ACC, therefore, installed new management at Lincoln and Lincoln's new management then addressed Lincoln's lending and investment policies in an effort to improve the thrift's sagging earnings and net worth. Under California's amended savings association law, which became effective on January 1, 1984, ACC began a program of transferring profitable real estate and related operations to Lincoln and to service corporations of Lincoln formed with the approval of the California Department. ACC shifted Lincoln's core business from raising short-term deposits used for "traditional" financing of residential real estate properties to raising long-term deposits, principally for the following activities: the origination of larger real estate and commercial loans; investment in real estate for development and sale; investment in mortgage-backed securities and United States government obligations; and investment in corporate debt and equity securities. Management's principal objectives in effecting these changes were to: lengthen the average maturity of Lincoln's deposit base; reduce Lincoln's interest rate sensitivity by diversifying its asset portfolio; increase Lincoln's profitability and minimize risk by investing in business areas in which ACC had prior successful experience; increase Lincoln's profitability by emphasizing investments in which the actual and potential returns more than offset any potential additional risk; and maintain compliance with qualified asset and income requirements of federal and state savings and loan law.

Lincoln's investment program generally was designed to lengthen maturities of liabilities and to shift a significant percentage of its assets into investments in real estate, land loans and securities, which, as described above, new management was ably qualified to select, monitor and control. Ultimately, such a shift was designed to reduce Lincoln's interest rate risk and more effectively match assets with liabilities. Management took steps to restructure Lincoln's asset portfolio to emphasize real estate held for development and sale. Lincoln began to focus substantial attention on acquisition of land with the potential for profitable development as master-planned communities. Management also placed increased emphasis on loans secured by real estate structured to enable Lincoln to participate in profits realized upon the sale or refinancing of the properties by the borrowers.

Lincoln also restructured its liability portfolio to correct an extreme mismatch of maturities and interest rates of Lincoln's assets and liabilities. Prior to its acquisition by ACC, approximately 89% of Lincoln's deposits matured in less than one year and an alarming 66% of its deposit portfolio matured within 90 days. To extend the maturity of Lincoln's deposit base, management increased retail branch marketing efforts and offered

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non-withdrawable certificate accounts through national brokerage firms. As a result, at December 31, 1986, only 43% of Lincoln's deposit portfolio matured within one year. In addition, by voluntarily incurring slightly higher costs (e.a. by paying higher interest rates to long-term depositors) and sacrificing some short-term profit, Lincoln was able significantly to reduce the risk of potential liquidity problems caused by large scale withdrawals of deposits by offering non-withdrawable certificates to borrowers at higher rates than ordinary accounts (in sharp contrast to Lincoln's pre-acquisition practice of seeking short-term "hot money brokered deposits of the type widely criticized in the thrift industry).

ACC's plans to restructure Lincoln's investment portfolio and reshape the direction of Lincoln's lending and investment operations were described in an Operating Plan filed with the FHLBB in August 1984 and in a Revised Operating Plan dated November 16, 1984 (collectively, the "Operating Plan"). The Revised Operating Plan resulted from extensive discussions between the FHLBB and Lincoln representatives. The FHLBB reviewed the Operating Plan and provided comments to which Lincoln responded by letter dated February 5, 1985 and in person at a meeting between Lincoln's management and representatives of the FHLBB on February 15, 1985. The investment philosophies which, years later, formed the basis for unprecedented regulatory attacks on ACC and Lincoln were clearly and very specifically disclosed in the Operating Plan. Had the FHLBB believed that these philosophies constituted unacceptably "unsafe and unsound⚫ practices, they could have taken action with respect to those beliefs in 1984. Instead, it appears that the regulators may have believed, as ACC and Lincoln's new management did, that a real opportunity to return Lincoln to profitability in a volatile interest rate environment existed, and that this opportunity supported the undertaking of some well-planned and well-considered business risk in areas outside those of the historic focus of Lincoln and other troubled thrifts.

The Operating Plan reflected ACC's intention to take maximum advantage of Lincoln's new management's considerable experience in land acquisition, development and construction financing and in the issuance of and investment in various types of securities. The Operating Plan described the anticipated benefits of this diversification of investments and business activities.

To combat what Lincoln anticipated as a potential contraction of the homebuilding industry, which would result in fewer opportunities and increased competition among financial institutions for home loans, Lincoln planned to purchase single-family loans in the form of mortgage-backed securities such as those guaranteed as to payment and/or timeliness of payment by the GMMA and the FMMA, for resale and/or long-term investment.

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Although Lincoln continued to make residential real estate loans for acquisition, development and/or construction purposes, the Operating Plan contemplated expansion of Lincoln's commercial lending activities. In addition to generating conventional loan assets, Lincoln intended to produce commercial loan assets through the prudent purchase of corporate debt securities (for which the expertise of its new directors and officers uniquely qualified Lincoln) and anticipated the use, where necessary, of qualified investment bankers for advice in making such investments. The Operating Plan also revealed that Lincoln would seek to increase its deposit base by building an effective retail branch system with related advertising, thereby increasing visibility and indirectly generating lending and investment opportunities.

In addition to its intended lending activities, Lincoln described its plans to contribute assets and funds to service corporations approved by the California Department and to engage in a diversified line of related businesses designed to maximize Lincoln management's experience and to synergize with Lincoln's core business. Lincoln implemented its Operating Plan and its loan and investment policies, in part, with the formation or additional capitalization, of service corporations approved by the California Department to operate an insurance brokerage, invest in securities, underwrite life insurance, acquire, develop and manage real estate and participate in real estate loans, acquire and manage hotels, conduct à general engineering and contracting business, operate a travel agency, invest in and operate broadcast communications companies, issue debt and equity securities and operate a securities brokerage. The California Department approved Lincoln's investment in these service corporations in an aggregate amount in excess of $1.6 billion (excluding additional investment authority calculated as a percentage of Lincoln's assets).

