Exhibit 99.05
Description of Certain Pending Legal Proceedings Against
Salomon Smith Barney Holdings Inc. and/or its Subsidiaries
Salomon Inc's Form 10-K
December 31, 1996
Pages 2 to 6
Item 3. Legal Proceedings
In September 1992, Harris Trust and Savings Bank (as trustee for Ameritech
Pension Trust ("APT")), Ameritech Corporation, and an officer of Ameritech filed
suit against Salomon Brothers Inc ("Salomon Brothers") and Salomon Brothers
Realty Corporation ("SBRC"), each wholly owned subsidiaries of Salomon Smith
Barney Holdings Inc. (formerly, Salomon Inc and referred to herein as "Salomon
Smith Barney"), in the United States District Court for the Northern District of
Illinois (Harris Trust Savings Bank, not individually but solely as trustee for
the Ameritech Pension Trust, Ameritech Corporation and John A. Edwardson v.
Salomon Brothers Inc. and Salomon Brothers Realty Corp., (92 Civ. 5883 (MEA)).
The second amended complaint alleges that three purchases by APT from Salomon of
participation interests in net cash flow or resale proceeds of three portfolios
of motels owned by Motels of America, Inc. ("MOA"), as well as a fourth purchase
by APT of a similar participation interest with respect to a portfolio of motels
owned by Best Inns, Inc. ("Best"), violated the Employee Retirement Income
Security Act ("ERISA"), and that the purchase of the participation interests for
the third MOA portfolio and for the Best portfolio violated RICO and state law.
Salomon Brothers had acquired the participation interests in transactions
in which it purchased as principal mortgage notes issued by MOA and Best to
finance purchases of motel portfolios; 95% of three such interests and 100% of
one such interest were sold to APT for purchase prices aggregating approximately
$20.9 million. Plaintiffs' second amended complaint seeks (i) a judgment on the
ERISA claims in the amount of the purchase prices of the four participation
interests (approximately $20.9 million), for rescission and for disgorgement of
profits, as well as other relief, and (ii) a judgment on the claims brought
under RICO and state law in the amount of $12.3 million, with damages trebled to
$37 million on the RICO claims and punitive damages in excess of $37 million on
certain of the state law claims as well as other relief. Salomon Brothers and
SBRC answered the second amended complaint in part, moved to dismiss in part and
asserted counterclaims against plaintiff Ameritech Corp. On August 16, 1993 the
court (i) dismissed the RICO claims as well as plaintiffs' claims for breach of
contract and unjust enrichment; (ii) denied Salomon Brothers' motion to dismiss
one of the ERISA claims (which alleges that Salomon Brothers participated in a
fiduciary's breach); and (iii) denied Ameritech's motion to dismiss Salomon
Brothers counterclaims.
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By decision and order dated June 13, 1996, the Court (i) granted in part
defendants' motion for summary judgment on the federal ERISA claims, dismissing
counts I and III of the second amended complaint and any claims contained in
count II which are premised on an alleged breach of fiduciary duty; (ii)
otherwise denied defendants' motion for summary judgment as it related to the
remaining portions of the claims in count II; (iii) denied plaintiffs' motion
for partial summary judgment with respect to count II; and (iv) granted
plaintiffs' motion for summary judgment dismissing defendants' counterclaims
against Ameritech for contribution. Defendants' alternative motion for summary
judgment on the state law claims remains pending. Each of the Department of
Labor and the Internal Revenue Service has advised Salomon Brothers that it was
or is reviewing the transactions in which APT acquired such participation
interests. With respect to the Internal Revenue Service investigation, Salomon
Smith Barney, Salomon Brothers and SBRC have consented to extensions of time for
the assessment of excise taxes which may be claimed to be due with respect to
the transactions for the years 1987, 1988 and 1989. On August 15, 1996 the IRS
sent Salomon Smith Barney, Salomon Brothers and SBRC what appeared to be draft
"30 day letters" with respect to the transactions and Salomon Smith Barney,
Salomon Brothers and SBRC were given an opportunity to comment on whether the
IRS should issue 30 day letters to such entities. On October 21, 1996, Salomon
Smith Barney, Salomon Brothers and SBRC submitted a memorandum setting forth
reasons why the IRS should not issue 30 day letters with respect to the
transactions.
