nature of its business so as to cease being a BDC (and in connection
therewith withdraw its election to be treated as a BDC) only if authorized to do
so by a majority of its outstanding voting securities, stockholder approval of
changes in other fundamental investment policies of a BDC is not required (in
contrast to the general 1940 Act requirement of stockholder approval for a
change in any fundamental investment policy). Notwithstanding the foregoing,
the Company agreed with the underwriter of the IPO that it will not change its
primary investment objective of making Managed Investments in Reorganized
Companies without stockholder approval. Other than its status as a BDC and its
primary investment objective, none of the Company's objectives or policies are
deemed fundamental.
Competition
Given the size of the Company's assets, the Company's portfolio will likely
not be diversified and the Company will not be able to achieve the same level of
diversification as much larger entities engaged in similar activities. The
Company expects to encounter substantial competition for investments from other
investors, including entities having similar investment objectives, including
other business development companies, investment or so-called "vulture" funds,
investment affiliates of large industrial and financial companies, small
business investment companies and wealthy individuals. Many of these investors
will have greater experience, financial resources and managerial capabilities
than the Company and therefore will be in a better position than the Company to
obtain access to attractive investments.
Employees
The Company has no employees other than its officers and, because of the
Financial Advisory Agreement with the Investment Adviser, is not expected to
have any additional employees.
ITEM 2. PROPERTIES
The Company presently occupies office space in facilities located at 1185
Avenue of the Americas, New York, New York, which space is also occupied by the
Investment Adviser. The cost of all necessary office space is included in the
fees to be paid by the Company to the Investment Adviser under the Financial
Advisory Agreement between the Company and the Investment Adviser.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
(a) Market Information
Since October 25, 1994, the Company's Common Stock has been listed on the
Nasdaq Small Cap Market under the symbol CREN. The following table sets forth,
for the period indicated, the range of high and low prices for the Common Stock
as reported by Nasdaq. These quotations represent prices between dealers, do
not include retail markups, markdowns or commissions and do not necessarily
represent actual transactions:
<TABLE>
<CAPTION>
Common Stock
High Low
<S> <C> <C>
Calendar 1994
Fourth Quarter
(commencing October 25, 1994) $10-1/4 $9-3/4
Calendar 1995
First Quarter 11 9-1/2
Second Quarter 11-1/8 8-5/8
Third Quarter 11 8-1/4
Fourth Quarter 10 9
Calendar 1996
First Quarter 10-1/8 8-5/8
Second Quarter 9 8-1/8
Third Quarter 8-3/8 7-1/4
</TABLE>
(b) Holders
At December 16, 1996, there were approximately 15 holders of record of the
Company's Common Stock. The Company believes the number of beneficial owners of
its Common Stock is in excess of 300.
(c) Dividends
The Company has not paid any cash dividends since its inception and the
Board of Directors does not contemplate doing so in the near future. Any
decision as to future payment of dividends will depend on the earnings and
financial position of the Company and such other factors as the Board of
Directors deems relevant.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Period from
November 1, 1994
(Commencement of
Year Ended or at Operations) to or at
September 30, 1996 September 30, 1995
<S> <C> <C>
Operating Data:
Net operating loss
before security transactions $(471,831) $(821,159)
Net realized gains/(losses)
from portfolio investments $(1,123,937) $2,593,738
Net realized gains/(losses)
from other investments $(101,045) $238,526
Change in net unrealized
appreciation/(depreciation)
from portfolio investments $(127,394) $127,394
Change in net unrealized
appreciation/(depreciation)
from other investments $(1,817,064) $4,351,827
Income tax benefit/(expense)
arising from net realized
gains and net unrealized
appreciation in investments $1,065,538 $(2,502,545)
Net increase/(decrease) in
net assets resulting from
operations ($2,575,733) $3,987,781
Per Share Amounts:
Net Asset Value, beginning
of period $12.36 $10.00
Common Stock offering costs
of initial public offering ---- (1.81)
Net operating loss before
security transactions (.50) (.86)
Net realized gains/(losses)
from sales of investments (.85) 1.95
Change in net unrealized
appreciation/(depreciation)
of investments held (1.35) 3.08
___________ ___________
Net Asset Value, end of period $ 9.66 $ 12.36
___________ ___________
Balance Sheet Data:
Total Assets $10,079,562 $14,542,064
Net Assets $ 9,236,869 $11,812,602
Total Return Based on:
Stock Price (16.88%) (3.75%)
Net Asset Value (21.85%) 23.60%
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Prior to November 1, 1994 the Company had only nominal assets and focused
its efforts on raising capital in the IPO and Overseas Placement. On November
1, 1994, the Company consummated the IPO, in which it sold 600,000 shares of
Common Stock at a price of $10.00 per share, and the Overseas Placement, in
which it sold 356,000 shares of Common Stock at a price of $10.00 per share.
Proceeds from the IPO and the Overseas Placement were $7,823,821, net of
underwriting discounts, the underwriters' non-accountable expense allowance,
placement fees and other expenses associated with the offerings. The Company is
deemed to have commenced operations on November 1, 1994.
The Company's primary source of working capital has been the remaining
proceeds from the IPO as well as proceeds generated from investment activities.
At September 30, 1996, the Company had cash and cash equivalents of $509,257 as
compared to $2,093,863 at September 30, 1995.
Results of Operations
Year ended September 30, 1996 ("fiscal 1996") as compared to period from
November 1, 1994 (commencement of operations) to September 30, 1995
("fiscal 1995")
During fiscal 1996, the Company had interest income of $28,901 as compared
to interest income of $244,846 in fiscal 1995. The decline in interest income
reflects the increased percentage of the Company's assets invested in other than
cash or cash equivalents. Operating expenses during fiscal 1996 were $739,695
as compared to $1,492,820 in fiscal 1995. This decrease is attributable in
large part to $996,947 in incentive fees payable to the Investment Adviser
accrued during fiscal 1995 as compared to $224,128 in fiscal 1996. For fiscal
1996 the Company had a pre-tax operating loss and a net operating loss of
$710,794 and $471,831, respectively, as compared to a pre-tax loss and net
operating loss for fiscal 1995 of $1,247,974 and $821,159, respectively. Since
the Company typically does not purchase securities with the objective of
generating investment income, net operating losses are expected to routinely
occur.
