<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
---------
Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of
1934
For Quarter Ended September 30, 1994 Commission File No. 1-8249
------------------ ------
LINCORP HOLDINGS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-2161279
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization
250 Park Avenue
New York, New York 10017
------------------ -----
(Address of Principal Executive (Zip Code)
Offices)
Registrant's Telephone Number,
Including Area Code: (212) 599-0465
--------------
99 Park Avenue New York, New York 10016
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
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
--- ---
Indicate the number of shares outstanding or each of the issuer's classes of
common stock, as of the latest practicable date.
1,730,559 Shares of Common Stock Outstanding at November 11, 1994
-----------------------------------------------------------------
<PAGE>
Part 1. Financial Statements
Item 1. Financial Statements
The condensed financial statements included herein have been prepared by
the registrant from the books of Lincorp Holdings, Inc. without audit (except
for the Balance Sheet as of December 31, 1993), pursuant to the rules and
regulations of the Securities and Exchange Commission. This information, which
is subject to year-end adjustments, reflects all adjustments which are, in the
opinion of management, necessary to a fair statement of the results for the
interim periods. Although the registrant believes that the disclosures are
adequate to make the information presented not misleading, certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in the registrant's latest Annual
Report of Form 10-K.
1
<PAGE>
LINCORP HOLDINGS, INC.
BALANCE SHEETS
(dollars in thousands)
Unaudited
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
-------- --------
<S> <C> <C>
Cash............................................. $ 109 $ 114
Investment securities (market value of $641 and
$811, respectively)........................... 684 821
Other assets..................................... 93 270
---- ------
$886 $1,204
---- ------
</TABLE>
LIABILITIES AND STOCKHOLDERS' DEFICIT
----------------------------------------
<TABLE>
<CAPTION>
Liabilities:
<S> <C> <C>
Other borowed funds.................................. $ 96,158 $ 102,301
Net liability of discontinued operations............. 22,242 16,049
Accrued interest payable............................. 36,164 28,161
Taxes payable........................................ 1,650 1,650
Deferred taxes payable............................... 4,545 4,407
Other liabilities.................................... 1,609 1,716
--------- ---------
162,368 154,284
--------- ---------
Commitments and contingent liabilities
Stockholders' deficit:
Common stock, $.01 par value;
1,990,000 shares authorized;
1,730,559 shares issued and outstanding............ 17 17
Capital contributed in excess of par or stated value. 148,434 148,434
Accumulated deficit................................ (309,933) (301,531)
--------- ---------
(161,482) (153,080)
--------- ---------
$ 886 $ 1,204
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
LINCORP HOLDINGS, INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Unaudited
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1994 1993 1994 1993
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Interest on investments........... $ 16 $ 5 $ 41 $ 24
Other income...................... 2 8 6 170
-------- -------- ------- --------
Total income.................... 18 13 47 194
-------- -------- ------- --------
Interest on borrowed funds........ 2,680 2,710 8,011 8,076
General and administrative........ 44 111 213 500
-------- -------- ------- --------
Total expenses.................. 2,724 2,821 8,224 8,576
-------- -------- ------- --------
Loss before income taxes.......... (2,706) (2,808) (8,177) (8,382)
Provision for income taxes........ 75 -- 225 225
-------- -------- ------- --------
Net loss.......................... $ (2,781) $ (2,808) $ (8,402) $ (8,607)
-------- -------- ------- --------
Loss per share of Common stock
and Common stock equivalents
outstanding..................... $( 1.62) $ (1.62) $ (4.85) $ (4.97)
-------- -------- ------- --------
Weighted average shares of Common
stock and Common stock
equivalents..................... 1,731 1,731 1,731 1,731
-------- -------- ------- --------
Dividends per Common share........ $ -- $ -- $ -- $ --
-------- -------- ------- --------
</TABLE>
The accompanying notes are an integral part of these financial statments.