Between May 1994 and the present, Salomon Brothers, along with a number of
other broker-dealers, was named as a defendant in approximately 25 federal court
lawsuits and two state court lawsuits, principally alleging that companies that
make markets in securities traded on Nasdaq violated the federal antitrust laws
by conspiring to maintain a minimum spread of $.25 between the price bid and the
price asked for certain securities. The federal lawsuits and one state court
case were consolidated for pre-trial purposes in the Southern District of New
York in the fall of 1994 under the caption In re Nasdaq Market-Makers Antitrust
Litigation, United States District Court, Southern District of New York No.
94-CIV-3996(RWS); M.D.L. No. 1023. The other state court suit, Lawrence A. Abel
v. Merrill Lynch & Co., Inc., et al., Superior Court of San Diego, Case No.
677313, has been dismissed without prejudice in conjunction with a tolling
agreement.
In the federal suits, the plaintiffs purport to represent the class of
persons who bought one or more of what they currently estimate to be
approximately 1,650 securities on Nasdaq between May 1, 1989, and May 27, 1994.
They seek unspecified monetary damages, which would be trebled under the
antitrust laws. The plaintiffs also seek injunctive relief, as well as
attorneys' fees and the costs of the action. (The state cases seek similar
relief.) Plaintiffs in the federal suits filed an amended consolidated complaint
that defendants answered in December 1995. On November 26, 1996, the Court
certified a class composed of retail purchasers. A motion to include
institutional investors in the class and to add class representatives is also
pending. Discovery on the merits is now proceeding.
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On July 17, 1996, the Antitrust Division of the Department of Justice
filed a complaint against a number of firms that act as market makers in Nasdaq
stocks. The complaint basically alleged that a common understanding arose among
Nasdaq market makers which worked to keep quote spreads in Nasdaq stocks
artificially wide. Contemporaneous with the filing of the complaint, Salomon
Brothers and the other defendants entered into a stipulated settlement agreement
which, if approved, will result in dismissal of the complaint. In entering into
the stipulated settlement, Salomon Brothers did not admit any liability. There
are no fines, penalties, or other payments of monies in connection with the
settlement. Salomon Brotheres did agree to follow certain standards with respect
to Nasdaq market-making and to implement certain compliance procedures. A motion
to approve the settlement is pending.
The Securities and Exchange Commission ("SEC") is also conducting an
intensive review of the Nasdaq marketplace, during which it has subpoenaed
documents and taken the depositions of various individuals including Salomon
Brothers personnel. In July 1996, the SEC reached a settlement with the National
Association of Securities Dealers and issued a report detailing certain
conclusions with respect to the NASD and the Nasdaq market. The SEC's
investigation of other participants in the Nasdaq market is not yet complete.
Under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA"), under certain circumstances, a
potentially responsible party ("PRP"), may be held jointly and severally liable,
without regard to fault, for response costs at a CERCLA site. A PRP's ultimate
cost at a site generally depends on its involvement with the site and the nature
and extent of contamination, the remedy selected, the role of other PRPs in
creating the alleged contamination and the availability of contribution from
those PRPs, as well as any insurance or indemnification agreements which may
apply. In most cases, both the resolution of the complex issues involved and any
necessary remediation expenditures occur over a number a years.
In 1988, a subsidiary of Salomon Brothers, The S.W. Shattuck Chemical
Company, Inc. ("Shattuck"), along with 350 industrial, municipal and other
entities, was named by the federal Environmental Protection Agency ("EPA") as a
PRP subject to liability under CERCLA at a site, Section 6 of the Lowry Landfill
in Arapaho County, Colorado ("Lowry"), owned by the city and county of Denver
("Denver"). Shattuck was named a PRP based on disposal of its wastes at Lowry.
In March 1994, EPA selected a remedy for Lowry, estimated to cost approximately
$94 million. Based on current EPA estimates, and under the terms of settlements
between Salomon Smith Barney, Shattuck and certain PRPs, Salomon Smith Barney's
ultimate share of remediation costs is not expected to exceed $13 million, of
which approximately 60% has been paid into a trust fund.
