Further to your recent telephone conversations with Mr Peter Smith, he has asked me to send you a copy of the attached memo, obtained from our Hollis Industries plc ("Hollis") audit files for the eighteen months ended 30 June 1990.

The memo documents advice from Mr Michael Stoney to Mr P Kerr, the then financial controller of Hollis, to accrue for a £200,000 management fee payable to you, in the accounts of Hollis for that period.

The annotated note at the bottom of the memo indicates that we were informed that this amount had not, at that time, been paid. From a review of our other working papers, it would appear that this information was probably provided to us in late November 1990. Our audit report on the Hollis accounts, which was signed on 24 January 1991, was qualified and, beyond this note, we have no other evidence on which we can now determine whether or not the amount was subsequently paid.

We are providing this information on the basis that it is confidential to you and your immediate advisers and is not for publication.

10 June 1998

  Internal Memo to Mr P Kerr from Mr Michael Stoney, Pergamon AGB plc

Re: HOLLIS INDUSTRIES MANAGEMENT ACCOUNTS

I enclose herewith a copy of a letter I have received from Michael Dunlaevy in connection with the July management accounts.

I would be grateful if you would note his comments in connection with Multiphase and ensure that these recommendations are incorporated in the September management accounts.

In addition, you should also include in the September figures:

1.   provision of £280K in respect of the reduction in the sale proceeds for Floform.

2.   provision of £200K for management fees for Geoffrey Robinson (this should be provided in the figures to 30 June 1990).

3.   provision of £118K for payment to Pergamon AGB in respect of Milthorp debts (this should also be included in the figures to 30 June 1990).

16 November 1990

[Manuscript note on point 2 above:

The £200K provision for management fees is based on this inter office memo. It has not yet been paid for at time of examination on .............. No other form of evidence is available.

		Dr	Cr
Dr	P+L	200K
Cr	accruals		200K.]

  Letter to Mr Geoffrey Robinson MP from Mr M B Stoney

You asked me in March to look into the £200,000 remuneration shown in the accounts of Hollis Industries plc for the eighteen month period to 30 June 1990.

I was, of course, a non executive Director of Hollis Industries plc, which was the subject of a management buy out from Hollis plc, of which I was Finance Director. I resigned my directorship of Hollis Industries plc on 3 October 1991. You were appointed non-executive chairman of Hollis Industries plc on 9 July 1988 (at the time of the buy out).

I have reviewed, to refresh my memory, the files held by Arthur Anderson, the administrators, where they were stored after the company went into receivership. Unfortunately, due to the difficulties in locating and retrieving these files from storage, this has taken longer than expected.

I have reviewed both the nominal ledger and the cashbooks of the company for both the accounting period to 30 June 1990, and the subsequent accounting period to 31 December 1990. I found no trace of any remuneration having been made to you throughout that period.

I have now seen a copy of a memo supplied to you by the then auditors, Coopers & Lybrand, in which I requested that provision of £200,000 be made for the chairman's remuneration. I do not remember writing that memo, but it is clear you received no remuneration and that any error was made which was not reversed in the subsequent year's accounts.

I am satisfied that you never received the £200,000 from Hollis Industries plc, despite the entry in the accounts.

12 June 1998