John T. Barrett, Jr. and Jane W. A. Barrett - Page 7

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          securities operation had a negative effect on Drexel’s financial            
          position during 1989.  Drexel, however, continued to engage in              
          business throughout 1989 and into 1990.  Drexel responded to the            
          difficulties facing it by (1) increasing efforts to reduce its              
          securities positions, especially in high-yield securities and               
          bridge loans, (2) pursuing alternative sources of financing, and            
          (3) developing and considering different strategic options for              
          its lines of business.  Drexel developed a 1990 business plan               
          that projected significant cuts in operating costs, which were in           
          addition to a large reduction of expenses in 1989 from 1988                 
          levels.  Drexel also completed a series of management changes               
          that were designed to provide new leadership in key business                
          areas.  Despite the adverse developments affecting Drexel, it               
          projected a profit for 1990.                                                
               During January 1990, Drexel’s cash flow from operations was            
          depressed, and Drexel experienced continuing difficulties in                
          financing its operations, relying upon the assets of subsidiaries           
          to fund shortfalls.  Drexel also sought new sources of financing            
          to replace its commercial paper, which was unattractive to buyers           
          because of a lowered rating.  Although Drexel believed that it              
          could utilize the excess net regulatory capital of its                      
          subsidiaries to finance its operations, it was informed by the              
          SEC on February 7, 1990, that it could not borrow any of the                
          subsidiaries' funds without prior SEC approval.  Although the SEC           
          agreed to permit Drexel to borrow funds from a subsidiary to pay            




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