During fiscal 1996, the Company had net realized losses from sale of
investments of $1,224,982 as opposed to net realized gains from sale of
investments of $2,832,264 during fiscal 1995. For fiscal 1996, the Company had
net unrealized depreciation of investments of $1,944,458, as compared to net
unrealized appreciation of investments of $4,479,221 in fiscal 1995. During
fiscal 1995, the Company recorded a gain on the sale of its Portfolio Investment
in Leaseway. During fiscal 1996, the Company realized losses on the sale of its
Portfolio Investment in Wherehouse and a decline in valuation of another
investment. For fiscal 1996, the Company had net realized and unrealized losses
on investments of $2,103,902, as compared to net realized and unrealized gains
on investments of $3,987,781 for fiscal 1995 and after giving effect to net
operating losses, a decrease in net assets resulting from operations of
$2,575,733 in fiscal 1996, as compared to a net increase in net assets resulting
from operations of $3,987,781 in fiscal 1995.
Net Asset Value
At September 30, 1996, the Company had a net asset value of $9.66 per share
of Common Stock, a decrease of $2.70 per share from the net asset value of
$12.36 per share of Common Stock at September 30, 1995.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Page
Independent Auditor's Report F-
Statements of Assets and Liabilities
as of September 30, 1996 and September 30, 1995 F-
Statement of Operations as of September 30, 1996
and for the Period from November 1, 1994
Commencement of Operations) to September 30, 1995 F-
Statements of Changes in Net Assets for the
Years ended September 30, 1996 and
September 30, 1995 and for the period from
January 1, 1994 to September 30, 1994 F-
Statements of Cash Flows for the Years ended
September 30, 1996 and September
30, 1995 and for the Period from
January 1, 1994 to September 30, 1994 F-
Schedule of Investments, September 30, 1996 F-
Schedule of Call Options Written, September 30,1996 F-
Notes to Financial Statements F-
<PAGE>
ERNST & YOUNG LLP
787 Seventh Avenue
New York, New York 10019
Phone: 212 773 3000
Report of Independent Auditors
Board of Directors
Corporate Renaissance Group, Inc.
We have audited the accompanying statements of assets and liabilities of
Corporate Renaissance Group, Inc. as of September 30, 1996 and 1995, including
the schedule of investments and schedule of call options written as of September
30, 1996, and the related statement of operations for the year ended September
30, 1996 and for the period from November 1, 1994 (commencement of operations)
to September 30, 1995 and the statements of changes in net assets and cash flows
for the year ended September 30, 1996, the year ended September 30, 1995 and for
the period from January 1, 1994 to September 30, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our audit procedures
included confirmation of securities owned at September 30, 1996 by
correspondence with the custodian; where confirmation was not possible, we
satisfied ourselves by other audit procedures. 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 financial position of Corporate Renaissance Group,
Inc. at September 30, 1996 and 1995, and the results of its operations for the
year ended September 30, 1996 and for the period from November 1, 1994
(commencement of operations) to September 30, 1995 and changes in net assets and
cash flows for the year ended September 30, 1996, the year ended September 30,
1995 and for the period from January 1, 1994 to September 30, 1994 in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
October 11, 1996
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, 1996 SEPTEMBER 30,1995
<S> <C> <C>
Investments in securities, at
market value (cost $6,663,601
and $7,949,461 respectively) $ 9,217,962 $12,438,808
Cash and cash equivalents 509,257 2,093,863
Income taxes receivable 345,511
Accrued interest receivable 585 2,900
Other assets 6,247 6,493
____________ _____________
TOTAL ASSETS 10,079,562 14,542,064
LIABILITIES
Call options written, at market value
(premiums received $41,827 and
$22,999 respectively) 61,425 33,125
Accrued incentive fee payable 996,947
Income taxes payable 132,008
Accounts payable and accrued expenses 31,659 34,182
Deferred taxes payable 749,609 1,533,200
____________ _____________
TOTAL LIABILITIES 842,693 2,729,462
____________ _____________
NET ASSETS $9,236,869 $11,812,602
____________ _____________
NET ASSETS
Common stock (par value $.01 per share,
20,000,000 shares authorized; 956,100
shares issued and outstanding) $ 9,561 $ 9,561
Additional paid-in capital 7,815,260 7,815,260
Accumulated income (loss):
Accumulated net operating loss
before security transactions (1,292,990) (821,159)
Accumulated net realized gains
from sale of investments 1,049,765 1,862,919
Net unrealized appreciation of
investments 1,655,273 2,946,021
____________ _____________
1,412,048 3,987,781
____________ _____________
Net Assets $9,236,869 $11,812,602
____________ ______________
Net asset value per share of
common stock outstanding $ 9.66 $ 12.36
See notes to financial statements
</TABLE>
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM NOVEMBER 1,
1994 (COMMENCEMENT
FOR THE YEAR ENDED OF OPERATIONS) TO
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
<S> <C> <C>
Income:
Interest Income $ 28,901 $ 244,846
____________ ___________
Total investment income 28,901 244,846
____________ ___________
Expenses:
Incentive fees 224,128 996,947
Financial advisory fees 200,000 183,333
Investment banking fees 100,000 91,667
Professional fees 59,800 84,861
Insurance expense 74,247 70,547
Board of directors fees 50,000 45,833
Other operating expenses 31,520 19,632
____________ ___________
Total expenses 739,695 1,492,820
____________ ___________
Operating loss before income tax benefit (710,794) (1,247,974)
Income tax benefit 238,963 426,815
____________ ___________
NET OPERATING LOSS BEFORE
SECURITY TRANSACTIONS (471,831) (821,159)
____________ ___________
NET REALIZED AND UNREALIZED
GAINS/(LOSSES) FROM INVESTMENTS:
Net realized gains/(losses) from
sale of investments (1,224,982) 2,832,264
Change in net unrealized appreciation/
