10-Q 1 g69176e10-q.txt NEW VALLEY CORPORATION 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 COMMISSION FILE NUMBER 1-2493 NEW VALLEY CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 13-5482050 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 100 S.E. SECOND STREET, 32ND FLOOR MIAMI, FLORIDA 33131 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (305) 579-8000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) 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 [ ] AS OF MAY 11, 2001, THERE WERE OUTSTANDING 22,813,063 OF THE REGISTRANT'S COMMON SHARES, $.01 PAR VALUE. ================================================================================ 2 NEW VALLEY CORPORATION AND SUBSIDIARIES QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2001 TABLE OF CONTENTS
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited): Condensed Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000.................................... 3 Condensed Consolidated Statements of Operations for the three months ended March 31, 2001 and 2000................ 4 Condensed Consolidated Statement of Changes in Stockholders' Equity for the three months ended March 31, 2001.......................................... 5 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and 2000................ 6 Notes to the Condensed Consolidated Financial Statements .................................................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk................................................... 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................. 21 Item 2. Changes in Securities and Use of Proceeds......................... 21 Item 5. Other Information................................................. 21 Item 6. Exhibits and Reports on Form 8-K.................................. 21 SIGNATURE........................................................................... 23
-2- 3 NEW VALLEY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
MARCH 31, DECEMBER 31, ---------- ------------- 2001 2000 --------- --------- ASSETS Current assets: Cash and cash equivalents $ 77,375 $ 82,067 Investment securities available for sale 28,516 29,331 Trading securities owned 8,566 18,348 Restricted assets 733 1,039 Receivable from clearing brokers 18,415 10,126 Other current assets 1,381 2,865 --------- --------- Total current assets 134,986 143,776 --------- --------- Investment in real estate, net 124,076 132,354 Furniture and equipment, net 9,282 8,249 Restricted assets 3,179 3,060 Long-term investments, net 4,954 4,654 Deferred tax assets 509 466 Other assets 6,673 6,698 --------- --------- Total assets $ 283,659 $ 299,257 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Margin loans payable $ 3,848 $ 4,675 Current portion of notes payable and long-term obligations 6,512 15,816 Accounts payable and accrued liabilities 24,278 27,001 Prepetition claims and restructuring accruals 7,639 10,229 Income taxes 9,753 9,765 Securities sold, not yet purchased 2,685 3,570 --------- --------- Total current liabilities 54,715 71,056 --------- --------- Notes payable 12,032 11,900 Other long-term liabilities 68,802 66,616 Commitments and contingencies -- -- Stockholders' equity: Common Shares, $.01 par value; 100,000,000 and 100,000,000 shares authorized; 22,823,063 and 22,890,663 shares outstanding 228 229 Additional paid-in capital 867,884 867,895 Accumulated deficit (722,398) (720,710) Accumulated other comprehensive income 2,396 2,271 --------- --------- Total stockholders' equity 148,110 149,685 --------- --------- Total liabilities and stockholders' equity $ 283,659 $ 299,257 ========= =========
See accompanying Notes to Condensed Consolidated Financial Statements -3- 4 NEW VALLEY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ---------------------------------- 2001 2000 ------------ ------------ Revenues: Principal transactions, net $ 8,848 $ 11,336 Commissions 4,162 13,029 Corporate finance fees 3,729 4,236 Gain on sale of investments, net 465 4,753 Gain on sale of real estate, net 897 -- Loss from joint venture -- (226) Real estate leasing 2,641 771 Interest and dividends 1,948 1,494 Other income 1,566 148 ------------ ------------ Total revenues 24,256 35,541 ------------ ------------ Cost and expenses: Selling, general and administrative 25,291 30,602 Interest 792 2,167 ------------ ------------ Total costs and expenses 26,083 32,769 ------------ ------------ (Loss) income from continuing operations before income taxes and minority interests (1,827) 2,772 Income tax provision -- 36 Minority interests in (loss) income from continuing operations of consolidated subsidiaries (139) 940 ------------ ------------ Net (loss) income $ (1,688) $ 1,796 ============ ============ (Loss) income per Common Share (basic and diluted): Net (loss) income per Common Share $ (0.07) $ 0.08 ============ ============ Number of shares used in computation 22,865,890 23,163,829 ============ ============
See accompanying Notes to Condensed Consolidated Financial Statements -4- 5 NEW VALLEY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
ACCUMULATED ADDITIONAL OTHER COMMON PAID-IN ACCUMULATED COMPREHENSIVE SHARES CAPITAL DEFICIT INCOME TOTAL ------ ---------- ----------- -------------- ----- Balance, December 31, 2000............ $ 229 $ 867,895 $ (720,710) $ 2,271 $ 149,685 Net loss........................... (1,688) (1,688) Unrealized gain on investment securities....................... 125 125 Repurchases of common stock........ (1) (238) (239) Compensation expense on stock option grants.................... 227 227 -------- ---------- ------------- -------- --------- Balance, March 31, 2001............... $ 228 $ 867,884 $ (722,398) $ 2,396 $ 148,110 ======= ========== ============ ======== =========
