Imagens das páginas
PDF
ePub

owned by ACC, Lincoln would have an inadequate net worth; (3) that the ORA was not likely to agree to any requested forbearance, except with respect to the rescission of directives; (4) ORA's demands for amplification of LAC's business plan to address various details of its accounting plans, and budgetary reduction plans, growth assumptions and other details contained in its projections; (5) a demand for "worst case financial projections; (6) a demand for additional information about the principals of LAC; (7) copies of the securities filings ACC would be making in connection with the proposed transaction; and (8) an opinion of tax counsel concerning the proposed transaction.

The ORA and the FHLBB flatly rejected LAC's accessions to the regulators' multitude of demands, and refused to approve LAC's Application, as amended.

C. The LSAC Application (Rousselot Il

On March 7, 1989, LSAC filed its Application, which attempted to accommodate the demands raised by the FHLBB with respect to the LAC Application.

Under the LSAC transaction, Lincoln would exchange newly issued 9 cumulative senior preferred stock, in the face amount of $288,750,000, for all but 1,000 shares of the common stock of Lincoln held by First Lincoln. LSAC would then purchase the remaining 1,000 shares of Lincoln's common stock for $100,000, and Lincoln would issue $35 million of 9 junior preferred stock to LSAC and $15 million of 8% junior preferred stock to ACC.

Lincoln would sell to ACC the assets which were the subject of vigorous dispute with the FHLBB substantially as contemplated in the LAC transaction. In the event ACC failed to pay interest or Lincoln failed to declare accumulated unpaid dividends on senior preferred stock, there would be rights of offset.

LSAC urged approval of the proposed sale on the grounds that it would increase regulatory capital to $348,850,000 ($288,750,000 in newly issued senior preferred stock, retention of $10 million in existing preferred stock, issuance of $50 million of junior preferred stock, and $100,000 in common stock), future operations would decrease unconventional investments, management would include directors previously unaffiliated with Lincoln, ACC or LSAC, and as a result of the transaction, Lincoln would fulfill the perceived primary goal of the FHLBB by once again becoming a traditional savings and loan.

LSAC did not request financial assistance from the FSLIC or FHLBB, and was prepared to restructure and recapitalize Lincoln using private funds. LSAC did request assistance with respect to certain regulatory matters, however, including (1) a waiver of the

99

loans-to-one-borrower restrictions with respect to the carry-back notes to be issued by ACC to allow the divestiture of the "risky assets; (2) continued effect of the MOU; (3) rescission of all supervisory directives and agreements upon LSAC's obtaining control of Lincoln; (4) the right to declare and pay dividends on preferred stock without further notice to the FHLBB or PSLIC, so long as payments would not impair regulatory capital; (5) a determination that the ownership of the preferred stock by ACC and a proposed financier of the acquisition would not cause either of them to be considered an affiliate of Lincoln; and (6) a forbearance for up to five years from regulatory action for failure of Lincoln to meet certain regulatory capital requirements unless Lincoln was determined to be operated in an unsafe and unsound manner with respect to investments made after the date of acquisition.

LSAC provided to the FHLBB a prospective three-year business plan, including a pro forma financial statement based on Lincoln's historical statement of financial condition, adjusted by marking to market all assets and liabilities as of November 30, 1988, in accordance with GAAP. The adjustments reflected the proposed acquisition by ACC of the stock of GOIL and the Hotel Stock, and the sale of certain land, as well as the purchase of junior preferred stock. In that business plan, LSAC projected net income for each of the first three years of Lincoln's operations of $30 million, $32 million and $42 million, respectively.

LSAC's projections reflected the anticipated effect of its intended strategies: maintaining cash assets to meet regulatory liquidity requirements; liquidating investments in corporate equity securities as permitted by market conditions; decreasing investments in junk bonds and immediate liquidation of all investments in low yield items such as municipal bonds, commercial paper, and CDs; increasing investments. in mortgage backed securities; decreasing levels of acquisition and development lending, except as required to dispose of existing real estate inventory; increasing construction lending for qualified residential projects in California; decreasing real estate holdings by aggressively marketing "as is" the majority of the

real estate, inventory and not acquiring new real estate

projects; maintaining deposits at current levels; and maintaining net worth and regulatory capital at rates in excess of 6% of deposits.

967

Although LSAC proposed to operate Lincoln as a conventional thrift, and anticipated reducing non-earning assets of Lincoln by over $1 billion in 1989 alone, LSAC proposed to retain Lincoln's ownership of some of the more profitable master-planned communities.

R 000271

In an amendment filed on March 9, 1989 ("Amendment #1"), LSAC responded to the FHLBB's expressed concerns about management by confirming LSAC's commitment that Lincoln's Board of Directors would consist of seven members, a majority of whom would not be officers or employees of Lincoln, and would not be officers, directors or employees of LSAC. Further, Lincoln agreed to appoint Audit and Compensation Committees of the Board, which would consist solely of outside directors, and a Policy Committee consisting of a majority of outside directors.

Finally, Amendment #1 reflected revised financial projections showing Lincoln's projected net income for each of the first three years of LSAC's control to be $38 million, $42 million, and $50 million, respectively, with dividend obligations, to the extent payable without impairing regulatory capital, of approximately $32 million per year. These revised projections primarily reflected a recomputation of the yield from high yield investments, and the February 28, 1989 book values of the assets to be purchased by ACC.