(depreciation) of investments (1,944,458) 4,479,221
Income tax (expense)/benefit arising
from net realized gains/(losses)
and net unrealized appreciation/
(depreciation) of investments. 1,065,538 (2,502,545)
____________ ___________
Net realized and unrealized gains
/(losses) on investments (2,103,902) 4,808,940
____________ ___________
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $(2,575,733) 3,987,781
____________ ___________
Per share net increase/(decrease)
in net assets resulting from operations $ (2.70) $ 4.17
____________ ___________
See notes to financial statements
</TABLE>
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
9/30/96 9/30/95 9/30/94
<S> <C> <C> <C>
CHANGES IN NET ASSETS
FROM OPERATIONS:
Net operating loss before
security transactions $(471,831) $ (821,159) $
Net realized gains/
(losses) from sale of
investments (813,154) 1,862,919
Change in net unrealized
appreciation/(depreciation)
of investments (1,290,748) 2,946,021
____________ ____________ _________
Net increase/(decrease) in
net assets resulting from
operations (2,575,733) 3,987,781
____________ ____________ _________
CAPITAL STOCK TRANSACTIONS:
Net proceeds from issuance
of capital stock 7,823,821
____________ ____________ _________
NET INCREASE/(DECREASE) IN
NET ASSETS (2,575,733) 11,811,602
NET ASSETS
Beginning of period 11,812,602 1,000 1,000
____________ ____________ _________
End of period $9,236,869 $11,812,602 $ 1,000
____________ ____________ _________
See notes to financial statements
</TABLE>
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the
Period
from
1/1/94
Year Ended Year Ended to
9/30/96 9/30/95 9/30/94
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net increase/(decrease)
in net assets resulting
from operations $(2,575,733) $ 3,987,781 $
Adjustments to reconcile
net increase/(decrease)
in net assets resulting
from operations to net
cash (used in) operating
activities:
Change in net unrealized
(appreciation)/depreciation
of investments 1,944,458 (4,479,221)
Realized (gains)/losses
on sale of investments 1,224,982 (2,832,264)
Deferred income tax
(benefit ) provision (783,591) 1,533,200
(Increase)/decrease in
operating assets:
Income taxes receivable (345,511)
Accrued interest receivable 2,315 (2,900)
Other assets 246 118,507
Increase (decrease) in
operating liabilities:
Accrued incentive fee payable (996,947) 996,947
Accounts payable and
accrued expenses (2,523) (90,818)
Income taxes payable (132,008) 132,008
____________ ___________ ________
Net cash flows (used in)
operating activities (1,664,312) (636,760) ---
____________ ___________ ________
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of securities (3,025,360) (11,263,743)
Proceeds from sale of
securities 3,026,288 6,146,546
Proceeds from securities
sold short, not yet purchased 78,778 22,999
____________ ___________ ________
Net cash flows provided by
(used in) investing activities 79,706 (5,094,198) ---
____________ ___________ ________
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of common stock 9,560
Increase in additional
paid-in capital 7,814,261
____________ ___________ ________
Net cash flows provided
by financing activities 7,823,821 ---
____________ ___________ ________
Net increase/(decrease)
in cash and cash equivalents (1,584,606) 2,092,863
CASH AND CASH EQUIVALENTS,
at the beginning of the period 2,093,863 1,000 1,000
____________ ___________ ________
CASH AND CASH EQUIVALENTS,
at the end of the period $ 509,257 $ 2,093,863 1,000
____________ ___________ ________
SUPPLEMENTAL DISCLOSURE:
Income Taxes paid, net $ 366,409 $ 410,521 ---
____________ ___________ ________
Interest Paid $ 10,189 $ --- $ ---
____________ ___________ ________
</TABLE>
See notes to financial statements
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
SCHEDULE OF INVESTMENTS(1)
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
TYPE OF ISSUE
SHARES OR AND ORIGINAL MARKET % OF NET
FACE VALUE NAME OF ISSUER COST VALUE ASSETS
Other Investments
Common Stock
<S> <C> <C> <C> <C>
607,400 Computervision Corp.
New $3,177,562 $5,314,750 57.54%
40,176 OrNda Healthcorp 575,969 1,099,818 11.91%
148,824 Seaman Furniture
Co., Inc. 2,676,725 2,753,244 29.81%
___________ __________
6,430,256 9,167,812
___________ __________
Option Contract
118 S & P 500 Index/Dec/
625/Puts 233,345 50,150 .54%
___________ __________
Total Investments $6,663,601 $9,217,962
___________ ___________
(1) Notes to Schedule of Investments: The above investments are non-income
producing. Equity investments that have not paid dividends within the last
twelve months are considered to be non-income producing. See Note 1.
</TABLE>
<PAGE>
<TABLE>
CORPORATE RENAISSANCE GROUP, INC.
SCHEDULE OF CALL OPTIONS WRITTEN
SEPTEMBER 30, 1996
<CAPTION>
NUMBER OF
CONTRACTS TYPE OF ISSUE PROCEEDS MARKET VALUE
Option Contracts
<S> <C> <C> <C>
39 S & P 500 Index/Dec/700 $41,827 $ 61,425
__________ _______
These contracts were written during the year ended September 30, 1996.
See notes to financial statements
</TABLE>
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. Organization and Operation of the Company
Corporate Renaissance Group, Inc. (the "Company") was incorporated under
the laws of the state of Delaware on June 19, 1992. The Company is a non-
diversified, closed-end investment company which has elected to be treated as a
business development company ("BDC") under the Investment Company Act of 1940,
as amended by the Small Business Incentive Act of 1980. The Company offers
investors the opportunity to participate in investments in companies which the
Company believes have viable existing businesses generating substantial revenues
in established markets, and have recently completed or are in the process of
undergoing financial restructuring ("Reorganized Companies") and where, as a
result, the Company can ultimately obtain an equity position at a discount from
market value for comparable companies that are not financially troubled. The
Company's investments are generally not expected to produce meaningful levels of
investment income. It is the Company's objective to select investment
opportunities which the Company believes offer the potential for substantial
capital appreciation.