A. The outstanding common stock of Insurance West, Inc. ("IWI"), formerly a subsidiary of ACC which sold property, casualty, home-owners and life insurance, was contributed by ACC to Lincoln in 1984. By letter dated July 31, 1984, and supplemented by letter dated September 7, 1984, Lincoln requested approval for the transaction and described ACC's intent to contribute the IWI stock to Oxford Financial Corporation ("Oxford"), with IWI merging into Oxford, provided that Lincoln received authority to invest additional capital to complete the transaction. On September 15, 1984, the California Department granted Lincoln authority to invest an additional $2 million in the combined IWI/Oxford enterprise (specifically $899,135 for IWI and $1,100,865 for the combined operations). However, by letter dated October 29, 1984, Lincoln notified the California Department

that IWI and Oxford would not merge, but instead ACC would contribute the IWI stock to Lincoln and Lincoln would transfer the Oxford stock to IWI, making IWI a first-tier Lincoln subsidiary and Oxford a subsidiary of IWI. The California Department confirmed its approval and granted the additional investment authority by letter dated November 14, 1984.

B. Pursuant to an application submitted to the California Department on February 1, 1984, Lincoln requested permission to receive from its direct parent, First Lincoln Financial Corp. ("First Lincoln'), a contribution of the stock of Oxford, a corporation engaged in the insurance brokerage business, and Diversified Life Insurance Company ("Diversified"), a corporation engaged in life and disability insurance underwriting and brokerage, and authority for Lincoln to invest up to $2 million in Diversified after receipt of its stock. Effective March 31, 1984, First Lincoln was permitted to transfer the stock of Oxford to Lincoln, but, as requested by the California Department, Lincoln transferred the Diversified stock to Lincoln American Financial Insurance Company ("LAFICO"), a service corporation formed and approved by the California Department on May 22, 1984 expressly for this purpose. This transfer did not, however, destroy Lincoln's authority to invest in Diversified. By letter dated July 31, 1984, as amended by a letter dated October 29, 1984, Lincoln notified the California Department that ACC proposed contributing the IWI stock discussed above to Lincoln, and the stock of Continental Fidelity Life Insurance Company (CFLIC), a life insurance underwriter, to Diversified. On November 14, 1984, the California Department approved total investment authority for Lincoln in Diversified in the aggregate amount of $5 million, which included the previously authorized $2 million.

C. Lincoln formed AMCOR Funding Corporation ("AMCOR Funding"), formerly LAFICO, pursuant to an application filed with the California Department on May 18, 1984, and approved May 23, 1984, to facilitate the required divestiture by Lincoln of its direct holdings in Diversified discussed above; on that date, Lincoln, with the approval of the California Department transferred the stock of Diversified to LAFICO. This approval included the authority to invest in corporate securities and permitted Lincoln to invest up to $90 million in LAFICO. On October 10, 1984, Lincoln applied to amend its Service Corporation Agreement; that amendment was approved on December 7, 1984 and authorized investment by Lincoln in the aggregate amount of $225 million. The change of name was approved by the California Department on June 7, 1985.

AMCOR Funding was granted approval on December 23, 1986 to form Continental Insurance Group ("CIG"), as a subsidiary of AMCOR Funding to hold the stock of two existing insurance entities,

CPLIC, formerly Diversified, as a first-tier subsidiary and American Founders Life Insurance Company ("AFLIC") as a subsidiary of CFLIC. The Service Corporation Agreement was modified in June 1986 with the approval of the California Department to include authorization to acquire control of PFC Phoenician Funding, N.V., and AMCON Insurance Group and its subsidiaries as well as CIG.

D. The organization of AMCOR Investments Corporation ("AMCOR Investments"), formerly Continental Homes Corporation (CHC), was originally approved by the California Department on June 1, 1984. Its primary authorized activities were to acquire, develop and manage real estate, to originate or otherwise participate in real estate loans, and to engage in other activities reasonably incidental to those specified in the Service Corporation Agreement. The original application filed April 24, 1984 requested authorization to invest up to $300 million in CHC, which was reduced to $250 million on October 31, 1984 pursuant to Lincoln's request but reinstated to $300 million on December 7, 1984. In a modification to the Service Corporation Agreement filed on March 19, 1985 and approved April 5, 1985, CHC's authorized functions were expanded to allow it to purchase, sell or otherwise deal in corporate securities. CHC obtained approval from the California Department to change its name to AMCOR Investments on November 11, 1987. AMCOR Investments applied for and received authority in 1987 to form a subsidiary, Box Elder/ AMCOR, Inc., to act as a general partner in a number of real estate projects owned by AMCOR Investments and to form Estrella Star Real Estate Corporation and Rancho Estrella Real Estate Corporation to hold real property for development.

E. Lincoln filed an application requesting approval to acquire from ACC the outstanding stock of Provident Travel Service, Inc. ("PTS"), on April 25, 1984, and the transaction was approved by the California Department on June 8, 1984. The principal authorized function of PTS was to provide travel services to commercial accounts, individuals and groups, including for affiliates of Lincoln and for the public generally. Lincoln was authorized to accept the contribution from ACC of all of the stock of PTS.

?. The application to organize Phoenician Financial Corporation ("PPC"), formerly Lincoln Communications Company ("LinCom"), was filed on September 26, 1984, and approved by the California Department on October 31, 1984, for an authorized investment of up to $110 million, including equity and capital advances and secured and unsecured loans. Its primary authorized function was to engage in communications and broadcasting undertakings of any nature, including television and/or radio broadcasting. Lincoln planned to explore the possibility of

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