PART I
ITEM 3. LEGAL PROCEEDINGS
On February 6, 1995, the Superintendent of Banks for the State of New York seized Nationar, a check-clearing
and trust company, freezing all of Nationar's assets. On that date, the Bank had demand accounts of
approximately $2.2 million. On April 5, 1995, the Bank received $739,000 from the New York State Banking
Department representing a partial release of its funds with Nationar. On April 26, 1995, the Superintendent
submitted an Interim Status Report ("Interim Report") regarding the business and affairs of Nationar to the
Supreme Court of the State of New York, in accordance with the relevant provisions of the Banking Law of the
State of New York. Attached to the Interim Report was a preliminary Statement of the Net Assets and Liabilities
in Liquidation for Nationar as of February 6, 1995 ("Preliminary Statement"), which showed a net deficit of
liabilities in excess of assets of approximately $29.4 million. The Superintendent indicated in the Interim Report
that the review of potential claims against Nationar is not yet complete and that any estimate of the net deficit of
Nationar (and potential creditor recoveries) may differ materially from the amounts shown in the Preliminary
Statement as a result of, among other things, the ultimate realization on the assets of the estate, the total amount of
claims presented, the results of the claims reconciliation process, the valuation of collateral and the review and
classification of priority claims. Under the Banking Law, there may be certain preferences that might affect the
percentage recovery of any particular institution. The Interim Report did not indicate whether or the extent to
which the Bank or a similarily situated institution would recover amounts owed by Nationar. Based upon
information set forth in these documents, which by their terms are preliminary, management, as advised by legal
counsel, believes that there is a reasonable likelihood that the Bank will not recover all of its deposits owed by
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