The Company completed its initial public offering and commenced operations
on November 1, 1994. The Company consummated the initial public offering (the
"Domestic Offering") and an overseas offering (the "Overseas Placement") of
956,000 shares at $10.00 per share. Pursuant to the Domestic Offering, 600,000
shares were sold; 356,000 shares were sold in the Overseas Placement (including
45,000 shares sold to Union d'Etudes et d'Investissments ("UI")). The net
proceeds to the Company of both the Domestic Offering and Overseas Placement
were $7,823,821 after deducting all costs associated with the registration and
offering, resulting in an initial net asset value per share of $8.18.
2. Significant Accounting Policies
a. Valuation of Securities
The Company's securities which are subject to last-sale reporting are
valued by reference to the market price on a national securities exchange or as
reported on the National Association of Securities Dealers Automated Quotation
('NASDAQ") System. Other unlisted securities are valued at representative "bid"
quotations if held long by the Company and representative "asked" quotations if
held short by the Company. The value of securities for which market quotations
are not readily available and securities as to which the Company believes the
method of valuation set forth above does not fairly reflect market value are
determined by one or more independent third parties selected by the Investment
Advisor.
b. Recognition of Security Transactions and Related Investment Income
Security transactions are recorded on the date the order to buy or sell is
executed (the trade date). Dividend income is recognized on the ex-dividend
date and interest income is recognized on an accrual basis. The net realized
gains and losses in sales of securites are determined on a first in, first out
or specific identification basis.
c. Accounting for Foreign Exchange Gains and Losses
Investments denominated in foreign currencies are translated into U.S.
dollars at the closing foreign exchange rate. Resulting foreign exchange gains
and losses are reflected in the change in net unrealized appreciation of
investments.
d. Income Taxes
The Company is not entitled to the special treatment available to regulated
investment companies and is taxed as a regular corporation for federal and state
income tax purposes. The Company has accounted for income taxes in accordance
with FASB Statement No. 109, "Accounting for Income Taxes." The aggregate cost
of securities at September 30, 1996 for federal income tax purposes and
financial reporting purposes was the same.
e. Cash and Cash Equivalents
For the purpose of reporting cash flows, cash and cash equivalents consist
of cash and short-term interest-bearing deposits.
3. Income Taxes
The components of income tax expense/(benefit) on pre-tax loss of
$(3,880,234) are as follows:
Federal:
Current $(535,202)
Deferred (791,693)
_________
(1,326,895)
State and Local:
Current 14,292
Deferred 8,102
_________
22,394
__________
Total $(1,304,501)
Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. For example, unrealized gains or losses on investments are not
recognized for tax purposes until realized and therefore creates a temporary
difference. The components of the Company's deferred income tax liability is
comprised of the following.
Deferred tax liability:
Net unrealized appreciation on investments $894,840
Deferred tax assets:
Net operating loss carryforwards (145,231)
_________
Net deferred tax liability $749,609
The Company's effective income tax rate and the U.S. federal statutory rate
are substantially the same. The benefit from the graduated federal tax rate is
offset by the state and local tax liability.
4. Financial Advisory and Investment Banking Fees and
Other Transactions with Affiliates and Related Parties
The Company has retained M.D. Sass Investors Services, Inc. (the
"Investment Adviser") as the Company's investment adviser. The Investment
Adviser is a registered investment adviser under the Investment Advisers Act of
1940, as amended. The Investment Adviser is part of a group of affiliated
investment advisers and other affiliated entities comprising the M.D. Sass
organization ("M.D. Sass"). Upon completion of the Company's offering of its
common shares, the Company entered into a two-year Financial Advisory Agreement
with the Investment Adviser, pursuant to which the Investment Adviser will
receive a base fee of $200,000 per annum, for furnishing the Company with
administrative services, including necessary executive, administrative, internal
accounting and support services. In addition to the base fee, the Investment
Adviser will receive an incentive fee for its investment advisory services equal
to 20% of the increase in net asset value of the Company's shares, as defined in
the Financial Advisory Agreement. There were no incentive fees earned or
payable at September 30, 1996.
The Company has entered into an Investment Banking Agreement with UI USA,
the United States subsidiary of UI, for a period of one year, ending October 31,
1996. Pursuant to this agreement, UI USA furnishes investment banking services
to the Company for a fee of $100,000 per annum. Such services consist of
assisting the Company and Investment Adviser in the evaluation, structuring and
negotiation of investment opportunities.
5. Board of Directors Fees
The Company pays each of its five independent directors an annual fee of
$10,000 for their services.
6. Investment Transactions
As of September 30, 1996 the accumulated net unrealized appreciation on
investments was $2,534,763, consisting of $2,737,556 of gross unrealized
appreciation and $202,793 of gross unrealized depreciation.
7. Concentration of Credit Risk and Off-Balance Sheet Risk
The Company engages in security purchase and sale transactions with
regulated broker-dealers. In connection with these transactions, the Company
may be subject to credit risk in the event the counterparty or the Company's
regulated clearing brokers cannot fulfill their contractual obligations. In
addition, at September 30, 1996, the Company had concentrations consisting of
short-term interest-bearing deposits of $509,187 with its primary broker.
The Company's activities with off balance sheet risk include the writing of
traded options. The Company is subject to market risk associated with changes
in the value of the underlying stock index. Index options are used to hedge
risks to the portfolio of broad economic movements as reflected in the overall
level of the stock market. As a writer of options, the Company receives a
premium at the outset, and then bears the risk of unfavorable changes in the
price of the stock index underlying the option. All option positions are
reported at market and any changes in market are reflected in income.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
(a) (1) (i) The Company terminated Feldman Radin & Co., P.C.
