1
Exhibit 99.3
NEW VALLEY CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
2
NEW VALLEY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE
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Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of September 30,
1998 and December 31, 1997.................................... 3
Condensed Consolidated Statements of Operations for the
three months and nine months ended September 30, 1998
and 1997...................................................... 4
Condensed Consolidated Statement of Changes in
Stockholders' Deficiency for the nine months
ended September 30, 1998...................................... 5
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1998 and 1997................. 6
Notes to the Condensed Quarterly Consolidated Financial
Statements.................................................... 7
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NEW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
September 30, December 31,
1998 1997
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents ...................................... $ 25,463 $ 11,606
Investment securities available for sale ....................... 26,420 51,993
Trading securities owned ....................................... 15,703 49,988
Restricted assets .............................................. 1,843 232
Receivable from clearing brokers ............................... 1,854 1,205
Other current assets ........................................... 2,581 3,618
---------- ----------
Total current assets ...................................... 73,864 118,642
---------- ----------
Investment in real estate, net ..................................... 80,479 256,645
Furniture and equipment, net ....................................... 10,845 12,194
Restricted assets .................................................. 5,767 5,484
Long-term investments, net ......................................... 9,689 27,224
Investment in joint venture ........................................ 63,713 --
Other assets ....................................................... 6,524 21,202
---------- ----------
Total assets .............................................. $ 250,881 $ 441,391
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Margin loan payable ............................................ $ 1,470 $ 13,012
Current portion of notes payable and other long-term obligations -- 760
Accounts payable and accrued liabilities ....................... 31,466 57,722
Prepetition claims and restructuring accruals .................. 12,379 12,611
Income taxes ................................................... 18,715 18,413
Securities sold, not yet purchased ............................. 3,208 25,610
---------- ----------
Total current liabilities ................................. 67,238 128,128
---------- ----------
Notes payable ...................................................... 55,083 173,814
Other long-term obligations ........................................ 20,571 11,210
Redeemable preferred shares ........................................ 300,711 258,638
Commitments and Contingencies ...................................... -- --
Stockholders' deficiency:
Cumulative preferred shares; liquidation preference of $69,769;
dividends in arrears, $158,908 and $139,412 ................. 279 279
Common Shares, $.01 par value; 850,000,000 shares authorized;
9,577,624 shares outstanding ................................ 96 96
Additional paid-in capital ..................................... 564,234 604,215
Accumulated deficit ............................................ (750,145) (742,427)
Unearned compensation on stock options ......................... (15) (158)
Accumulated other comprehensive income ......................... (7,171) 7,596
---------- ----------
Total stockholders' deficiency ............................ (192,722) (130,399)
---------- ----------
Total liabilities and stockholders' deficiency ............ $ 250,881 $ 441,391
========== ==========
See accompanying Notes to Quarterly Condensed Consolidated Financial Statements
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NEW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Revenues:
Principal transactions, net ........................... $ (860) $ 6,131 $ 7,476 $ 11,857
Commissions ........................................... 6,510 4,235 20,663 11,059
Corporate finance fees ................................ 259 3,555 4,541 8,202
Gain on sale of investments, net ...................... 1,815 1,466 10,377 8,518
Loss in joint venture ................................. (1,746) -- (2,233) --
Real estate leasing ................................... 4,767 7,079 18,488 19,664
Gain on sale of real estate ........................... 4,682 -- 4,682 --
Interest and dividends ................................ 2,033 2,554 7,424 6,677
Computer sales and service ............................ 40 70 499 3,750
Other income .......................................... 1,940 1,614 6,635 6,925
----------- ----------- ----------- -----------
Total revenues .................................... 19,440 26,704 78,552 76,652
----------- ----------- ----------- -----------
Cost and expenses:
Operating, general and administrative ................. 25,109 29,553 84,466 84,090
Interest .............................................. 3,555 4,229 11,167 12,134
Provision for loss on long-term investment ............ -- -- -- 3,796
----------- ----------- ----------- -----------
Total costs and expenses .......................... 28,664 33,782 95,633 100,020
----------- ----------- ----------- -----------
Loss from continuing operations before income taxes
and minority interests ................................ (9,224) (7,078) (17,081) (23,368)
Income tax provision ....................................... 10 24 31 119
Minority interests in loss from continuing operations
of consolidated subsidiaries .......................... 495 528 1,654 1,543
----------- ----------- ----------- -----------
Loss from continuing operations ............................ (8,739) (6,574) (15,458) (21,944)
Discontinued operations:
Gain on disposal of discontinued operations ........... 6,860 -- 7,740 --
----------- ----------- ----------- -----------
Income from discontinued operations ................... 6,860 -- 7,740 --
----------- ----------- ----------- -----------
Net loss ................................................... (1,879) (6,574) (7,718) (21,944)
Dividend requirements on preferred shares .................. (20,743) (17,567) (59,333) (50,297)
----------- ----------- ----------- -----------
Net loss applicable to Common Shares ....................... $ (22,622) $ (24,141) $ (67,051) $ (72,241)
=========== =========== =========== ===========
Loss per Common Share (basic and diluted):