See accompanying Notes to Condensed Consolidated Financial Statements -5- 6 NEW VALLEY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, -------------------------- 2001 2000 -------- -------- Cash flows from operating activities: Net (loss) income $ (1,688) $ 1,796 Adjustments to reconcile net (loss) income to net cash (used for) operating activities: Loss from joint venture -- 226 Depreciation and amortization 1,188 376 Stock based compensation expense 227 88 Gain on sale of investments (465) (4,753) Gain on sale of real estate (897) -- Minority interests in (loss) income from continuing operations of consolidated subsidiaries (139) 940 (Increase) decrease in receivables and other assets 3,346 (4,537) Decrease in accounts payable and accrued liabilities (3,842) (2,212) -------- -------- Net cash used for operating activities (2,270) (8,076) -------- -------- Cash flows from investing activities: Sale or maturity of investment securities 3,166 14,849 Purchase of investment securities (1,761) (5,503) Purchase of long-term investments (300) (504) Sale of real estate, net of closing costs 9,172 -- Purchase of and additions to real estate (565) (674) Purchase of furniture and fixtures (1,665) (66) Payment of prepetition claims and restructuring accruals (2,590) (15) (Increase) decrease in restricted assets (119) 3,202 Investment in joint venture -- (213) -------- -------- Net cash provided from investing activities 5,338 11,076 -------- -------- Cash flows from financing activities: (Decrease) increase in margin loans payable (827) 3,324 Proceeds from participating loan 2,478 -- Repurchase of Common Shares (239) (166) Issuance of note payable 824 -- Payment of notes payable (9,996) (69) -------- -------- Net cash (used for) provided from financing activities (7,760) 3,089 -------- -------- Net (decrease) increase in cash and cash equivalents (4,692) 6,089 Cash and cash equivalents, beginning of period 82,067 11,512 -------- -------- Cash and cash equivalents, end of period $ 77,375 $ 17,601 ======== ========
See accompanying Notes to Condensed Consolidated Financial Statements -6- 7 NEW VALLEY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED 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 its majority-owned subsidiaries ("New Valley" or the "Company"). The consolidated financial statements as of March 31, 2001 presented herein have been prepared by the Company and are unaudited. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position as of March 31, 2001 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 the entire year. These financial statements should be read in conjunction with the consolidated financial statements in New Valley's Annual Report on Form 10-K for the year ended December 31, 2000 as filed with the Securities and Exchange Commission (Commission File Number 1-2493). USE OF ESTIMATES 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. RECLASSIFICATIONS Certain reclassifications have been made to prior interim period financial information to conform to the current interim period presentation. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the 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, 2000. 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. New Valley adopted SFAS No. 133 on January 1, 2001, the effect of which did not have a material impact on its balance sheet. -7- 8 NEW VALLEY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 2. INVESTMENT IN WESTERN REALTY 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 Development") to make real estate and other investments in Russia. The Company agreed to contribute the real estate assets of BrookeMil, including Ducat Place II and the site for Ducat Place III, to Western Realty Development and Apollo agreed to contribute up to $72,021, including the investment in Western Realty Repin discussed below. Western Realty Development has three classes of equity: Class A interests, representing 30% of the ownership of Western Realty Development, and Class B and Class C interests, which collectively represent 70% of the ownership of Western Realty Development. Prior to December 29, 2000, Apollo owned the Class A interests, New Valley owned the Class B interests and BrookeMil owned the Class C interests. On December 29, 2000, WRD Holding Corporation, a wholly-owned subsidiary of New Valley, purchased for $4,000 29/30ths of the Class A Interests of Western Realty Development previously held by Apollo. WRD Holding paid the purchase price of $4,000 with a promissory note due November 30, 2005. The note, which is secured by a pledge of the purchased Class A interests, bears interest at a rate of 7% per annum, compounded annually; interest is payable only to the extent of available cash flow from distributions from Western Realty Development. In addition, upon the maturity date of the note or, if earlier, upon the closing of various liquidity events, including sales of interests in or assets of, or a business combination or financing involving, Western Realty Development, additional interest will be payable under the note. The additional interest would be in an amount equal to 30% of the excess, if any, of the proceeds from a liquidity event occurring prior to the maturity of the note or the appraised fair market value of Western Realty Development, at maturity, over $13,750. The note is classified in other long-term liabilities in the consolidated balance sheet. Apollo and New Valley also agreed to loan Western Realty Development on an equal basis any additional funds required to pay off its existing indebtedness at an interest rate of 15% per annum. As a result of the purchase of the Class A interests, New Valley and its subsidiaries are entitled to 99% of distributions from Western Realty Development and Apollo is entitled to 1% of distributions. Accordingly, New Valley no longer accounts for its interests in Western Realty Development using the equity method of accounting. Effective December 29, 2000, Western Realty Development became a consolidated subsidiary of the Company. Summarized financial information for three months ended March 31, 2000 for Western Realty Development follows: THREE MONTHS ENDED MARCH 31, 2000 ---------------- Revenues......................................... $ 2,390 Costs and expenses............................... 2,170 Accretion of return on participating loan........ 1,412 Income tax provision............................. -- Net income ...................................... 