In August 1992, EPA issued a Unilateral Administrative Order (the "Order")
for remedial design/remedial action to be performed by Shattuck under CERCLA at
a site (Denver Radium Site, Operable Unit VIII), which includes property owned
by, and a metal processing plant
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previously operated by, Shattuck at Bannock Street in Denver, Colorado. The
remedy selected by EPA requires on-site stabilization/solidification of radium
contaminated soils found at the Bannock Street plant and at various properties
in the vicinity of the plant. The Order provides that, in the course of
performing the remedial design/remedial action, Shattuck shall demonstrate
financial assurance in an amount not less than $26.6 million. Shattuck has
performed significant remediation activities at the site in accordance with the
Order since August 1992.
In May 1994, Denver, alleging a violation of its zoning laws, issued a
Cease and Desist Order ("CD Order") to Shattuck to stop work under the Order. In
August 1994, EPA filed suit in the Federal District Court in Colorado, seeking
to set aside the CD Order. Pending resolution of the suit, Shattuck complied
with the CD Order. In January 1996, the Court ruled in favor of EPA, enjoining
enforcement of the CD Order. Following the Court's ruling, Shattuck resumed
remediation activities at the site. Denver appealed the District Court's
decision to the United States Court of Appeals for the Tenth Circuit. The appeal
was denied in November 1996.
In July 1996, Denver enacted an ordinance (the "Ordinance") which, as
amended on March 3, 1997, seeks to impose a "fee" of $5.10 per cubic foot of
radioactive waste or radium contaminated material which is disposed of in the
City of Denver. In December 1996, Shattuck filed suit against Denver in the
Federal District Court in Colorado seeking to enjoin enforcement of the
Ordinance against Shattuck. Denver has moved to dismiss the complaint, claiming
that the Court lacks jurisdiction over the subject matter of the suit. To date,
the Court has not ruled on Denver's motion. The fee, if assessed against
Shattuck for its disposal of radium contaminated soil at its Bannock Street
plant site pursuant to the Order, could result in Shattuck incurring liability
of approximately $9 million, which would become payable should Shattuck be
unsuccessful in its suit against Denver.
In May 1993, the National Zinc site in Bartlesville, Oklahoma was proposed
for listing as a superfund site on EPA's National Priorities List under CERCLA.
Final listing remains subject to EPA's determination. In May 1993, both Salomon
Brothers and a current subsidiary received notices from EPA of designation as
PRPs with respect to National Zinc. The National Zinc site was defined by EPA to
include a smelter facility which had been owned by a former subsidiary of
Salomon Smith Barney and an eight square mile area surrounding such facility. In
October 1993, Salomon Smith Barney and two other unrelated parties were
designated by EPA as PRPs with respect to a removal action involving the area at
the National Zinc site surrounding the smelter facility. In February 1994, EPA
issued to Salomon Smith Barney and two other PRPs a Unilateral Administrative
Order ("UAO") with respect to this removal action. Salomon Smith Barney and one
other PRP, Cyprus Amax Minerals Company ("Cyprus") complied with the UAO and
completed the removal work required under the UAO.
In November 1993, EPA notified Salomon Smith Barney and the same two other
PRPs of its intent to conduct a remedial investigation, feasibility study and
remedial design ("RI/FS/RD") for the area of the site surrounding the smelter
facility and offered the PRPs the
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opportunity to do this work. EPA also stated its willingness to consider a State
Delegation Pilot Project whereunder PRPs, including Salomon Smith Barney, could
conduct the RI/FS/RD pursuant to an Administrative Order of Consent with the
State of Oklahoma, with limited oversight by EPA. In April 1994, Salomon Smith
Barney, Cyprus and the City of Bartlesville entered into a Consent Agreement and
Final Order ("CAFO") with the Oklahoma Department of Environmental Quality
("ODEQ") to conduct the RI/FS/RD. The RI/FS activities required by the CAFO have
been timely completed to date. In December 1994, ODEQ issued a Record of
Decision selecting a remedy for Operable Unit 1, relating to protection of human
health, covering the area at the National Zinc site surrounding the smelter
facility. The selected remedy is estimated to cost approximately $24.3 million.