3
<PAGE>
LINCORP HOLDINGS, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................... $ (2,781) $ (2,808) $ (8,402) $ (8,607)
Adjustments to reconcile
net loss to net
cash provided by (used in)
operating activities:
Decrease in other assets 182 7 177 49
Increase (decrease) in
other liabilities (77) 1 (107) (190)
Increase in deferred
income taxes -- (39) 138 102
Increase in interest
payable 2,680 891 8,003 6,276
Change in net liability of
discontinued operations 6,143 48 6,193 590
------- ------- ------- -------
Cash provided by (used in)
operating activities...... 6,147 (1,900) 6,002 (1,780)
------- ------- ------- -------
INVESTING ACTIVITIES
Proceeds from sale of
investment securities..... -- -- 137 --
Investment activities of
discontinued operations... -- 1,866 -- 1,877
------- ------- ------- -------
Cash provided by investing
activities................ -- 1,866 137 1,877
------- ------- ------- -------
FINANCING ACTIVITIES
Repayment of borrowed funds (6,143) -- (6,143) (1,000)
Financing activities of
discontinued operations... -- 82 -- (65)
------- ------- ------- -------
Cash provided by (used in)
financing activities...... (6,143) 82 (6,143) (1,065)
------- ------- ------- -------
Net increase (decrease) in
cash...................... 4 48 (4) (968)
Cash, beginning of period.. 105 992 113 2,008
------- ------- ------- -------
Cash, end of period........ $ 109 $ 1,040 $ 109 $ 1,040
------- ------- ------- -------
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the
period for:
Interest................ $ -- $ -- $ -- $ --
------- ------- ------- -------
Income taxes............ $ -- $ 39 $ 12 $ 123
------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
LINCORP HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DIVESTITURE OF THE LINCOLN SAVINGS BANK, FSB
- -----------------------------------------------------
As previously reported, The Lincoln Savings Bank, FSB ("Lincoln" or the "Bank")
was the primary asset of Lincorp Holdings, Inc. ("LHI" or the "Company") and on
January 20, 1993, in connection with the transaction described below, the
Company relinquished control of the Bank by placing the common stock of Lincoln
(the "Lincoln Shares") into a trust for eventual sale, and by filing a
divestiture notice with the Office of Thrift Supervision ("OTS").
On March 4, 1994, Lincoln entered into a definitive agreement (the "Acquisition
Agreement") with Anchor Savings Bank, FSB ("Anchor") whereby Anchor would
acquire all of the assets in the Trust, including outstanding preferred and
common stock of Lincoln and the Senior Secured Note, for $80.0 million in cash.
The transaction was subject to, among other things, regulatory approval of the
OTS and the Federal Deposit Insurance Corporation. Approval for the transaction
was granted on July 12, 1994 and the transaction was completed on August 12,
1994. As anticipated under the Acquisition Agreement, the Company received none
of the proceeds from the sale of Lincoln but two of the Company's lenders
received a total of $6.1 million. This payment to the Company's lenders was
recorded as a reduction to "other borrowed funds" and an increase to the "net
liability of discontinued operations".
On January 20, 1993, LHI, its parent company, Unicorp Energy Corporation
("UEC"), and certain other parties entered into an agreement with the OTS
pursuant to an Agreement (the Agreement) dated as of December 31,1992 relating
to Lincoln. Pursuant to the Agreement (i) the Company filed a divestiture notice
with the OTS which divested it of its savings and loan holding company status
and all further involvement in the affairs and management of the Bank, (ii) the
Company deposited the Lincoln Shares into a trust created pursuant to the terms
of the Agreement, (iii) all litigation between the Company, the OTS and certain
other parties was settled, and (iv) the Bank received an infusion of capital by
the purchase of $15 million of convertible preferred shares and $15 million in
the form of a senior secured note, which will be reduced in whole or in part, if
necessary, in exchange for a second series of non-convertible preferred stock of
Lincoln to meet certain specific capital requirements at any time prior to May
1, 1995.