1,632 -8- 9 NEW VALLEY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) WESTERN REALTY REPIN LLC In June 1998, the Company and Apollo organized Western Realty Repin LLC ("Western Realty Repin") to make a loan to BrookeMil. The proceeds of the loan have been used by BrookeMil for the acquisition and preliminary development of two adjoining sites totaling 10.25 acres located in Moscow across the Moscow River from the Kremlin. BrookeMil is planning the development of a hotel, office, retail and residential complex on the Kremlin sites. BrookeMil owned 100% of both sites at March 31, 2001. Through March 31, 2001, Western Realty Repin had advanced $41,425 to BrookeMil, of which $29,015 was funded by Apollo and was classified in other long-term obligations in the consolidated balance sheet. The loan bears no fixed interest and is payable only out of distributions by the entities owning the Kremlin sites to BrookeMil. Such distributions must be applied first to pay the principal of the loan and then as contingent participating interest on the loan. Any rights of payment on the loan are subordinate to the rights of all other creditors of BrookeMil. BrookeMil used a portion of the proceeds of the loan to repay the Company for certain expenditures on the Kremlin sites previously incurred. The loan is due and payable upon the dissolution of BrookeMil and is collateralized by a pledge of New Valley's shares of BrookeMil. As of March 31, 2001, BrookeMil had invested $36,230 in the Kremlin sites and held $545 in cash and receivables from an affiliate, which were restricted for future investment in the Kremlin sites. In connection with the acquisition of a 34.8% interest in one of the Kremlin sites, BrookeMil agreed with the City of Moscow to invest an additional $22,000 by May 2000 in the development of the property. In April 2000, Western Realty Repin arranged short-term financing to fund the investment. Under the terms of the investment, BrookeMil is required to utilize such financing amount to make construction expenditures on the site by June 2002. Failure to make the expenditures could result in forfeiture of the 34.8% interest in the site. The Company has accounted for the formation of Western Realty Repin as a financing by Apollo through a participating interest to be received from the Kremlin sites. Based on the distribution terms contained in the Western Realty Repin LLC agreement, the 20% annual rate of return preference to be received by Apollo on funds advanced to Western Realty is treated as interest cost in the consolidated statement of operations to the extent of New Valley's net investment in the Kremlin sites. BrookeMil's historical cost in the Kremlin sites is $36,775 at March 31, 2001 and the amount of the participating loan recorded in the consolidated balance sheet at March 31, 2001 is $38,605. Apollo is entitled to additional preferences of approximately $5,700 related to the Kremlin sites at March 31, 2001. Gallaher Group Plc has agreed to purchase from a subsidiary of BrookeMil land located outside Moscow, Russia for $1,500. Closing of the sale, scheduled for the second quarter of 2001, is subject to satisfaction of various regulatory requirements. The development of Ducat Place III and the Kremlin sites will require significant amounts of debt and other financing. The Company is considering potential financing alternatives on behalf of Western Realty Development and BrookeMil. However, in light of the recent economic turmoil in Russia, there is a risk that such financing will not be available on acceptable terms. Failure to obtain sufficient capital for the projects would force Western Realty Development and BrookeMil to curtail or delay the planned development of Ducat Place III and the Kremlin sites. -9- 10 NEW VALLEY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 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 component of stockholders' equity. The Company had realized gains on sales of investment securities available for sale of $465 and $4,753 for the three months ended March 31, 2001 and 2000, respectively. The components of investment securities available for sale at March 31, 2001 are as follows:
GROSS GROSS UNREALIZED UNREALIZED FAIR COST GAIN LOSS VALUE ---- ----------- ----------- ----- Marketable equity securities $ 23,070 $ 2 $3,056 $20,016 Marketable debt securities 3,050 600 -- 3,650 Marketable warrants -- 4,850 -- 4,850 ------ ------ ------ ------- Investment securities $ 26,120 $5,452 $3,056 $28,516 ====== ====== ====== =======
4. INVESTMENT IN REAL ESTATE AND NOTES PAYABLE The components of the Company's investment in real estate and the related non-recourse notes payable collateralized by such real estate at March 31, 2001 are as follows: RUSSIAN REAL SHOPPING ESTATE CENTERS TOTAL ------ ------- ----- Land $ 53,149 $ 2,510 $ 55,659 Buildings 65,135 11,199 76,334 --------- -------- --------- Total 118,284 13,709 131,993 Less accumulated depreciation (6,103) (1,814) (7,917) --------- -------- --------- Net investment in real estate $ 112,181 $ 11,895 $ 124,076 ========= ======== ========= Notes payable $ 7,257 $ 11,287 $ 18,544 Current portion of notes payable 6,433 79 6,512 --------- -------- --------- Notes payable - long-term portion $ 824 $ 11,208 $ 12,032 ========= ======== ========= In February 2001, the Company sold its Royal Palm Beach, Florida Shopping center for $9,500 before closing adjustments and expenses and recorded a gain of $897 for the three months ended March 31, 2001. Notes payable relating to the shopping center with a balance of $8,226 at December 31, 2000 were repaid upon closing. 5. LONG-TERM INVESTMENTS At March 31, 2001, long-term investments consisted primarily of investments in limited partnerships of $4,954. The Company believes the fair value of the limited partnerships exceeds their carrying amount by approximately $5,800 based on the indicated market values of the underlying investment portfolio provided by the partnerships. The Company's estimate 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. The Company's investments in limited partnerships are illiquid, and the ultimate realization of these investments is subject to the performance of the underlying partnership and its management by the general partners. -10- 11 NEW VALLEY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 6. OTHER LONG-TERM LIABILITIES The components of other long-term liabilities, excluding notes payable, are as follows:
MARCH 31, 2001 DECEMBER 31, 2000 ------------------------ ---------------------- LONG-TERM CURRENT LONG-TERM CURRENT PORTION PORTION PORTION PORTION Retiree and disability obligations $ 3,358 $500 $ 3,533 $500 Minority interests 6,253 -- 6,322 -- Participating loan payable 38,605 -- 36,127 -- Note payable for Western Realty Development Class A interests 19,957 -- 19,968 -- Other long-term liabilities 629 -- 666 -- ------- ---- ------- ---- Total other long-term liabilities $68,802 $500 $66,616 $500 ======= ==== ======= ====