Continuing operations ................................. $ (3.08) $ (2.52) $ (7.81) $ (7.54)
Discontinued operations ............................... 0.72 -- .81 --
----------- ----------- ----------- -----------
Net loss per Common Share ............................. $ (2.36) $ (2.52) $ (7.00) $ (7.54)
=========== =========== =========== ===========
Number of shares used in computation ....................... 9,577,624 9,577,624 9,577,624 9,577,624
=========== =========== =========== ===========
See accompanying Notes to Quarterly Condensed Consolidated Financial Statements
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NEW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' DEFICIENCY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Unearned
Class B Compensation
Preferred Common Paid-In Accumulated on Stock Unrealized
Shares Shares Capital Deficit Options Gain
--------- --------- --------- --------- --------- ---------
Balance, December 31, 1997 .......... $ 279 $ 96 $ 604,215 $(742,427) $ (158) $ 7,596
Net loss ......................... (7,718)
Undeclared dividends and accretion
on redeemable preferred shares . (39,838)
Unrealized gain on investment
securities ..................... (14,767)
Adjustment to unearned
compensation on stock options .. -- -- (143) -- 143 --
--------- --------- --------- --------- --------- ---------
Balance, September 30, 1998 ......... $ 279 $ 96 $ 564,234 $(750,145) $ (15) $ (7,171)
========= ========= ========= ========= ========= =========
See accompanying Notes to Quarterly Condensed Consolidated Financial Statements
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NEW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Nine Months Ended
September 30,
-------------------------
1998 1997
---------- ----------
Cash flows from operating activities:
Net loss .................................................................... $ (7,718) $ (21,944)
Adjustments to reconcile net loss to net cash
used for operating activities:
Income from discontinued operations ....................................... (7,740) --
Loss in joint venture ..................................................... 2,233 --
Depreciation and amortization ............................................. 5,472 6,635
Provision for loss on long-term investment ................................ -- 3,796
Gain on sales of real estate and liquidation of long-term investments ..... (9,452) --
Stock based compensation expense .......................................... 2,215 2,213
Changes in assets and liabilities, net of effects from
acquisitions and dispositions:
Decrease (increase) in receivables and other assets .................... 39,804 (6,881)
Increase in income taxes payable ....................................... 409 86
(Decrease) increase in accounts payable and accrued liabilities ........ (35,831) 5,951
---------- ----------
Net cash used for continuing operations ........................................ (10,608) (10,144)
Net cash provided from discontinued operations ................................. 7,740 --
---------- ----------
Net cash used for operating activities ......................................... (2,868) (10,144)
---------- ----------
Cash flows from investing activities:
Sale or maturity of investment securities ................................. 21,286 37,697
Purchase of investment securities ......................................... (13,352) (20,999)
Sale or liquidation of long-term investments .............................. 25,895 2,807
Purchase of long-term investments ......................................... (8,590) (11,404)
Sale of real estate, net of closing costs ................................. 111,292 --
Purchase of real estate ................................................... (18,387) (6,208)
Sale of other assets ...................................................... 226 5,561
Payment of prepetition claims ............................................. (676) (1,199)
Return of prepetition claims paid ......................................... -- 1,396
Decrease in restricted assets ............................................. (1,894) 2,251
Cash transferred to joint venture ......................................... (487) --
Other ..................................................................... (1,411) --
Payment for acquisitions, net of cash acquired ............................ -- (20,014)
---------- ----------
Net cash provided from (used for) investing activities ......................... 113,902 (10,112)
---------- ----------
Cash flows from financing activities:
Increase in margin loan payable, net ...................................... (11,541) --
Sale of subsidiary's common stock ......................................... -- 5,417
Proceeds from participating loan .......................................... 14,300 --
Proceeds from notes payable ............................................... -- 19,993
Repayment of notes payable to related party ............................... -- (21,500)
Repayment of notes payable ................................................ (99,373) (20,703)
Repayment of other obligations ............................................ (563) (3,526)
---------- ----------
Net cash used for financing activities ......................................... (97,177) (20,319)
---------- ----------
Net increase (decrease) in cash and cash equivalents ........................... 13,857 (40,575)
Cash and cash equivalents, beginning of period ................................. 11,606 57,282
---------- ----------
Cash and cash equivalents, end of period ....................................... $ 25,463 $ 16,707
========== ==========
See accompanying Notes to Quarterly Condensed Consolidated Financial Statements
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NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED QUARTERLY CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. PRINCIPLES OF REPORTING
The consolidated financial statements include the accounts of New Valley
Corporation and Subsidiaries (the "Company"). The consolidated financial
statements as of September 30, 1998 presented herein have been prepared
by the Company without an audit. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary
to present fairly the financial position as of September 30, 1998 and
the results of operations and cash flows for all periods presented have
been made. Results for the interim periods are not necessarily
indicative of the results for an entire year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
These financial statements should be read in conjunction with the
consolidated financial statements in the Company's Annual Report on Form
10-K, as amended, for the year ended December 31, 1997 as filed with the
Securities and Exchange Commission (Commission File No. 1-2493).