("FRC") as its auditors on December 15, 1994.
(ii) During the Company's past two fiscal years, FRC's
reports on the Company's financial statements neither contained
any adverse opinions or disclaimers of opinions nor were
qualified or modified as to uncertainty.
(iii) The decision to terminate its relationship with
FRC was approved by the Board of Directors of the Company.
(iv) During the past two fiscal years, there were no
disagreements with FRC on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or
procedure, which disagreements, if not resolved to the
satisfaction of FRC, would have caused it to make reference to
the subject matter of the disagreements in connection with its
reports.
(2) Pursuant to action approved by the Company's Board of Directors,
the Company retained Ernst & Young LLP as its auditors as of December
15, 1994.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Officers and Directors
Listed below are the name, age and position with the Company of each of the
Company's officers and directors. All directors of the Company are serving a
current term of office which continues until the next annual meeting of
stockholders, and all officers are serving a current term of office which
continues until the next annual meeting of directors.
Name and Age Position with the Company
Martin D. Sass (54)* Chairman of the Board,
Chief Executive Officer and Director
Hugh R. Lamle (51)* Executive Vice President and Director
James B. Rubin (42)* Senior Vice President and Director
Martin E. Winter (42)* Secretary-Treasurer
Thomas M. Garvin (61) Director
Lawrence W. Leighton (62) Director
Edward Lowenthal (51) Director
Daniel R. Mazziota (59) Director
Guy E. Waldvogel (60) Director
_________________________
*Director who is an "Interested Person" within the meaning of the 1940 Act.
The following is a detailed description of the profession and business
background of each officer and director.
MARTIN D. SASS is an executive officer and principal of the Investment
Adviser and various affiliated registered investment advisers and other entities
which comprise the M.D. Sass organization ("M.D. Sass"), founded by Mr. Sass in
1972. Prior to founding M.D. Sass, Mr. Sass was President and principal
shareholder of Neuwirth Management and Research Corp. from 1969 to 1972, where
he managed several portfolios and mutual funds. Mr. Sass was also a security
analyst at Argus Research Corp. from 1963 to 1969, where he founded and directed
the Special Situations Department. Mr. Sass holds a B.S. degree in Accounting
from Brooklyn College, and has also studied finance in graduate programs in New
York University and City College of New York.
HUGH R. LAMLE is Executive Vice President and a principal of M.D. Sass,
which he joined in 1974. Mr. Lamle is responsible for the formulation of fixed
income and quantitative investment policy and strategy, directing the management
at M.D. Sass of debt securities portfolios and directing the firm's new products
research efforts. Prior to joining M.D. Sass, Mr. Lamle in 1972 founded Lenox
Capital Management, the investment management subsidiary of DuPont Glore Forgan,
Inc. Mr. Lamle holds a B.A. degree in Political Science and Economics from
Queens College and an M.B.A. degree in Finance and Investments from Baruch
College.
JAMES B. RUBIN joined M.D. Sass as Senior Managing Director in 1989, with
over 15 years experience in advising firms in reorganizations and other special
situations. At M.D. Sass, Mr. Rubin is head of the firm's Restructured
Securities Management Division. Mr. Rubin also serves as a director of Seaman
Furniture Company, Inc. and Chairman of the Board of Directors of Ranger
Industries, Inc. From 1986 until joining M.D. Sass, he was the principal of
J.B. Rubin and Company. From 1985 to 1986, Mr. Rubin was a Senior Financial
Analyst with Smith Vasiliou and its affiliates, including the distressed
securities brokerage firm of R.D. Smith & Company, Inc. Mr. Rubin is a graduate
of Cornell University, with an undergraduate degree in Industrial Engineering.
He also participated in graduate M.B.A. studies in Finance at Cornell and Pace
Universities.
MARTIN E. WINTER is Senior Vice President Finance and Administration of
M.D. Sass, having joined the firm in 1988. He was previously a principal in the
Financial Services Industry and Mergers and Acquisitions Groups of Arthur Young
& Company (predecessor to Ernst & Young LLP) in New York, and he has 20 years of
diverse financial experience. He is a certified public accountant and obtained
his B.S. in Accounting from the Wharton School of the University of
Pennsylvania. Mr. Winter also has a M.A. in Economics from the University of
Pennsylvania.
THOMAS M. GARVIN served in various executive capacities at Keebler Company,
the second largest U.S. manufacturer and marketer of cookies and crackers, from
1969 to 1993, including those of President and Chief Executive Officer from 1978
to 1993 and Chief Operating Officer from 1976 to 1978. During his tenure at
Keebler Company, the company progressed from a single product biscuit company to
its current position of prominence in the baking and snack industries. Mr.
Garvin holds B.S. and M.B.A. degrees from Loyola University and is a certified
public accountant.
LAWRENCE W. LEIGHTON was a Managing Director of L.M. Capital, an investment
banking and buy-out firm, from September 1994 to January 1996. From January
1994 to December 1994, he also was Vice Chairman of 21, Inc., a publicly-held
company. From January 1989 to January 1994, Mr. Leighton was President and
Chief Executive Officer of UI USA, the United States merchant bank of Credit
Agricole, a large French-based bank. From 1982 until joining UI USA, Mr.
Leighton was Managing Director responsible for the international mergers and
acquisitions activity of Chase Investment Bank. From 1977 until 1982. Mr.
Leighton was a limited partner in the mergers and acquisitions department of
Bear, Stearns & Co. and from 1974 until 1977, he was Director of Strategic
Planning of Norton Simon, Inc. Mr. Leighton is a graduate of Princeton
University with a B.S.E. degree in Engineering and holds an M.B.A. degree from
Harvard Business School.
