<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from_______________________ to _____________________
Commission file number 1-8547
------
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)
245 Park Avenue
New York, New York 10167
------------------------------- ---------------------------------------
(Address of Principal Executive (Zip Code)
Offices)
Registrant's Telephone Number,
Including Area Code: (212) 867-3800
------------------------------- ---------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Stock, par value $.01 per share NONE
<PAGE>
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
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not considered herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The Company's common stock, which is traded over the counter, had no
identifiable transactions during 1996 and through February 28, 1997. Based on
the last identifiable common stock transaction, the aggregate market value of
the Company's common stock held by non-affiliates of the registrant would be an
indeterminate nominal amount. On February 28, 1997, there were 1,730,559 shares
of registrant's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
See Item 14 (c) for a listing of exhibits incorporated by reference.
<PAGE>
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
RECENT DEVELOPMENTS
At December 31, 1996, the Company had approximately $171.0 million of
principal and accrued interest (the "Indebtedness") outstanding under its
various debt obligations which are not secured by its real estate assets. The
Company's parent company, Unicorp Energy Corporation ("UEC"), holds $156.8
million of the Company's Indebtedness. On December 30, 1996, approximately $14.3
million of the Company's Indebtedness, which was previously held by an affiliate
of UEC, was sold to an unrelated third party. The Company is in payment default
under each of the debt obligations comprising the Indebtedness. The Indebtedness
is secured by a senior security interest in all of the Company's non real estate
assets and a junior security interest in all the real estate assets. See Note 6
to the Company's Financial Statements.
The Company's sources of funds during the year ended December 31, 1996, and
to date have been primarily from it's previously existing cash balances. The
assets being utilized to fund the Company's operations are part of the
collateral package securing the Company's Indebtedness. Unless the Company's
lenders continue to defer in realizing on the pledged collateral and allow the
Company to utilize the proceeds from such collateral to fund its day to day
operating expenses, the Company will be unable to continue as a going concern.
The Company is continuing 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, including net operating loss carryforwards, capital losses and
built-in losses. As explained below, certain of the Company's debt was
restructured during the fourth quarter of 1996. As of December 31, 1996, the
Company's stockholders' deficit was $167.7 million.
REAL ESTATE TRANSACTIONS
During the second quarter of 1996, the Company acquired through a
wholly-owned subsidiary, DB Holdings, Inc. ("DBH"), a parcel of land (the "DBH
Land") underlying a commercial real estate project in Minneapolis, Minnesota.
The DBH Land was acquired for $13.0 million, with the total purchase price
funded from a senior unsecured obligation of DBH (the " DBH Loan"), payable the
earlier of January 2, 1999, or immediately upon the sale, transfer or disposal
of the DBH Land. The DBH Loan is with a company affiliated to UEC. Interest on
the DBH Loan is payable monthly, starting July 1996, at a rate equal to the 180
day Libor rate plus 3%. The DBH Land is leased to a project developer (the
"Project Developer") through February 2086, and for 1996, had an annual minimum
lease payment of $1.0 million. DBH has an agreement with the Project Developer
that at any time up to January 2, 1999, both DBH and the Project Developer have
the option to cause the transfer of the DBH Land to the other at a price of
$13.0 million plus accrued and unpaid lease payments. Should the Project
Developer exercise its option to purchase the DBH Land, DBH
-1-
<PAGE>
has the right to sell the DBH Land to the Project Developer for a 25% interest
in the project including the DBH Land.
During the third quarter of 1996 the Company sold its real estate
investment in the Montgomery St. Land Lease for $6.6 million resulting in a gain
of $1.0 million. The proceeds from this sale were used to paydown a portion of
the secured debt on this asset held by UEC.
During the fourth quarter of 1996, the General Partner to the Main
Partnership exercised its option to purchase from the Company its remaining 1%
interest in the Main Partnership for $70,000. See Note 1 to the Company's
Financial Statements.
Also during the fourth quarter of 1996, the Company contributed its $.9
million bridge loan mortgage receivable to a newly formed limited partnership
(the "Cambridge Park Partnership") in exchange for a 28.125% limited partnership
interest. The purpose of the Cambridge Park Partnership is to develop,
construct, and sell approximately 232 townhouse units. Under the terms of the
partnership agreement, the Company is to receive a 18% priority return on its
investment. Depending upon when the project is sold, the Company will also
receive between approximately 8.4% and 14% of any profits from the partnership.
See Note 1 to the Company's Statement.
The Company has a 25% limited partnership interest in a commercial building
known as the Colorado State Bank Building. During 1996, the Company funded its
partnership share of capital expenditures and tenant improvements totaling $.5
million.