5
<PAGE>
LINCORP HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
The entering into of the Agreement was necessitated by, among other matters, the
fact that Lincoln did not meet its capital requirements and the assertion by the
OTS, that the Company and UEC had an obligation to maintain the capital of the
Bank.
The Lincoln Shares previously had been pledged to the Company's lenders to
secure the indebtedness of the Company, which indebtedness has been in default
since August 1991. These lenders had informed the Company that the agreement
with the OTS was in their best interest and represented the best means for the
lenders to realize upon the value of the pledged collateral. In connection with
the Agreement, the Company's lenders agreed to release their liens on the
Lincoln Shares and substitute therefor an interest in the proceeds from the sale
of the Bank. As part of this transaction, National Bank of Canada, the Company's
primary lender ("NBC"), transferred to a subsidiary of UEC approximately $77
million in indebtedness plus accrued and unpaid interest owed to NBC by the
Company. In consideration for the transfer, NBC acquired approximately 30% of
the convertible preferred stock of Lincoln acquired by UEC's subsidiary, or
approximately 25% of the equity of the Bank.
The debt acquired from NBC by UEC's subsidiary was acquired at a cost of
$4,687,500. As this UEC subsidiary is an affiliate of the Company, the amount of
debt transferred which is in excess of the face amount is, for United States
Federal and State income tax purposes, considered forgiveness of debt of the
Company and therefore is required to be included as taxable income by the
Company. The Company will not have to pay United States Federal or State taxes
on this income because of its insolvency. However, tax attributes of the Company
(net operating losses, carry forwards, capital losses and built-in losses) will
be reduced to the extent of the forgiveness of indebtedness. Additionally, for
the United States Federal tax purposes, the Company may realize a bad debt loss
of approximately $85 million as well as certain as yet undetermined and
unrealized potential capital losses.
As part of the transaction, UEC contributed back to the Company $10 million of
preferred stock of the Company owned by it on January 20, 1993, effective
December 31, 1992, plus its right to receive approximately $2 million in accrued
and unpaid dividends. This preferred stock was voting stock and holders of such
6
<PAGE>
LINCORP HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
stock were entitled to receive dividends on a cumulative basis of $900,000 per
annum. This stock has been retired by the Company.
In connection with the transaction, the OTS issued various orders which, in the
case of the Company and certain other parties, ordered such parties to comply
with the Agreement.
As a result of the transactions, the Company deconsolidated the operations of
the Bank from its operations for the year ended December 31, 1992.
The Company continues to meet with its lenders to discuss its future prospects.
The Company hopes that its lenders will continue to forbear from exercising
their remedies so that the Company may seek out opportunities which, among other
matters, will allow it to realize on its intangible assets and tax attributes.
NOTE 2 - LIQUIDITY AND GOING CONCERN
- ------------------------------------
At September 30, 1994, LHI had outstanding $143.3 million of indebtedness
(including interest payable of $38.1 million) under its Senior, Subordinated and
Junior Credit Facilities part of which is included in the net liability of
discontinued operations. LHI is in payment default under each of the above
mentioned credit facilities. As part of the Agreement, the Company's lenders
agreed to release their liens on the Lincoln Shares and substitute therefor an
interest in the proceeds from the sales of the Bank These credit facilities are
secured by a security interest in all of LHI's remaining assets.
LHI's sources of funds during the nine months ended September 30, 1994 have been
primarily (i) funds from sales of investment securities, and (ii) limited
mortgage receivables. The assets generating the funds being utilized by LHI are
part of the collateral package securing the above described credit facilities.
All of the remaining assets of the Company continue to be pledged to the
Company's lenders. Unless LHI's lenders are prepared to continue to defer in
realizing on the pledged collateral and allow LHI to utilize the proceeds from
such collateral to fund its limited ongoing operations, LHI will be unable to
continue as a going concern.
7
<PAGE>
LINCORP HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - LITIGATION
- -------------------
The Company, from time to time, may be a defendant in various legal proceedings
other than that noted above. In the opinion of management, the final outcome of
any such current proceedings will not have a material effect on the financial
position of the Company.