EDWARD LOWENTHAL is a founder, and since 1992 has served as trustee and
President, of Wellsford Residential Property Trust ("WRP"), a New York Stock
Exchange listed real estate investment trust. In 1992, WRP succeeded to the
business of Wellsford Group, Inc.'s (the "Wellsford Group") multifamily
affiliates, which had acquired and operated multifamily properties in the
Southwestern and Northwestern states since 1988. Mr. Lowenthal serves as a
director of United American Energy Corporation, a major developer, owner and
operator of hydroelectric and other alternative energy facilities, a director of
Omega Healthcare, Inc., a healthcare real estate investment trust; and as a
trustee of Corporate Realty Income Trust, a real estate investment trust
sponsored by Smith Barney Shearson Inc. Mr. Lowenthal is a member of the Board
of Governors of the National Association of Real Estate Investment Trusts.
Prior to Wellsford Group's formation, Mr. Lowenthal was engaged in the practice
of law for 15 years, and was a partner of the New York City law firm of
Robinson, Silverman, Pearce, Aronsohn & Berman from 1981 to 1984. In 1984 Mr.
Lowenthal entered investment banking as a Managing Director of A.G. Becker
Paribas and then as a partner of Bear Stearns & Co. Inc. As an investment
banker, he was active in structuring and negotiating transactions and raising
the equity in a number of large real estate equity private placements. Mr.
Lowenthal holds a B.A. degree from Case Western Reserve University and a J.D.
degree from Georgetown University Law Center.
DANIEL R. MAZZIOTA is principal of RSA Executive Search ("RSA"), which was
founded in 1978. RSA specializes in recruitment of key executives and
management personnel in the consumer goods and services, healthcare and
pharmaceutical, finance, electronics and telecommunications industries. In
1967, Mr. Mazziota founded Microwave Power Devices, Inc. ("MPD"), which was sold
to M/A-Com, Inc. in 198 1. Mr. Mazziota continued as President of MPD until
1987. when he became Chairman of RSA. Mr. Mazziota also serves as President of
IDM Consulting, which provides business consulting in the high technology
mergers and acquisitions field. Mr. Mazziota holds Bachelors and Masters
degrees in Electrical Engineering from New York Polytechnic Institute.
GUY E. WALDVOGEL has been an independent consultant specializing in the
management of troubled companies in Europe since September 1989. From 1983 to
1989, he was the Senior Executive Vice President of Societe Generale de
Surveillance, which provides services to foreign governments in ensuring that
imports and exports comply with weight, safety and engineering standards. From
1981 to 1983, Mr. Waldvogel served as President and Chief Executive Officer of
North American Holding of Alusuisse-Lonza Aluminum and Chemicals Group. He was
President and Chief Executive Officer of Givaudan, a subsidiary of Hoffman-
LaRoche, from 1973 to 1981, and held other positions within Hoffman-LaRoche from
1965 until 1973.
Indemnification of Directors and Officers
As permitted by Delaware law, the Company's Certificate of Incorporation
contains an article limiting the personal liability of directors. The
Certificate of Incorporation provides that a director of the Company shall not
be personally liable for monetary damages for a breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the General Corporation Law of the State of Delaware, which prohibits the
unlawful payment of dividends or the repurchase or redemption of stock, or
(iv) for any transaction from which the director derived an improper personal
benefit. The Company's Certificate of Incorporation also provides that the
Company will indemnify all persons (including officers, directors and employees)
whom it is empowered to indemnify pursuant to the provisions of Section 145 of
the Delaware General Corporation Law (or any similar provision of applicable law
at the time in effect) to the full extent permitted thereby. The foregoing
provisions are subject, however, to Section 17(h) of the 1940 Act which
provides, in part, that neither the Certificate of Incorporation nor the by-laws
of any BDC shall contain a provision which protects or purports to protect any
officer or director of such BDC against any liability to such company or its
security holders to which he would otherwise be subject due to his willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. The Company currently maintains $5.0
million of officer and director liability insurance.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers, directors and holders of more than ten percent of the
Company's Common Stock, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission and Nasdaq. Such persons are
required to furnish the Company with copies of all Section 16(a) forms they
file. During the year ended September 30, 1996, all filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Executive Officers and Directors
No cash compensation was paid by the Company to any of its executive
officers during either fiscal 1996 or fiscal 1995. It is not anticipated that
executive officers will receive direct cash compensation in the foreseeable
future.
Each director who is not an executive officer of the Company is compensated
for his services at a fee of $10,000 per annum. Each director is also
reimbursed for travel and other out-of-pocket disbursements actually incurred in
the business of the Company.
Executive officers and directors of the Company are permitted to retain any
compensation received for services to other companies, including companies in
which the Company invests and to which it renders managerial assistance.
Financial Advisory Agreement and Fees
The Investment Adviser
The Company has retained M.D. Sass Investors Services, Inc. (the
"Investment Adviser") as the Company's investment adviser to identify,
negotiate, manage and liquidate investments for the Company. The Company
invests only in transactions recommended by the Investment Adviser.
The Investment Adviser is a registered investment adviser under the
Investment Advisers Act of 1940. The Investment Adviser is part of a group of
affiliated investment advisers and other affiliated entities comprising the M.D.
Sass organization ("M.D. Sass"). Founded in 1972, M.D. Sass is engaged in
investment management for approximately 100 clients, including pension and
profit sharing funds, municipal employee benefits funds, insurance companies,
endowment and charitable funds, large corporations and wealthy individuals.
M.D. Sass currently has approximately $9 billion in assets under management.
The Investment Adviser and certain other M.D. Sass affiliates currently
serve as general partners of M.D. Sass Re/Enterprise Partners, L.P.
("Re/Enterprise Partners") and M.D. Sass Re/Enterprise-II, L.P.
("Re/Enterprise-II"), private limited partnerships which have investment
objectives similar to that of the Company, achieving long-term
capital appreciation of its assets by investing primarily in securities
of companies that are experiencing significant financial or business
difficulties.
Re/Enterprise Partners, formed in October 1989, had approximately $167
million in assets as of September 30, 1996. Re/Enterprise-II, formed in
February 1996, had approximately $24 million in assets as of the same date.