Certain reclassifications have been made to prior interim period
financial information to conform with current year presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). The Statement, which the Company adopted in
the first quarter of 1998, establishes standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements. Where applicable, earlier periods
have been restated to conform to the standards established by SFAS No.
130. The adoption of SFAS 130 did not have a material impact on the
Company's financial statements.
For transactions entered into in fiscal years beginning after December
15, 1997, the Company adopted and is reporting in accordance with SOP
97-2, "Software Revenue Recognition". The adoption of SOP 97-2 did not
have a material impact on the Company's financial statements.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1
provides guidance that the carrying value of software developed or
obtained for internal use is assessed based upon an analysis of
estimated future cash flows on an undiscounted basis and before interest
charges. SOP 98-1 is effective for transactions entered into in fiscal
years beginning after December 15, 1998. The Company believes that
adoption of SOP 98-1 will not have a material impact on the Company's
financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information", which establishes standards
for the way that public business enterprises report information about
operating segments. SFAS No. 131 is effective for financial statements
for fiscal years beginning after December 15, 1997. The Company is
currently reviewing its operating segment disclosures and will adopt
SFAS No. 131 in the fourth quarter of 1998.
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In June, 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999. SFAS
133 requires that all derivative instruments be recorded on the balance
sheet at fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. The Company
has not yet determined the impact that the adoption of SFAS 133 will
have on its earnings or statement of financial position.
2. WESTERN REALTY
On January 31, 1997, the Company entered into a stock purchase agreement
with Brooke (Overseas) Ltd. ("Brooke (Overseas)"), a wholly-owned
subsidiary of Brooke Group Ltd. ("Brooke"), an affiliate of the Company,
pursuant to which the Company acquired 10,483 shares (the "BML Shares")
of the common stock of BrookeMil Ltd. ("BML") from Brooke (Overseas) for
a purchase price of $55,000, consisting of $21,500 in cash and a $33,500
9% promissory note of the Company (the "Note"). The BML Shares comprise
99.1% of the outstanding shares of BML, a real estate development
company in Russia. The Note, which was collateralized by the BML Shares,
was paid during 1997.
WESTERN REALTY DEVELOPMENT LLC
In February 1998, the Company and Apollo Real Estate Investment Fund
III, L.P. ("Apollo") organized Western Realty Development LLC ("Western
Realty Ducat") to make real estate and other investments in Russia. In
connection with the formation of Western Realty Ducat, the Company
agreed, among other things, to contribute the real estate assets of BML,
including Ducat Place II and the site for Ducat Place III, to Western
Realty Ducat and Apollo agreed to contribute up to $58,750, including
the investment in Western Realty Repin discussed below. Through
September 30, 1998, Apollo had funded $30,550 of its investment in
Western Realty Ducat.
The ownership and voting interests in Western Realty Ducat will be held
equally by Apollo and the Company. Apollo will be entitled to a
preference on distributions of cash from Western Realty Ducat to the
extent of its investment ($40,000), together with a 15% annual rate of
return, and the Company will then be entitled to a return of $16,300 of
BML-related expenses incurred and cash invested by the Company since
March 1, 1997, together with a 15% annual rate of return; subsequent
distributions will be made 70% to the Company and 30% to Apollo. Western
Realty Ducat will be managed by a Board of Managers consisting of an
equal number of representatives chosen by Apollo and the Company. All
material corporate transactions by Western Realty Ducat will generally
require the unanimous consent of the Board of Managers. Accordingly, the
Company has accounted for its non-controlling interest in Western Realty
Ducat using the equity method of accounting.
