TENDER OFFERS, MERGERS, ACQUISITIONS (TNM) - Federal prosecutors disclosed that a fraud investigation of Lincoln Savings & Loan Association was under way just as an agreement by American Continental Corp., Lincoln's parent, to sell the controversial thrift expired. Assistant U.S. Attorney Terree Bowers wouldn't say if American Continental executives are targets of the investigation, and declined to comment. A spokeswoman for American Continental of Phoenix, Ariz., said she didn't have any knowledge of a criminal investigation involving the Irvine, Calif., thrift subsidiary. "This is the first we've heard about it," she said.. News of the investigation came as American Continental, in a sudden turnabout, announced Tuesday night that it wouldn't proceed with the sale of Lincoln to an investor group headed by veteran thrift executive Spencer Scott. American Continental said the group's offer had "expired in accordance with its terms" and that the company "declined to grant an extension." American Continental wouldn't elaborate. However, Charles H. Keating Jr., chairman of American Continental, said the company is having continuing discussions with other parties, which he didn't identify, that have expressed an interest in acquiring Lincoln. Mr. Keating added that Mr. Scott's group "will continue to pursue their application éto acquire Lincolné, even though the deadline has passed." Mr. Keating has been engaged in a long-running dispute with federal regulators over Lincoln's real-estate development activities and nontraditional securities investments, and recently expressed relief at the prospect of disposing of the company's only thrift. Individuals close to the transaction said that Mr. Scott Another official familiar with the transaction said: SPECIAL COUNSEL Mr. Scott acknowleged yesterday that "it's difficult to arrange financing for an acquisition of any savings and loan now, with so much attention focused on the federal government's plans to bail out ailing thrifts. But he said his group had commitments for 75% to 80% of the $55 million it needed to raise, and that "within another week we should have it all." He declined to identify the sources of the funding or say exactly how much money had been committed. Mr. Scott said he's "not unhappy" that the offer expired, "because we want to renegotiate some of the terms of the transaction." He wouldn't be more specific. Mr. Scott, a former chairman of Fidelity Federal Savings & Loan Association and its parent, Citadel Holding Corp., Glendale, Calif., had offered to acquire the common stock of Lincoln in exchange for $288.8 million of new preferred stock that would be non-voting and non-convertible and would pay American Continental a 9% dividend. American Continental also was to have bought back certain real-estate and securities investments from Lincoln for $388 million in 10-year notes, paying 10% interest. A few weeks ago, American Continental tried to dispel rumors that the deal had fallen through by announcing that the closing of the acquisition was "imminent." That announcement' riled the Califòrnia Department of Savings & Loan. The state agency quickly fired off an announcement saying that "there is no way that the sale can be imminent" because the application for approval submitted to the department by Mr. Scott had "significant, material omissions" and was incomplete. The department gave Mr. Scott 30 days to provide the required information. William Davis, chief deputy commissioner for the department, said yesterday that Mr. Scott's group hasn't yet provided the information, but that Mr. Scott has said he doesn't plan to withdraw his group's application. Mr. Davis declined to comment on the fraud investigation involving Lincoln. Mr. Scott said he was surprised by news of the investigation. "There's nothing in the due diligence review that even suggests there's anything like this going on," he said. END OF DOCUMENT SPECIAL COUNSEL ! EX. 520 United States Senate 6-14-89 MEMORANDUM To: Bot Maynes I think some time the best defsess is an aggressive offerend Wenced to answer Wall extract Journal. our answer mist: 1 Discredit Geoy 2. Give samples of help we give constitution 3. Reason we lo#2. - D 001852 United States Senate MEMORANDUM Jobs, loans, texs paid This is not going to blow away so we need to be aggressive, Pls work to peet this together. two examples attached The piers will help our supporters defend us all writ right sway. also Dennis 21 TO: SENATOR DeCONCINI FROM: Laurie Sedlmayr LAS RE: Federal Home Loan Bank Board/Limitations on Direct Investments Since your conversation with Bob Kielty of Continental, I have spoken with the Arizona Savings and Loan League and the U.S. League about the limitation on direct investment" issue. Both the Arizona League and the U.S. League take a much more moderate position on this issue. They agree with the FHLBB that there should be some restriction on direct investment and are looking either for a 30% limitation or a 10/10/5 limitation. The state of Arizona currently has a 10/10/5 limitation limiting S&L's to 10% investment in a service company, 10% in real estate and 5% in equity securities. The state of California has deregulated to such an extent that S&L's can have 1001 outside investment. do not support such an approach. The Arizona S&L's SPECIAL COUNSEL |