Re/Enterprise Partners was a member of a group which acquired a
controlling interest in Seaman Furniture Company, Inc., a 24 store
furniture retailer headquartered in the New York City area, and
Re/Enterprise Partners assisted such company in a Restructuring.
Re/Enterprise Partners also participated in the Restructurings of other
companies, including Memorex Telex Corp., Emerson Radio Corp., Ranger
Industries, Inc. (formerly known as Coleco, Inc.), SPI Holding, Inc.,
Leaseway Transportation Corp. and Forstmann & Company, Inc.
In addition to Re/Enterprise Partners, the Investment Adviser and/or other
affiliates of M.D. Sass serve as general partners of a more aggressive, higher-
risk private limited partnership that invests in financially troubled companies,
and other private limited partnerships that invest in municipal and government
securities and distressed real estate that appears to have a potential for
recovery, and as investment adviser to a private offshore investment company
pursuing investment strategies similar to Re/Enterprise Partners and the
Company, as well as a corporate pension fund of a Fortune 100 company.
The principals of the Investment Adviser and other affiliates of M.D. Sass
are Martin D. Sass and Hugh R. Lamle, each of whom serves as an officer and
director of the Company. Martin E. Winter, an officer of the Investment Adviser
and other affiliates of M.D. Sass, serves as an officer of the Company. In
addition, Mr. Rubin serves as an officer and director of the Company.
The offices of the Investment Adviser are located at 1185 Avenue of the
Americas, 18th Floor, New York, New York 10036, and its telephone number is
(212) 730-2000.
The Financial Advisory Agreement
The Company is party to a Financial Advisory Agreement with the Investment
Adviser (the "Financial Advisory Agreement"). The Investment Adviser's duties
under the Financial Advisory Agreement include locating, structuring, acquiring,
monitoring and disposing of investments for the Company. The Company only makes
investments recommended by the Investment Adviser. In addition, the Investment
Adviser also provides administrative services to the Company, including all
necessary executive, administrative, internal accounting and support services
and furnishes the Company with necessary office space. The activities of the
Investment Adviser on behalf of the Company are subject to the supervision of
the independent Directors of the Company.
Pursuant to the Financial Advisory Agreement, the Investment Adviser
receives a base fee of $200,000 per annum for furnishing the Company with the
administrative services described above.
In addition to the base fee, the Investment Adviser will receive an
incentive fee for its investment advisory services equal to 20% of net new
appreciation, if any, in the net asset value of the shares of Common Stock
outstanding. No incentive fee will be paid until the shares of Common Stock
issued in the IPO and the Overseas Placement have been outstanding for at least
one year, and then only if there is net new appreciation in the net asset value
of such shares of Common Stock, adjusted for all operating expenses, including
accruals for any tax liabilities on income or realized gains from portfolio
transactions. If the net asset value of the shares of Common Stock has
increased beyond their "initial net asset value," the Investment Adviser will
receive 20% of such net new appreciation during the one-year period. A new
calculation will be made at the end of each calendar quarter thereafter, with
the Investment Adviser receiving 20% of any net new appreciation occurring
during the preceding four calendar quarters. Thus, the fee is computed and paid
on a "rolling quarter" basis. For purposes of the Financial Advisory Agreement,
"initial net asset value" equals the gross proceeds from the sale of the shares
of Common Stock in the IPO and the Overseas Placement, less all underwriting
discounts, commissions, fees and expenses related to the sale of such shares and
amounts allocated to payment of the Company's operating expenses, including
payment of base fees under the Financial Advisory Agreement and fees under an
investment banking agreement (the "Investment Banking Agreement") with UI USA,
Inc., an investment banking firm, which Investment Banking Agreement expired in
October 1996.
At any time the incentive fee is to be calculated, if the net asset value
per share previously has reached a level at which an incentive fee was paid (a
"previous high peak"), an additional incentive fee will be paid only on the
incremental appreciation of the shares of Common Stock over the shares' net
asset value after payment of the previous incentive fee at such peak. In no
event will an incentive fee be paid for recoupment of losses. Thus, if the net
asset value of the shares of Common Stock falls below the initial net asset
value, or the previous high peak at which the incentive fee was paid (less the
incentive fee paid at such level), no incentive fee will be due the Investment
Adviser. The Investment Adviser will only be entitled to a further incentive
fee if the net asset value of the shares increases beyond the initial net asset
value, or its net asset value following payment of the incentive fee at the
previous high peak, as the case may be. Notwithstanding the foregoing,
incentive fees payable to the Investment Adviser under the Financial Advisory
Agreement will not exceed the maximum amount which the Investment Adviser is
entitled to receive under the 1940 Act. During the year ended September 30,
1996 and the period from November 1, 1994 (commencement of operations) to
September 30, 1995, the Company accrued fees payable to the Investment Adviser
of $224,128 and $996,947, respectively.
The Investment Adviser bears the expense of maintaining the staff necessary
for performing its obligations under the Financial Advisory Agreement and all
other expenses associated with its duties as Investment Adviser. Other than
fees payable under the Financial Advisory Agreement and Investment Banking
Agreement, the Company bears no operating expenses other than normal operating
expenses such as legal and auditing fees, taxes and all direct expenses related
to an investment including all investment, legal and accounting expenses.
The Financial Advisory Agreement had an initial term of two years (through
October 1996) and thereafter continues from year to year if approved by a
majority of independent directors and unless not less than 30 days prior written
notice is given by a party of its intention not to renew. In November 1996, the
independent directors of the Company approved the renewal of the Financial
Advisory Agreement for a one-year period. The Financial Advisory Agreement is
not assignable and may be terminated by either party upon 60 days prior written
notice given to the other party.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 16, 1996, the beneficial
ownership of the shares of Common Stock of the Company of (i) each person known
by the Company to beneficially own more than five percent of the Common Stock,
(ii) each director of the Company, (iii) the Company's Chief Executive Officer
and (iv) all officers and directors as a group.