DEBT RESTRUCTURING
During the fourth quarter of 1996, the Company and UEC agreed to
restructure certain debt between the companies. This debt restructuring dealt
with the Colorado State Bank Building Note (the "CSBB Note") and the Montgomery
St. Land Lease Note (the "MSLL Note") both of which were acquired by UEC in
September 1995. The debt restructuring, which was effective September 30, 1996,
forgave all interest accrued on these two notes as of September 30, 1996, and
through February 6, 1997. UEC also forgave a portion of the principal of each
note. For accounting purposes, the total of the principal and interest forgiven
($3.0 million on the CSBB Note and $2.2 million on the MSLL Note), has been
recorded as a capital contribution by UEC in the fourth quarter of 1996. After
the restructuring, the new principal amount owing as of September 30, 1996, on
the MSLL Note and the CSBB Note was $1.4 million and $3.6 million, respectively.
The terms of the two notes were also changed to reflect an extension of the
principal and interest maturity date to June 30, 2005, and a decrease in the
interest rate to 6.38%.
-2-
<PAGE>
LINCOLN SAVINGS BANK, FSB
On January 20, 1993, in connection with the transaction described below,
the Company relinquished control of Lincoln 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 (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 (the "Trust Assets"), including
outstanding preferred and common stock of Lincoln and a senior secured note, for
$80 million in cash. The transaction was subject to, among other things,
regulatory approval of the OTS and the Federal Deposit Insurance Corporation.
Approval of 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 as repayment
of a portion of the principal amount of debt owed them. This payment to the
Company's lenders represented a reduction in the loss recorded in 1992, relating
to the Company's writedown of its investment in Lincoln. Accordingly, the
Company recorded a $6.1 million income adjustment in 1994, relating to the
discontinued operations of Lincoln.
EMPLOYEES
The Company presently has no compensated employees.
ITEM 3. LEGAL PROCEEDINGS
A tax assessment (the "Assessment") has been made by the Commonwealth of
Massachusetts against a former wholly-owned subsidiary of the Company, which was
dissolved in July 1990. The Massachusetts Department of Revenues (the "MDR")
stated, in a notice dated February 15, 1992, that the amount due and owing was
$1.2 million and it is believed that additional interest and/or penalties have
been imposed with regard to the Assessment. On November 29, 1993, an Offer in
Settlement (the "Offer") was forwarded to the MDR with respect to the Assessment
which was rejected by the MDR on October 26, 1995, and there have been no
subsequent developments on this matter since that date. The ultimate outcome of
the Assessment cannot be determined at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
-3-
<PAGE>
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded over the counter. During 1996, there
were no identifiable stock transactions.
On February 28, 1997, there were approximately 765 stockholders of record
of the Company's Common Stock. There were no dividends paid on the Company's
Common Stock in 1996 and 1995.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA
<S> <C> <C> <C> <C> <C>
Interest income ................................. $ 23 $ 144 $ 47 $ 27 $ 5
Interest expense ................................ (13,720) (13,316) (10,751) (10,786) (10,968)
Rental income ................................... 1,169 487 -- -- --
Other income .................................... 1,512 253 1,537 176 16
Other expense ................................... (160) (312) (375) (598) (997)
--------- --------- --------- --------- ---------
Loss from continuing operations before
income taxes ................................. (11,176) (12,744) (9,542) (11,181) (11,944)
Provision (benefit) for income taxes ............ 17 23 300 300 (804)
--------- --------- --------- --------- ---------
Loss from continuing operations ................. (11,193) (12,767) (9,842) (11,481) (12,748)
Discontinued operations (loss from operations
of the Lincoln Savings Bank) ................. -- -- -- -- (4,933)
Recovery (loss) on writedown of investment in the
Lincoln Savings Bank ......................... -- -- 6,143 -- (90,040)
Decrease in estimated writedown of assets from
discontinued real estate operations .......... -- -- 4,510 -- --
Reversal of provision for income taxes relating
to discontinued operations ................... -- -- 3,370 -- --
--------- --------- --------- --------- ---------
Net income (loss) ............................... $ (11,193) $ (12,767) $ 4,181 $ (11,481) $(107,721)
========= ========= ========= ========= =========
</TABLE>
-4-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA, CONTINUED
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Per share amounts
Income (loss) per share of common stock and
common stock equivalents ............... $ (6.47) $ (7.38) $ 2.42 $ (6.63) $ (62.23)
========== ========== ========== ========= =========
Weighted average shares of common stock
and common stock equivalents
outstanding ............................ 1,731 1,731 1,731 1,731 1,731
========== ========== ========== ========= =========
BALANCE SHEET DATA
Total assets .............................. $ 23,978 $ 16,181 $ 660 $ 1,204 $ 2,256
========== ========== ========== ========= =========
Other borrowed funds, excluding
accrued interest .......................... $ 106,614 $ 105,215 $ 97,229 $ 102,301 $ 103,301
========== ========== ========== ========= =========
Total stockholders' deficit ............... $ (167,655) $ (161,666) $ (148,899) $(153,080) $(141,599)
========== =========== ========== ========= =========
</TABLE>
-5-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
DIVESTITURE OF THE LINCOLN SAVINGS BANK, LIQUIDITY AND GOING CONCERN, AND
CONTINUING OPERATIONS
On January 20, 1993, in connection with the transaction described below,
the Company relinquished control of Lincoln by placing the common stock of
Lincoln into a trust for eventual sale, and by filing a divestiture notice with
the Office of Thrift Supervision (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 (the "Trust Assets"), including
outstanding preferred and common stock of Lincoln and a senior secured note, for
$80 million in cash. The transaction was subject to, among other things,
regulatory approval of the OTS and the Federal Deposit Insurance Corporation.