The Company recorded its basis in the investment in the joint venture in
the amount of $60,169 based on the carrying value of assets less
liabilities transferred. There was no difference between the carrying
value of the investment and the Company's proportionate interest in the
underlying value of net assets of the joint venture.
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Western Realty Ducat will seek to make additional real estate and other
investments in Russia. Western Realty Ducat has made a $26,300
participating loan to, and payable out of a 30% profits interest in, a
company organized by Brooke (Overseas) which, among other things, owns
an industrial site and manufacturing facility being constructed on the
outskirts of Moscow by a subsidiary of Brooke (Overseas).
WESTERN REALTY REPIN LLC
In June 1998, the Company and Apollo organized Western Realty Repin LLC
("Western Realty Repin") to make a $25,000 participating loan (the
"Repin Loan") to BML. The proceeds of the loan will be used by BML for
the acquisition and preliminary development of two adjoining sites
totaling 10.25 acres (the "Kremlin Sites") located in Moscow across the
Moscow River from the Kremlin. BML, which is planning the development of
a 1.1 million sq. ft. hotel, office, retail and residential complex on
the Kremlin Sites, owned 94.6% of one site and 52% of the other site at
September 30, 1998. Apollo will be entitled to a preference on
distributions of cash from Western Realty Repin to the extent of its
investment ($18,750), together with a 20% annual rate of return, and the
Company will then be entitled to a return of its investment ($6,250),
together with a 20% annual rate of return; subsequent distributions will
be made 50% to the Company and 50% to Apollo. Western Realty Repin will
be managed by a Board of Managers consisting of an equal number of
representatives chosen by Apollo and the Company. All material corporate
transactions by Western Realty Repin will generally require the
unanimous consent of the Board of Managers.
Through September 30, 1998, Western Realty Repin has advanced $19,067
(of which $14,300 was funded by Apollo) under the Repin Loan to BML,
which is classified in other long-term obligations on the condensed
consolidated balance sheet at September 30, 1998. The Repin Loan, which
bears no fixed interest, is payable only out of 100% of the
distributions, if made, by the entities owning the Kremlin Sites to BML.
Such distributions shall be applied first to pay the principal of the
Repin Loan and then as contingent participating interest on the Repin
Loan. Any rights of payment on the Repin Loan are subordinate to the
rights of all other creditors of BML. BML used a portion of the proceeds
of the Repin Loan to repay the Company for certain expenditures on the
Kremlin Sites previously incurred. The Repin Loan is due and payable upon
the dissolution of BML and is collateralized by a pledge of the Company's
shares of BML.
As of September 30, 1998, BML had invested $15,171 in the Kremlin Sites
and held $809, in cash, which was restricted for future investment. In
connection with the acquisition of its interest in one of the Kremlin
Sites, BML has agreed with the City of Moscow to invest an additional
$6,000 in 1998 and $22,000 in 1999 in the development of the property.
The development of Ducat Place III and the Kremlin Sites will require
significant amounts of debt and other financing. The Company is actively
pursuing various financing alternatives on behalf of Western Realty
Ducat and BML. However, in light of the recent economic turmoil in
Russia, no assurance can be given that such financing will be available
on acceptable terms. Failure to obtain sufficient capital for the
projects would force Western Realty Ducat and BML to curtail or delay
the planned development of Ducat Place III and the Kremlin Sites.
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3. INVESTMENT SECURITIES AVAILABLE FOR SALE
Investment securities classified as available for sale are carried at
fair value, with net unrealized gains included as a separate component
of stockholders' deficiency. The Company had realized gains on sales of
investment securities available for sale of $191 and $5,725 for the
three and nine months ended September 30, 1998, respectively.
The components of investment securities available for sale at September
30, 1998 are as follows:
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
---------- ---------- ---------- ----------
Short-term investments ..... $ 10 $ -- $ -- $ 10
Marketable equity securities 30,396 364 6,181 24,579
Marketable ................. -- 1,831 -- 1,831
warrants
Marketable debt securities . 3,185 -- 3,185 --
---------- ---------- ---------- ----------
Investment securities ...... $ 33,591 $ 2,195 $ 9,366 $ 26,420
========== ========== ========== ==========
4. LONG-TERM INVESTMENTS
At September 30, 1998, long-term investments consisted primarily of
investments in limited partnerships of $9,689. The Company believes the
fair value of the limited partnerships exceeds its carrying amount by
approximately $2,500 based on the indicated market values of the
underlying investment portfolio provided by the partnerships. The
Company recognized gains of $1,624 and $4,652 on liquidations of
investments of certain limited partnerships for the three and nine
months ended September 30, 1998, respectively. The Company's investments
in limited partnerships are illiquid and the ultimate realizations of
these investments are subject to the performance of the underlying
partnership and its management by the general partners. The Company sold
an interest in a limited partnership in September, 1998 and may sell or
liquidate certain other limited partnership interests in the future. Any
sale of such interests would be subject to the approval of the general
partner.