7. CONTINGENCIES LAWSUITS In March 1997, a stockholder derivative suit was filed against the Company, as a nominal defendant, its directors and Brooke Group Holding Inc. ("Brooke Group Holding"), an indirect wholly-owned subsidiary of Vector Group Ltd., the Company's principal stockholder, in the Delaware Chancery Court by a stockholder of the Company. The suit alleges that the Company's purchase of the BrookeMil shares from Brooke (Overseas) in January 1997 constituted a self-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 Group Holding aided and abetted such breaches and such parties are therefore liable to the Company, and (ii) unspecified damages to be awarded to the Company. In December 1999, another stockholder of the Company commenced an action in Delaware Chancery Court substantially similar to the March 1997 action. This stockholder alleges, among other things, that the consideration paid by the Company for the BrookeMil shares was excessive, unfair and wasteful, that the special committee of the Company's board lacked independence, and that the appraisal by the independent appraisal firm and the fairness opinion by the independent investment bank were flawed. Brooke Group Holding and the Company believe that the allegations in both cases are without merit. By order of the court, both actions were consolidated. In January 2001, the court denied a motion to dismiss the consolidated action filed by Brooke Group Holding and the Company. Discovery in the case has commenced. 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. In July 1999, a purported class action was commenced on behalf of the Company's former Class B preferred shareholders against the Company, Brooke Group Holding and certain directors and officers of the Company in Delaware Chancery Court. The complaint alleges that the recapitalization, approved by a majority of each class of the Company's stockholders in May 1999, was fundamentally unfair to the Class B preferred shareholders, the proxy statement relating to the recapitalization was materially deficient and the defendants breached their fiduciary duties to the Class B preferred shareholders in approving the transaction. The plaintiffs seek class certification of the action and an award of unspecified compensatory -11- 12 NEW VALLEY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) damages as well as all costs and fees. Vector and the Company believe that the allegations are without merit. The Court, on the defendants' motion, recently dismissed six of plaintiff's nine claims alleging inadequate disclosure in the proxy statement. The surviving claims are plaintiff's allegations that (i) the fact that the fairness opinion did not cover the relative fairness to each class of shares should have been expressly disclosed; (ii) failure to disclose the identity of shareholders who suggested the recapitalization and their respective holdings, broken down by share class, was a material omission; and (iii) the disclosure in the proxy statement was inadequate because it did not reveal the value of the Company's lines of business or its assets. The Court speculated that facts might exist under which one or more of the foregoing alleged non-disclosures might be material and, therefore, the motion to dismiss as to these three allegations was denied. An answer has been filed as to the surviving claims. Discovery in the case has commenced. Although there can be no assurances, in the opinion of management, after consultation with counsel, 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. As of March 31, 2001, New Valley had $7,639 of prepetition bankruptcy-related claims and restructuring accruals including claims for unclaimed monies that certain states are seeking on behalf of money transfer customers. The remaining claims may be subject to future adjustments based on potential settlements or decisions of the court. 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 and claims involve 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. RUSSIAN OPERATIONS The Russian Federation continues to experience economic difficulties following the financial crisis of August 1998. Consequently, the country's currency continues to devalue, there is continued volatility in the debt and equity markets, hyperinflation persists, confidence in the banking sector has yet to be restored and there continues to be a general lack of liquidity in the economy. In addition, laws and regulations affecting businesses operating within the Russian Federation continue to evolve. The Russian Federation's return to economic stability is dependent to a large extent on the effectiveness of the measures taken by the government, decisions of international lending organizations, and other actions, including regulatory and political developments, which are beyond the Company's control. Russian Taxation: Russian taxation is subject to varying interpretations and constant changes. Furthermore, the interpretation of tax legislation by tax authorities as applied to the transactions and activity of the Company may not coincide with that of management. As a result, transactions may be challenged by tax authorities and the Company may be assessed additional taxes, penalties and interest, which can be significant. Management regularly reviews the Company's taxation compliance with applicable legislation, laws and decrees and current interpretations and from time to time potential exposures are identified. At any point in time a number of open matters may exist, however, management believes that adequate provision has been made for all material liabilities. Tax years remain open to review by the authorities for three years. -12- 13 NEW VALLEY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 8. BUSINESS SEGMENT INFORMATION The following table presents certain financial information of the Company's continuing operations before taxes and minority interests as of and for the three months ended March 31, 2001 and 2000. The operations of BrookeMil are included in real estate operations, while the Company's interest in Western Realty Development, which was accounted for on the equity method prior to December 29, 2000, is included in corporate and other activities for the 2000 period. The activities of Western Realty Development are included in real estate operations for the 2001 period.