8
<PAGE>
LINCORP HOLDINGS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Divestiture of the Lincoln Savings Bank, FSB
- --------------------------------------------
Liquidity and Going Concern
- ---------------------------
As previously reported, Lincoln was the primary asset of the Company and on
January 20, 1993, in connection with the transaction described below which was
effective as of December 31, 1992, the Company relinquished control of the Bank
by placing the Lincoln shares owned by Lincorp into a trust for eventual sale,
and by filing a divestiture notice with the OTS.
On March 4, 1994, Lincoln entered into a definitive agreement (the "Acquisition
Agreement") with Anchor Savings Bank, FSB ("Anchor") whereby Anchor would
acquire all of the assets in the trust, including outstanding preferred and
common stock of Lincoln and the senior secured note, for $80.0 million in cash.
The transaction was subject to, among other things, regulatory approval of the
OTS and the Federal Deposit Insurance Corporation. Approval for the transaction
was granted on July 12, 1994 and the transaction was completed on August 12,
1994. As anticipated under the Acquisition Agreement, the Company received none
of the proceeds from the sale of Lincoln but two of the Company's lenders
received a total of $6.1 million. . This payment to the Company's lenders was
recorded as a reduction to "other borrowed funds" and an increase to the "net
liability of discontinued operations".
At September 30, 1994, the Company had $.9 million of assets and $162.4 million
of total net liabilities. All of LHI's assets are pledged to its lenders. Unless
LHI's lenders are prepared to continue to defer in realizing on the pledged
collateral and allow LHI to realize the proceeds from such collateral to fund
its day to day operating expenses, LHI will be unable to continue as a going
concern.
The Lincoln shares had previously been pledged to the Company's lenders to
secure the Bank Indebtedness of the Company, which has been in default since
August 1991. These lenders had informed the Company that the agreement with the
OTS was in their best interest and represented the best means for the lenders to
realize upon the value of the pledged collateral. In connection with the
Agreement, the Company's lenders agreed to release their liens on the Lincoln
Shares and substitute therefor an interest in the proceeds from the sale of the
Bank. As part of this transaction, NBC transferred to a subsidiary of UEC
9
<PAGE>
approximately $77 million in indebtedness plus accrued and unpaid interest owed
by the Company to NBC. In consideration for the transfer, NBC acquired
approximately 30% of the convertible preferred stock of Lincoln acquired by
UEC's subsidiary, or approximately 25% of the equity of the Bank.
As a result of the transaction, the Company deconsolidated the operations of the
Bank from its operations for the year ended December 31, 1992.
The debt acquired from NBC by UEC's subsidiary was acquired at a cost of
$4,687,500. As a result of the transfer of the debt to an affiliate of the
Company, the amount of debt transferred which is in excess of the face amount
is, for United States Federal and State income tax purposes, considered
forgiveness of indebtedness of the Company and therefore is required to be
included as taxable income by the Company. The Company will not have to pay
United States Federal or State taxes on this Income because of its insolvency.
However, tax attributes of the Company will be reduced to the extent of the
forgiveness of indebtedness. Additionally, in connection with the transfer of
the Lincoln Shares, for the United States Federal tax purposes, the Company may
realize a bad debt loss of approximately $85 million as well as certain as yet
undetermined and unrealized potential capital losses. No benefit has been
recorded for these items due to the uncertainty of realization.
With respect to the loss on disposal of real estate, no tax benefit has been
recorded due to the uncertainty of realization. Accordingly, the tax benefit
attributable to the loss on disposal of real estate will be recorded if and when
such benefits are realized.