In the first quarter of 1997, the Company determined that an other than
temporary impairment in the value of its investment in a joint venture
had occurred and wrote down this investment to zero with a charge to
operations of $3,796 for the three month period. The Company's estimates
of the fair value of its long-term investments are subject to judgment
and are not necessarily indicative of the amounts that could be realized
in the current market.
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5. REAL ESTATE
On September 28, 1998, the Company completed a sale to institutional
investors of four commercial office buildings (the "Office Buildings")
located in Troy, Michigan and Bernards Township, New Jersey for an
aggregate purchase price of $112.4 million before closing adjustments
and expenses. The Company received approximately $13.0 million in cash
from the transaction before closing adjustments and expenses. The Office
Buildings were subject to approximately $99.0 million of mortgage
financing which was retired at closing. The Company recorded a gain of
$4,682 associated with the sale of the Office Buildings. The Company may
seek to dispose of other U.S. real estate holdings in the future.
6. INCOME FROM DISCONTINUED OPERATIONS
The Company recorded a gain on disposal of discontinued operations of
$6,860 and $7,740 for the three and nine months ended September 30, 1998
related to the settlement of a lawsuit originally initiated by the
Company's predecessor, Western Union Telegraph Company.
7. REDEEMABLE PREFERRED SHARES
At September 30, 1998, the Company had authorized and outstanding
2,000,000 and 1,071,462, respectively, of its Class A Senior Preferred
Shares. At September 30, 1998 and December 31, 1997, respectively, the
carrying value of such shares amounted to $300,711 and $258,638,
including undeclared dividends of $204,050 and $163,302 or $190.44 and
$152.41 per share. As of September 30, 1998, the unamortized discount on
the Class A Senior Preferred Shares was $7,090.
For the three and nine months ended September 30, 1998, the Company
recorded $757 and $2,215 in compensation expense, respectively, related
to certain Class A Senior Preferred Shares awarded to an officer of the
Company in 1996. At September 30, 1998, the balance of the deferred
compensation and the unamortized discount related to these award shares
was $3,396 and $2,628, respectively.
8. PREFERRED SHARES NOT SUBJECT TO REDEMPTION REQUIREMENTS
The undeclared dividends cumulatively amounted to $158,908 and $139,412
at September 30, 1998 and December 31, 1997, respectively. These
undeclared dividends represent $56.94 and $49.95 per share as of the end
of each period. No accrual was recorded for such undeclared dividends as
the Class B Preferred Shares are not mandatorily redeemable.
9. CONTINGENCIES
LITIGATION
On or about March 13, 1997, a shareholder derivative suit was filed
against the Company, as a nominal defendant, its directors and Brooke in
the Delaware Chancery Court, by a shareholder of the Company. The suit
alleges that the Company's purchase of the BML Shares constituted a
self
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dealing transaction which involved the payment of excessive
consideration by the Company. The plaintiff seeks (i) a declaration that
the Company's directors breached their fiduciary duties, Brooke aided
and abetted such breaches and such parties are therefore liable to the
Company, and (ii) unspecified damages to be awarded to the Company. The
Company's time to respond to the complaint has not yet expired. The
Company believes that the allegations were without merit. Although there
can be no assurances, management is of the opinion, after consultation
with counsel, that the ultimate resolution of this matter will not have
a material adverse effect on the Company's consolidated financial
position, results of operations or cash flows.
The Company is a defendant in various lawsuits and may be subject to
unasserted claims primarily in connection with its activities as a
securities broker-dealer and participation in public underwritings.
These lawsuits involve claims for substantial or indeterminate amounts
and are in varying stages of legal proceedings. In the opinion of
management, after consultation with counsel, the ultimate resolution of
these matters will not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
PREPETITION CLAIMS UNDER CHAPTER 11 AND RESTRUCTURING ACCRUALS
The prepetition claims remaining as of September 30, 1998 of $12,379 may
be subject to future adjustments depending on pending discussions with
the various parties and the decisions of the Bankruptcy Court.
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