<TABLE>
<CAPTION>
Amount and
Name and Address Nature
of Beneficial Stockholder of Beneficial Percentage of
or Identity of Group(1) Ownership Common Stock
Officers and Directors:
<S> <C> <C>
Martin D. Sass 71,300 7.5
Hugh R. Lamle 48,600 5.1
James B. Rubin -0- -0-
Thomas M. Garvin -0- -0-
Lawrence W. Leighton 1,000 *
Edward Lowenthal 3,000 *
Daniel R. Mazziota 200 *
Guy E. Waldvogel -0- *
All Officers and Directors as a
group (nine persons) 119,300(2) 12.6
5% or Greater Shareholders:
Curators Partners, L.P. 69,634(3)(4) 7.4
420 Lexington Avenue
New York, New York
Millenium Trading Co. 48,850(3) 5.2
111 Broadway
20th Floor
New York, New York 10006
Robert Schneider 52,945(3)(5) 5.6
2 Broadway
New York, New York 10004
____________________
*Less than one percent
(1) Unless otherwise indicated, the address of each beneficial owner is c/o the
Company, 1185 Avenue of the Americas, 18th Floor, New York, New York 10036.
(2) Includes 200 shares of Common Stock held by Martin E. Winter, the Company's
Secretary-Treasurer.
(3) Based on a Schedule 13D filed with the SEC.
(4) Includes 45,000 shares of Common Stock held by certain accounts managed by
Curators Capital Management, Inc., an affiliate of Curators Partners, L.P.
(5) Includes 12,000 shares of Common Stock owned jointly with Mr. Schneider's
spouse. Excludes 18,650 shares of Common Stock owned by Mr. Schneider's
spouse over which Mr. Schneider disclaims beneficial ownership and 31,449
shares owned by RAS Securities Corp., a registered broker-dealer, acquired
in its ordinary course of business and over which Mr. Schneider has voting
and dispositive power.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Item 11. Executive Compensation" with respect to the Financial
Advisory Agreement entered into with the Investment Adviser.
As described in "Item 1. Business," the Company invests from time to time
jointly with affiliates of the Investment Adviser subject to restrictions under
the 1940 Act and conditions set forth in an exemptive order granted by the SEC.
The Company from time to time also effects securities sales to or purchases
from affiliates of the Investment Adviser pursuant to a plan adopted in
accordance with Rule 17a-7 under the 1940 Act.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) Financial Statements
Reference is made to the Index to Financial Statements of Corporate
Renaissance Group, Inc. included in Part II, Item 8, of this Report.
(2) Financial Statement Schedules
All schedules for which provision is made in applicable regulations of
the SEC are not required under the related instructions, are
inapplicable or the required information has been included in the
Financial Statements and therefore such schedules have been omitted.
(3) Exhibits
Exhibit Description of Exhibit
1 Form of Amended and Restated Certificate of Incorporation(1)
2 By-Laws, as amended(1)
4 Form of Common Stock certificated(1)
10.2 Revised Form of Financial Advisory Agreement between the
Company and M.D. Sass Investors Services, Inc.(1)
16 Letter regarding change in Certifying Accountants(2)
27.1 Financial Data Schedule (SEC use only)
_________________________
(1) Previously filed as an Exhibit of the same number to the Company's
Registration Statement on Form N-2 (File No. 33-50424), and incorporated
herein by reference.
(2) Previously filed as an Exhibit of the same number to the Company's Current
Report on Form 8-K for event occurring December 12, 1994 and incorporated
herein by reference.
(b) Reports on Form 8-K
None.
(c) Item 601 Exhibits
The exhibits required by Item 601 of Regulation S-K are set forth in (a)(3)
above.
(d) Financial Statement Schedules
The financial statement schedules required by Regulation S-K are set forth
in (a)(2) above.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has caused the report or amendment thereto to be signed on
its behalf by the undersigned, thereunto duly authorized.
CORPORATE RENAISSANCE GROUP, INC.
By: /s/ Martin D. Sass
Martin D. Sass
Chairman of the Board and
Chief Executive Officer
Dated: December 30, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated.
Signatures Title Date
/s/ Martin D. Sass
_____________________ Chairman of the Board, Chief December 27, 1996
MARTIN D. SASS Executive Officer and Director
(Principal Executive Officer)
/s/ Hugh R. Lamle
_____________________ Executive Vice President December 27, 1996
HUGH R. LAMLE and Director
/s/ James B. Rubin
_____________________ Senior Vice President December 27, 1996
JAMES B. RUBIN and Director
/s/ Martin E. Winter
_____________________ Secretary-Treasurer (Principal December 27, 1996
MARTIN E. WINTER Financial and Accounting Officer)
/s/ Thomas M. Garvin
_____________________ Director December 27, 1996
THOMAS M. GARVIN
/s/ Lawrence W. Leighton
_____________________ Director December 27, 1996
LAWRENCE W. LEIGHTON
/s/ Edward Lowenthal
_____________________ Director December 27, 1996
EDWARD LOWENTHAL
/s/ Daniel R. Mazziota
_____________________ Director December 27, 1996
DANIEL R. MAZZIOTA
/s/ Guy E. Waldvogel
_____________________ Director December 27, 1996
GUY E. WALDVOGEL
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 509,257
<SECURITIES> 9,217,962
<RECEIVABLES> 346,096
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,247
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,079,562
<CURRENT-LIABILITIES> 842,693
<BONDS> 0
0
0
<COMMON> 9,561
<OTHER-SE> 9,227,308
<TOTAL-LIABILITY-AND-EQUITY> 10,079,562
<SALES> 0
<TOTAL-REVENUES> (3,140,539)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 738,330
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,365
<INCOME-PRETAX> (3,880,234)
<INCOME-TAX> (1,304,501)
<INCOME-CONTINUING> (2,575,733)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,575,733)
<EPS-PRIMARY> (2.70)
<EPS-DILUTED> 0
</TABLE>