BROKER- CORPORATE DEALER REAL ESTATE AND OTHER TOTAL ------ ----------- --------- ----- THREE MONTHS ENDED MARCH 31, 2001 Revenues $ 18,910 $ 3,538 $ 1,808 $ 24,256 Operating (loss) income (364) 81 (1,544) (1,827) Identifiable assets 45,710 131,025 106,924 283,659 Depreciation and amortization 505 680 3 1,188 Capital expenditures 1,665 565 -- 2,230 THREE MONTHS ENDED MARCH 31, 2000 Revenues $ 31,287 $ 771 $ 3,483 $ 35,541 Operating income (loss) 4,883 (1,983) (128) 2,772 Identifiable assets 50,039 57,826 120,994 228,859 Depreciation and amortization 220 149 7 376 Capital expenditures 66 674 -- 740
9. PRO FORMA FINANCIAL INFORMATION The following table presents unaudited pro forma results from continuing operations as if the WRD Holding Corporation's acquisition of 29/30ths of the Class A Interests of Western Realty Development had occurred on January 1, 2000. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had these transactions been consummated as of such date. THREE MONTHS ENDED MARCH 31, 2000 ------------------- Revenues $39,343 ====== Income from continuing operations $ 1,726 ====== Income from continuing operations per common share $ 0.07 ===== -13- 14 NEW VALLEY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 10. COMPREHENSIVE INCOME Comprehensive income of the Company includes net income and changes in the value of investment securities available for sale that have not been included in net income. Comprehensive income (loss) applicable to Common Shares for the three months ended March 31, 2001 and 2000 is as follows:
THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, 2001 MARCH 31, 2000 -------------- -------------- Net (loss) income applicable to Common Shares $(1,688) $1,796 Change in unrealized gain on investment securities 125 4,560 ------- ------ Total comprehensive (loss) income $(1,563) $6,356 ======= ======
11. GBI CAPITAL MANAGEMENT ACQUISITION On February 8, 2001, New Valley entered into a stock purchase agreement under which New Valley has acquired a controlling interest in GBI Capital Management Corp. ("GBI") and its operating subsidiary, GBI Capital Partners, Inc., a securities and trading firm. On April 25, 2001, New Valley and GBI entered into an amendment to the agreement which provided for an increase in the number of shares of GBI common stock to be received by the Company and Berliner Effektengesellschaft AG ("Berliner") and a decrease in the conversion price of the notes to be received by the Company and Berliner based on a post-closing determination of the respective changes in the total stockholders' equities of Ladenburg, Thalmann & Co. Inc. ("Ladenburg"), the Company's 80.1% subsidiary, and GBI through April 30, 2001. Following the closing of the transaction, which occurred on May 7, 2001, the Company owns a majority of the outstanding shares of GBI, an American Stock Exchange-listed company, which has been renamed Ladenburg Thalmann Financial Services, Inc. Under the terms of the amended agreement, the Company and Berliner sold all of the outstanding shares of Ladenburg to GBI for 18,181,818 shares (subject to increase) of GBI common stock, $10,000 of cash and $10,000 principal amount of convertible notes (convertible at $2.60 per share, subject to decrease). Upon closing, New Valley also acquired an additional 3,945,060 shares of GBI from Joseph Berland, the former Chairman and Chief Executive Officer of GBI, for $1.00 per share. -14- 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) INTRODUCTION New Valley's Condensed Consolidated Financial Statements include the accounts of Ladenburg Thalmann & Co. Inc. ("Ladenburg"), an 80.1%-owned subsidiary, BrookeMil Ltd. ("BrookeMil"), a wholly-owned subsidiary, Western Realty Development ("Western Realty"), a 99%-owned subsidiary and other subsidiaries. RECENT DEVELOPMENTS GBI CAPITAL MANAGEMENT ACQUISITION. On February 8, 2001, New Valley entered into a stock purchase agreement under which New Valley has acquired a controlling interest in GBI Capital Management Corp. ("GBI") and its operating subsidiary, GBI Capital Partners, Inc., a securities and trading firm. On April 25, 2001, New Valley and GBI entered into an amendment to the agreement which provided for an increase in the number of shares of GBI common stock to be received by New Valley and Berliner Effektengesellschaft AG ("Berliner") and a decrease in the conversion price of the notes to be received by New Valley and Berliner based on a post-closing determination of the respective changes in the total stockholders' equities of Ladenburg, Thalmann & Co. Inc. ("Ladenburg"), New Valley's 80.1% subsidiary, and GBI through April 30, 2001. Following the closing of the transaction, which occurred on May 7, 2001, New Valley owns a majority of the outstanding shares of GBI, an American Stock Exchange-listed company, which has been renamed Ladenburg Thalmann Financial Services, Inc. Under the terms of the amended agreement, New Valley and Berliner sold all of the outstanding shares of Ladenburg to GBI for 18,181,818 shares (subject to increase) of GBI common stock, $10,000 of cash and $10,000 principal amount of convertible notes (convertible at $2.60 per share, subject to decrease). Upon closing, New Valley also acquired an additional 3,945,060 shares of GBI from Joseph Berland, the former Chairman and Chief Executive Officer of GBI, for $1.00 per share. WRD HOLDING CORPORATION. On December 29, 2000, WRD Holding Corporation, a newly-organized subsidiary of New Valley, purchased 29/30ths of the Class A interests of Apollo in Western Realty Development. WRD Holding paid the purchase price of $4,000 with a promissory note due November 30, 2005. The note, which is collateralized by a pledge of the purchased Class A interests, bears interest at a rate of 7% per annum, compounded annually; interest is payable only to the extent of available cash flow from distributions from Western Realty Development. In addition, upon the maturity date of the note or, if earlier, upon the closing of various liquidity events, including sales of interests in or assets of, or a business combination or financing involving, Western Realty Development, additional interest will be payable under the note. The additional interest would be in an amount equal to 30% of the excess, if any, of the proceeds from a liquidity event occurring prior to the maturity of the note or the appraised fair market value of Western Realty Development, at maturity, over $13,750. As a result of the purchase of the Class A interests, New Valley and its subsidiaries are entitled to 99% of distributions from Western Realty Development and Apollo