In August 1995, Cyprus and the City of Bartlesville (but not Salomon Smith
Barney) entered into a CAFO with ODEQ to perform the remediation of Operable
Unit 1. Remediation activities pursuant thereto have been conducted and are
continuing. In October 1996, ODEQ issued a Record of Decision selecting a remedy
for Operable Unit 2, relating to protection of ecologically sensitive areas at
the National Zinc site surrounding the smelter facility. The selected remedy is
estimated to cost approximately $2.8 million. In February 1997, Cyprus (but not
Salomon Smith Barney) entered into a CAFO with ODEQ to perform the remediation
of Operable Unit 2. To date, remediation activities at Operable Unit 2 have not
commenced. Except for an anticipated cost of $50,000 to complete the remedial
design for Operable Unit 2, Salomon Smith Barney is not expected to have any
further expenditures with respect to the remediation of the area at the National
Zinc Site surrounding the smelter facility.
In February 1994, Horseheads Industries, Inc. d/b/a/ Zinc Corporation of
America ("ZCA"), the current owner of the smelter facility at the National Zinc
site, filed suit in the United States District Court for the Northern District
of Oklahoma against Salomon Smith Barney, St. Joe Minerals Company ("St. Joe"),
Fluor Corporation ("Fluor") and Cyprus alleging that the defendants are liable
to it under CERCLA for response costs incurred in connection with the smelter
facility, because of the release of hazardous substances during periods of
ownership or operation by them or their affiliates or predecessors in interest.
In August 1994, a settlement agreement was entered into between ZCA, Fluor/St.
Joe and Salomon Smith Barney (but not Cyprus), allocating both past and future
response costs between the settling parties. With respect to future remediation
(the determination and implementation of which is expected to take several
years) and the costs thereof, the settlement agreement established a management
committee comprised of representatives of the settling parties to oversee study
and clean-up of the facility and the costs associated therewith. Pursuant to the
settlement, Salomon Smith Barney and Fluor assumed ZCA's role in the litigation,
including defense of ZCA against a pending counterclaim of Cyprus, and pursuit
of claims against Cyprus. Cyprus subsequently counter-claimed against Salomon
Smith Barney for recovery of response costs incurred by Cyprus, commencing in
August 1995, under its CAFO with ODEQ. In April 1996, the Court issued its
decision, allocating past and future response costs at the National Zinc site
70% to plaintiffs (i.e. Salomon Smith Barney, Fluor and ZCA) and 30% to Cyprus,
except for response costs relating to certain residue piles stored on the
smelter facility which the Court allocated 100% to plaintiffs. Salomon Smith
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Barney, subsequently, has entered into an agreement with Cyprus which satisfies
certain of the respective liabilities and obligations of the parties as set
forth in the Court's decision. Salomon Smith Barney's future costs related to
the remediation of the smelter facility cannot be ascertained at this time,
because the timing, nature and extent of any such remediation are yet to be
finally decided by ODEQ. However, under a tentative determination by ODEQ
regarding the appropriate corrective measures for the smelter facility, Salomon
Smith Barney's costs related to the remediation are not expected to exceed $15
million.
In July 1994, a lawsuit was filed in the Federal Court in Texas against
Phibro Energy USA, Inc., a subsidiary of Salomon Smith Barney now known as Basis
Petroleum, Inc. ("Basis"), by the Friends of the Earth, Inc. The action, a
citizen's suit brought under Section 505 of the Federal Water Pollution Control
Act, alleges violations by Basis of the monitoring, record keeping and discharge
limitations of its Houston refinery wastewater discharge permit during the
period from September 1989 to the date of the suit. Subsequent to the filing of
the lawsuit, the EPA filed an Administrative Complaint against Basis, alleging
substantially the same violations under the Clean Water Act and implementing
regulations. Basis settled the EPA's claim. In March 1995, Basis' motion for
summary judgment against the plaintiff was granted, and judgment was entered in
favor of Basis. Plaintiff appealed to the United States Court of Appeals for the
Fifth Circuit, which reversed and remanded to allow additional discovery. The
parties have agreed to stay proceedings pending determination of an appeal by
Friends of the Earth, Inc., in a similar action brought against another
defendant. Accordingly, Basis' liability, if any, with respect to the claim
alleged in the lawsuit cannot be determined at this time.
In addition, other legal proceedings are pending against or involve
Salomon Smith Barney and its subsidiaries. Based on information currently
available and established reserves, Salomon Smith Barney believes the ultimate
resolution of pending legal proceedings will not result in any material adverse
impact on Salomon Smith Barney's consolidated financial condition; however, such
resolution could have a material adverse impact on operating results in future
periods depending in part on the results for such periods.
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