In its Amendment #2, LSAC responded to ORA's objections to any potential continued involvement by ACC in the control of Lincoln. LSAC provided a memorandum of law concluding that ownership of preferred stock of Lincoln would not give ACC sufficient control to be an "affiliate. LSAC also provided a letter confirming that, to the extent possible, principals of LSAC would sever all economic relationships with ACC. To further assure the FHLBB that Lincoln would have sound management, structured in a manner acceptable to the FHLBB, LSAČ confirmed that the Lincoln Board of Directors would meet at least monthly, and would have at least an Executive Committee, a Compensation and Retirement Committee, an Audit Committee, and a Policy Committee, with the Audit and Compensation and Retirement Committees consisting solely of outside directors, and the Policy Committee consisting of a majority of outside directors. Finally, in Amendment #2, LSAC clarified the offset rights attaching to the preferred stock to be issued to ACC and an outside financier and to the notes to be received by ACC as part of the purchase price.

In response to demands presented to representatives of ACC and LSAC at a meeting with the FHLBB on March 13, 1989 as well as issues raised in previous discussions, LSAC filed Amendment #3 to its Application on March 15, 1989. In Amendment #3, LSAC made additional substantial concessions. LSAC agreed to a multitude of additional changes in the financial arrangements with ACC and agreed to retain independent counsel for Lincoln for tax matters; and ACC agreed to transfer to Lincoln any tax benefits received by ACC as a result of purchasing the GOIL stock. LSAC agreed that Lincoln's principal supervisory agent would have prior approval of a business plan, with no growth or risk leveraging on Lincoln's intangible capital and agreed to enter into what was characterized

101

as a "prenuptial agreement" permitting the appropriate regulatory agency to vote the common stock of Lincoln should GAAP capital fall below a certain level, as long as the level was reasonable and adjusted in keeping with FHLBB practice, to reflect improvements in LSAC's risk profile. LSAC agreed to return Lincoln to the supervision of the Eleventh District; agreed that, after the consummation of the acquisition transactions, Lincoln would not engage in any transactions with ACC; and agreed to employ a chief executive officer and a president for Lincoln, subject to FHLBB approval with a proven track record and no previous affiliation with ACC or Lincoln, but requested up to ninety days to find qualified candidates.

In an effort to facilitate the sale, ACC agreed to waive all voting rights with respect to all preferred stock to be issued to ACC by Lincoln to the fullest extent permitted by California law.

LSAC

The

LSAC noted in Amendment #3 that accounting and economic tests for sale were fully discussed at the March 13, 1989 meeting. further confirmed that the ACC notes would be marked. to market, and no write down or increase in goodwill would be necessary. exhibits to Amendment #3 included an opinion of counsel with respect to the federal income tax consequences of the Application; details with respect to four of the five principals of LŠAC, and the resumes of six prospective outside directors.

On March 16, 1986, in further response to yet additional issues raised by the FHLBB at the March 13, 1989, meeting, LSAC filed its Amendment #4 to the Application in which LSAC addressed challenges to its business plan by explaining the facts and the bases for the assumptions underlying LSAC's projections and LSAC attached to Amendment #4 a supplemental agreement pertaining to the tax sharing arrangement between ACC and Lincoln.977

977

The essential terms of that agreement were as follows:

1. There would be no further payments from Lincoln to ACC or from ACC to Lincoln under the terms of the tax preparation and allocation agreement except in accordance with the terms of the supplemental agreement.

2. ACC would indemnify Lincoln and its subsidiaries for any taxes for which the Lincoln consolidated group might otherwise be liable determined on the basis of the separate returns showing income, deductions, losses and credits of the Lincoln Group for any taxable period ending on or prior to the transaction closing date.

3. Lincoln and LSAC would hold ACC and its direct subsidiaries harmless for any income taxes of the Lincoln

On March 17, 1989, the ORA provided LSAC with a list of twenty-one conditions which the ORA "recommended to facilitate expeditious approval of LSAC's acquisition of Lincoln. Notwithstanding representations of ORA personnel earlier that week that all relevant issues had been raised, the list, which is set forth in its entirety below, in addition to proposing solutions other than those previously agreed upon, imposed some entirely new conditions, all of which were agreed upon by both LSAC and ACC:

14. The transaction must be approved by the
State of California. A federal charter would
require unacceptable forbearances (by the
FHLBB).

15.

The transaction must be accounted for in a manner which does not overstate the net worth of Lincoln, and which allows for a mark to market of the assets. This is essential to implement the business plan, which calls for disposal of high-risk/nontraditional assets.

16. There cannot be any principal or interest
offset of the preferred stock against the
carry-back notes.

17. The carry-back notes must be at market
terms, with no deferral of interest or other
terms which are adverse to Lincoln, or tied to
the performance of the preferred stock. The
determination of what constitutes market terms
must be acceptable to ORA.

18. Payment of dividends by Lincoln will be
subject to conditions, limiting them to fifty
percent of net income, after deducting all
non-cash income, and provided that Lincoln is
in compliance with its fully phased in capital
requirement, as defined in current or future
regulations.

Group in excess of $94,837,000. If a final determination of the Lincoln consolidated group taxes reflected aggregate liability of less than $94,837,000, ACC would pay the difference, and Lincoln would pay ACC if the liability exceeded that sum. If, at any time ACC received an income tax benefit as a result of purchasing the GOIL stock, which benefit did not reduce the Lincoln Group's tax liability, ACC would pay to Lincoln for the benefit.

103

« AnteriorContinuar »