is entitled to 1% of distributions. Accordingly, New Valley no longer accounts for its interests in Western Realty Development using the equity method of accounting. Effective December 29, 2000, Western Realty Development became a consolidated subsidiary of New Valley. SALE OF SHOPPING CENTER. In February 2001, the Company sold its Royal Palm Beach, Florida Shopping center for $9,500 before closing adjustments and expenses and recorded a gain of $897 for the three months ended March 31, 2001. -15- 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) RESULTS OF OPERATIONS Consolidated total revenues were $24,256 for the three months ended March 31, 2000 versus $35,541 for the same period last year. The decrease in revenues of $11,285 is attributable primarily to the $12,377 decrease in revenues from Ladenburg offset by increased real estate revenues of $2,767. For the first quarters of 2001 and 2000, the results of operations of New Valley's primary operating units, which include Ladenburg (broker-dealer), New Valley's U.S. shopping centers and Western Realty Development and BrookeMil (real estate), are summarized below. The operations of BrookeMil are included in real estate operations, while the Company's interest in Western Realty Development, which was accounted for on the equity method prior to December 29, 2000, is included in corporate and other activities for the 2000 period. The activities of Western Realty Development are included in real estate operations for the 2001 period. THREE MONTHS ENDED MARCH 31, ----------------------------- 2001 2000 -------- -------- Broker-dealer: Revenues $ 18,910 $ 31,287 Expenses 19,274 26,404 -------- -------- Operating (loss) income before taxes and minority interests $ (364) $ 4,883 ======== ======== Real estate: Revenues $ 3,538 $ 771 Expenses 3,457 2,754 -------- -------- Operating income (loss) before taxes and minority interests $ 81 $ (1,983) ======== ======== Corporate and other: Revenues $ 1,808 $ 3,483 Expenses 3,352 3,611 -------- -------- Operating loss before taxes and minority interests $ (1,544) $ (128) ======== ======== Ladenburg's revenues for the first quarter of 2001 decreased $12,377 as compared to revenues for the first quarter of 2001 primarily due to decreased commissions of $8,867 and principal transactions of $2,488. Ladenburg's expenses for the first quarter of 2001 decreased $7,130 as compared to expenses for the first quarter of 2000 due primarily to a decrease in incentive based compensation associated with the decreased revenues. The $8,867 (68%) decrease in commissions was the result of a less active market for equity securities in 2001 versus 2000. The $2,488 (22%) decrease in principal transaction was primarily the result of decreased trading and brokerage activities by Ladenburg in 2001 as compared to 2000. Revenues from the real estate operations for the first quarter of 2000 increased $2,767 primarily due to the inclusion of rental revenue of $1,944 from Western Realty Development and the gain of $897 from the sale of one of New Valley's two U.S. Shopping Centers. Expenses of the real estate operations increased $703 in the 2001 period due primarily to the $2,242 inclusion of expenses from Western Realty Development in 2001 offset by lower expenses as a result of the sale of one of New Valley's two U.S. Shopping Centers and lower expense from BrookeMil. BrookeMil incurred expenses of $312 and $1,618 for the three month periods ended March 31, 2001 and 2000, respectively. BrookeMil's expenses consisted primarily of accrued interest expense of $0 for the 2001 period and $1,596 for the 2000 period associated with the participating loan from Western Realty Repin to BrookeMil in connection with the development of the Kremlin sites. -16- 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) For the first quarter of 2001, New Valley's revenues of $1,808 related to corporate and other activities primarily consisted of net gains on investments of $465 and interest and dividends income of $1,174. For the same period in the prior year, revenues related to corporate and other activities were $3,483, which primarily consisted of net gains on investments of $4,753 and interest and dividends income of $382. Corporate revenues in the 2000 period were offset by $1,478 of losses associated with losses from the operations of certain internet-related businesses accounted for on the equity method and a $226 loss from joint venture. Corporate and other expenses of $3,352 for the first quarter of 2001 consisted primarily of employee compensation and benefits of $1,712 and expenses of a non-significant consolidated subsidiary of $113. Corporate and other expenses of $3,611 for the first quarter of 2000 consisted primarily of employee compensation and benefits of $1,535, expenses associated with the management of New Valley's marketable securities of $471 and expenses of a non-significant consolidated subsidiary of $100. Income tax for the first quarter of 2001 was $0 versus $36 for the first quarter of 2000 due to state tax expense. The effective tax rate does not bear a customary relationship with pre-tax accounting income principally as a consequence of the change in the valuation allowance relating to deferred tax assets. LIQUIDITY AND CAPITAL RESOURCES During the first quarter 2001, New Valley's cash and cash equivalents decreased from $82,067 to $77,375 due primarily to a net loss of $1,688. Cash used for operating activities for the three months ended March 31, 2001 was $2,270 as compared to $8,076 from the prior year. The difference is primarily due to the net decrease in Ladenburg's investment securities of $8,897 in 2001 versus $344 in 2000 and an increase of $8,289 in receivables from clearing brokers versus $10,217 in the 2000 period. The amount was offset by a decrease in gains on sale of investments of $4,288. Cash provided from investing activities for the three months ended March 31, 2001 was $5,338 compared to $11,076 for the three months ended March 31, 2000. The difference is primarily attributable to net sales of $1,105 of marketable securities and long-term investments in 2001 versus $8,842 in 2000. The difference is also attributable to a decrease in restricted assets of $3,202 for the three months ended March 31, 2000. The decrease in restricted assets during three months ended March 31, 2000 was primarily the result of a $2,516 reduction in a letter of credit which collateralizes a long-term lease of commercial office space. -17- 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The capital expenditures of $2,230 for the three months ended March 31, 2001 