Under current tax law, the utilization of the Company's tax attributes and
unrecorded tax benefits will be severely restricted if an ownership change were
to occur. Section 382 of the Code provides, in general, that if an "ownership
change" occurs with respect to a corporation with net operating capital or
built-in loss carryforwards, such carryforwards will be available to offset
taxable income in each taxable year after the ownership change only up to the
"Section 382 limitation" for each year (generally, the product of the fair
market value of the corporation's stock, at the time of the ownership change,
with certain adjustments, and a specified long-term tax-exempt bond rate at
such time). For these purposes, an "ownership change" occurs if over a
three-year statutory testing period, there has been more than a 50 percentage
point increase in the stock ownership of the corporation by "5 percent
shareholders". A "5 percent shareholder" includes an owner of 5% or more of the
stock of the corporation (determined after application of special ownership
attribution rules) and a group (or groups) consisting of those other
stockholders owning individually less than 5% of the stock of the
10
<PAGE>
corporation. The Company's ability to use its loss carryforwards would probably
be limited in the event of an ownership change.
In May 1990, a subsidiary of the Company conveyed a property to one of its
lenders, in the form of a deed in lieu of foreclosure, resulting in a tax
payable to the Commonwealth of Massachusetts on such transfer. Shortly
thereafter, such subsidiary was dissolved. This tax liability remains
outstanding. The Company has other outstanding state audits, the outcome of
which cannot be determined at this time. If these audits are not favorable
resolved, the Company may not the financial resources to pay the liability.
LHI's sources of funds during the nine months ended September 30, 1994 have been
primarily (i) funds from sale of investment securities; and (ii) limited
mortgage receivables. The assets generating the funds being utilized by LHI are
part of the collateral package securing the Company's credit facilities. Unless
LHI's lenders are prepared to continue to defer in realizing on the pledged
collateral and allow LHI to utilize the proceeds from such collateral to fund
its day to day operating expenses, LHI will be unable to continue as a going
concern. The Company expects to meet with its lenders to discuss its future
prospects. The Company hopes that its lenders will continue to forbear from
exercising their remedies so that the Company may seek out opportunities which,
among other matters, will allow it to realize on its intangible assets and tax
attributes.
LHI's right to use the funds in the collateral account will be subject to all
rights and remedies of the lenders set forth in their loan agreements, including
the right of set-off.
Material Change in Financial Condition Since December 31, 1993
- --------------------------------------------------------------
On August 12, 1994 the sale of Lincoln Savings Bank was finalized and as
anticipated under the Acquisition Agreement, the Company received none of the
proceeds from the sale of Lincoln but two of the Company's lenders received a
total of $6.1 million. . This payment to the Company's lenders was recorded as a
reduction to "other borrowed funds" and an increase to the "net liability of
discontinued operations".
There were no other significant changes at September 30, 1994 as compared
to December 31, 1993.
11
<PAGE>
Material changes in Results of Operations for the Three and Nine Months
-----------------------------------------------------------------------
Ended September 30, 1994 and 1993.
----------------------------------
There were no significant changes in the results of operations for the
three and nine months ended September 30, 1994 and 1993.
Part II Other Information
Item 1. Legal Proceedings
----- -----------
For information on material developments with respect to litigation,
see Note 4 - Litigation of the Notes to Financial Statements.
12
<PAGE>
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.
LINCORP HOLDINGS, INC.
Dated: November 11, 1994 /s/ Jack R. Sauer
---------------------------
Jack R. Sauer
Chief Financial Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-START> JUL-01-1994
<PERIOD-END> SEP-30-1994
<EXCHANGE-RATE> 1
<CASH> 109
<SECURITIES> 684
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 886
<CURRENT-LIABILITIES> 0
<BONDS> 96,158
<COMMON> 0
0
17
<OTHER-SE> (161,499)
<TOTAL-LIABILITY-AND-EQUITY> 886
<SALES> 0
<TOTAL-REVENUES> 18
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 44
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,680
<INCOME-PRETAX> (2,706)
<INCOME-TAX> 75
<INCOME-CONTINUING> (2,781)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,781)
<EPS-PRIMARY> (1.62)
<EPS-DILUTED> (1.62)
</TABLE>