related primarily to Ladenburg's acquisition of furniture and equipment of $1,665 and the development of the Kremlin sites of $565. BrookeMil also held $545 in restricted cash and receivables from an affiliate, at March 31, 2001, which is restricted for future investment in the Kremlin sites. The capital expenditures of $674 for the three months ended March 31, 2000 related principally to the development of the Kremlin sites. In connection with the acquisition of a 34.8% interest in one of the Kremlin sites, BrookeMil agreed with the City of Moscow to invest an additional $22,000 by May 2000 in the development of the property. In April 2000, Western Realty Repin arranged short-term financing to fund the investment. Under the terms of the investment, BrookeMil is required to utilize such financing amount to make construction expenditures on the site by June 2002. Failure to make the expenditures could result in forfeiture of the 34.8% interest in the site. In June 1998, New Valley and Apollo organized Western Realty Repin to make a loan to BrookeMil. The proceeds from the loan will be used by BrookeMil for the acquisition and preliminary development of the Kremlin sites. Through March 31, 2001, Western Realty Repin has advanced $41,425 to BrookeMil, of which Apollo has funded $29,015. The loan bears no fixed interest and is payable only out of distributions by the entities owning the Kremlin sites to BrookeMil. The loan is due and payable upon the dissolution of BrookeMil and is collateralized by a pledge of New Valley's shares of BrookeMil. Such distributions must be applied first to pay the principal of the loan and then as contingent participating interest on the loan. Any rights of payment on the loan are subordinate to the rights of all other creditors of BrookeMil. BrookeMil used a portion of the proceeds to repay New Valley for certain expenditures on the Kremlin sites previously incurred. Gallaher Group Plc has agreed to purchase from a subsidiary of BrookeMil land located outside Moscow, Russia for $1,500. Closing of the sale, scheduled for the second quarter of 2001, is subject to satisfaction of various regulatory requirements. The development of Ducat Place III and the Kremlin sites will require significant amounts of debt and other financing. New Valley is considering potential financing alternatives on behalf of Western Realty Development and BrookeMil. However, in light of the recent economic turmoil in Russia, there is a risk that such financing will not be available on acceptable terms. Failure to obtain sufficient capital for the projects would force Western Realty Development and BrookeMil to curtail or delay the planned development of Ducat Place III and the Kremlin sites. Cash flows used for financing activities were $7,760 for the three months ended March 31, 2001 as compared to cash flows provided from financing activities of $3,089 for the three months ended March 31, 2000. The decrease was primarily due to the repayment of notes payable of $9,996 in the 2001 period, a decrease in margin loans payable of $827 in 2001 versus an increase of $3,324 in New Valley's margin loans in 2000. The decrease was offset by the issuance of $2,478 of the participating loan in the 2001 period. New Valley has lent Thinkcorp Holdings Corporation (formerly known as Thinking Machines Corporation), a 72.7% owned subsidiary, an additional $814, bearing interest at 15% per annum, since Thinkcorp Holdings Corporation sold its Darwin(R) software and services business to Oracle Corporation in June 1999. On October 5, 1999, New Valley's Board of Directors authorized the repurchase of up to 2,000,000 Common Shares from time to time on the open market or in privately negotiated transactions depending on market conditions. As of May 11, 2001, New Valley had repurchased 422,000 shares for approximately $1,457. New Valley expects that its available working capital will be sufficient to fund its currently anticipated cash requirements for 2001, including the currently anticipated cash requirements of its operating businesses, investments, commitments, and payments of principal and interest on its outstanding indebtedness. -18- 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) MARKET RISK Market risk generally represents the risk of loss that may result from the potential change in the value of a financial instrument as a result of fluctuations in interest and currency exchange rates, equity and commodity prices, changes in the implied volatility of interest rate, foreign exchange rate, equity and commodity prices and also changes in the credit ratings of either the issuer or its related country of origin. Market risk is inherent to both derivative and non-derivative financial instruments, and accordingly, the scope of New Valley's market risk management procedures extends beyond derivatives to include all market risk sensitive financial instruments. Current and proposed underwriting, corporate finance, merchant banking and other commitments are subject to due diligence reviews by Ladenburg's senior management, as well as professionals in the appropriate business and support units involved. Credit risk related to various financing activities is reduced by the industry practice of obtaining and maintaining collateral. New Valley monitors its exposure to counterparty risk through the use of credit exposure information, the monitoring of collateral values and the establishment of credit limits. EQUITY PRICE RISK Ladenburg maintained inventories of trading securities at March 31, 2001 with fair values of $8,566 in long positions and $2,685 in short positions. Ladenburg performed an entity-wide analysis of its financial instruments and assessed the related risk and materiality. Based on this analysis, in the opinion of management, the market risk associated with the Ladenburg's financial instruments at March 31, 2001 will not have a material adverse effect on the consolidated financial position or results of operations of New Valley. New Valley held investment securities available for sale totaling $28,516 at March 31, 2001. Adverse market conditions could have a significant effect on the value of New Valley's investments. New Valley also holds long-term investments in limited partnerships and limited liability companies. New Valley's investments in limited partnerships are illiquid, and the ultimate realization of these investments is subject to the performance of the investee entities. FOREIGN MARKET RISK BrookeMil's and Western Realty Development's operations are conducted in Russia. The Russian Federation continues to experience economic difficulties following the financial crisis of August 1998. Consequently, the country's currency continues to devalue, there is continued volatility in the debt and equity markets, hyperinflation persists, confidence in the banking sector has yet to be restored and there continues to be a general lack of liquidity in the economy. In addition, laws and regulations affecting businesses operating within the Russian Federation continue to evolve. The Russian Federation's return to economic stability is dependent to a large extent on the effectiveness of the measures taken by the government, decisions of international lending organizations, and other actions, including regulatory and political developments, which are beyond the control of companies operating in the Russian Federation. The operations of BrookeMil and Western Realty Development may be significantly affected by these factors for the foreseeable future. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS New Valley and its representatives may from time to time make oral or written "forward-looking statements" within the meaning of the Private Securities Reform Act of 1995, including any statements that may be contained in the foregoing "Management's Discussion and Analysis of Financial Condition and Results of Operations", in this report and in other filings with the Securities and Exchange Commission and in its reports to stockholders, which represent New Valley's expectations or beliefs with respect to future events and financial -19- 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) performance. These forward-looking statements are subject to certain risks and uncertainties and, in connection with the "safe-harbor" provisions of the Private Securities Reform Act, New Valley has identified under "Risk Factors" in Item 1 of New Valley's Form 10-K for the year ended December 31, 2000 filed with the Securities and Exchange Commission and in this section important factors that could cause actual results to differ materially from those contained in any forward-looking statements made by or on behalf of New Valley. Each of New Valley's operating businesses, Ladenburg, BrookeMil, Western Realty Development and New Valley Realty, and its interests in Western Realty Repin, are subject to intense competition, changes in consumer preferences, and local economic conditions. BrookeMil, Western Realty Development, Western Realty Repin and New Valley Realty are additionally subject to the uncertainties relating to the real estate business, including, without limitation, required capital improvements to facilities, local real estate market conditions and federal, state, city and municipal laws and regulations concerning, among others, zoning and environmental matters. Uncertainties affecting New Valley generally include, without limitation, the effect of market conditions on the salability of New Valley's investment securities, the uncertainty of other potential acquisitions and investments by New Valley, the effects of governmental regulation on New Valley's ability to target and/or consummate any such acquisitions and the effects of limited management experience in areas in which New Valley may become involved. Results actually achieved may differ materially from expected results included in these forward-looking statements as a result of these or other factors. Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date on which such statements are made. New Valley does not undertake to update any forward-looking statement that may be made from time to time on behalf of New Valley. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk" is incorporated herein by reference. -20- 21 PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS See Note 7 to the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Report. Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None Item 5. OTHER INFORMATION None Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 10.1 Stock Purchase Agreement, dated February 8, 2001, among GBI Capital Management Corp., New Valley Corporation, Ladenburg, Thalmann Group Inc., Berliner Effektengesellschaft AG and Ladenburg, Thalmann & Co. Inc. (incorporated by reference to Exhibit 10.1 in New Valley's Current Report on Form 8-K dated February 16, 2001). 10.2 Form of 7 1/2% Convertible Promissory Note due 2005 of GBI Capital Management Corp. (incorporated by reference to Exhibit 10.2 in New Valley's Current Report on Form 8-K dated February 16, 2001). 10.3 Form of Pledge and Security Agreement between GBI Capital Management Corp., Ladenburg, Thalmann Group Inc., Berliner Effektengesellschaft AG, Frost-Nevada, Limited Partnership and U.S. Bank Trust National Association, as collateral agent. (incorporated by reference to Exhibit 10.3 in New Valley's Current Report on Form 8-K dated February 16, 2001). 10.4 Proxy and Voting Agreement dated as of February 8, 2001, among New Valley Corporation, Ladenburg, Thalmann Group Inc., Berliner Effektengesellschaft AG, and the individual stockholders of GBI Capital Management Corp. signatories thereto. (incorporated by reference to Exhibit 10.4 in New Valley's Current Report on Form 8-K dated February 16, 2001). 10.5 Irrevocable Proxy, dated as of February 8, 2001, executed by the individual stockholders of GBI Capital Management Corp. signatories thereto. (incorporated by reference to Exhibit 10.5 in New Valley's Current Report on Form 8-K dated February 16, 2001). 10.6 Investor Rights Agreement, dated as of February 8, 2001, among New Valley Corporation, Ladenburg, Thalmann Group Inc., Berliner Effektengesellschaft AG, GBI Capital Management Corp., Frost-Nevada, Limited Partnership and the individual stockholders of GBI Capital Management Corp. signatories thereto. (incorporated by reference to Exhibit 10.6 in New Valley's Current Report on Form 8-K dated February 16, 2001). 10.7 Stock Purchase Agreement, dated as of February 8, 2001, by and between Ladenburg, Thalmann Group Inc. and Joseph Berland. (incorporated by reference to Exhibit 10.7 in New Valley's Current Report on Form 8-K dated February 16, 2001). -21- 22 (b) REPORTS ON FORM 8-K DATE ITEMS FINANCIAL STATEMENTS ---- ----- -------------------- January 16, 2001 2,7 Western Realty Development LLC February 2, 2001 2,7 Western Realty Development LLC February 16, 2001 5,7 None -22- 23 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEW VALLEY CORPORATION (Registrant) Date: May 11, 2001 By: /s/ J. BRYANT KIRKLAND III ------------------------------- J. Bryant Kirkland III Vice President, Treasurer and Chief Financial Officer (Duly Authorized Officer and Chief Accounting Officer) -23-