Approval of 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 as repayment
of a portion of the principal amount of debt owed them. This payment to the
Company's lenders represented a reduction in the loss recorded in 1992 relating
to the Company's writedown of its investment in Lincoln. Accordingly, the
Company recorded a $6.1 million income adjustment in 1994 relating to the
discontinued operations of Lincoln.
Effective January 1, 1995, as a result of an improving real estate market,
the Company reformulated their business plan to focus on such activity.
Accordingly, effective January 1, 1995, the Company restated its balance sheet
to reflect the real estate operations as a continuing operation. The restatement
had no effect on prior period Statements of Operations and effective January 1,
1995, the Company recognized the results of its real estate operations as part
of its results from continuing operations.
At December 31, 1996 the Company had approximately $171.0 million of
principal and accrued interest (the "Indebtedness") outstanding under its
various debt obligations which are not secured by its real estate assets. The
Company's parent company, Unicorp Energy Corporation ("UEC"), holds $156.8
million of the Company's Indebtedness. On December 30, 1996, approximately $14.3
million of the Company's Indebtedness, which was previously held by an affiliate
of UEC, was sold to an unrelated third party. The Company is in payment default
under each of the debt obligations comprising the Indebtedness. The Indebtedness
is secured by a senior security interest in all of the Company's non real estate
assets and a junior security interest in
-6-
<PAGE>
all of the Company's non real estate assets and a junior security interest in
all the real estate assets. See Note 6 to the Company's Financial Statements.
The Company's sources of operating funds during the year ended December 31,
1996, and to date have been primarily from it's previously existing cash
balances. The assets being utilized to fund the Company's operations are part of
collateral package securing the above described credit facilities. Unless the
Company's lenders are prepared to continue to defer in realizing on the pledged
collateral and allow the Company to utilize the proceeds from such collateral to
fund its ongoing operations, the Company will be unable to continue as a going
concern.
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
For the year ended December 31, 1996, the Company had a net loss of $11.2
million compared to a net loss of $12.8 million for the year ended December 31,
1995.
Total income for 1996 increased $1.8 million to $2.7 million. The increase
in total income is primarily due to a $1.0 million gain recognized on the sale
of one real estate asset and a $.7 million increase in rental income. The
increase in rental income is attributable to the acquisition of a land lease
during the second quarter of 1996.
Interest expense increased $.4 million. This increase reflects $.8 million
in new interest on the debt incurred to finance a 1996 second quarter land lease
acquisition, offset by a $.4 million decrease in interest relating to two notes
that were restructured as of September 30, 1996.
1995 COMPARED TO 1994
For the year ended December 31, 1995, the Company had a net loss of $12.8
million compared to a net loss of $9.8 million for the year ended December 31,
1994.
As previously stated, effective January 1, 1995, the Company reflected the
results of its real estate operations as a continuing operation whereas these
same operations during 1994 were accounted for as a discontinued operation with
no effect on operating results.
Total income for 1995 decreased by $.7 million compared to 1994 as 1994
included other income of $1.5 million resulting from the reversal of certain
prior period reserves while 1995 included no such reversals. However; 1995, did
include $.5 million in
-7-
<PAGE>
rental income which was included in discontinued operations in 1994, and a $.3
million gain on the sale of mortgage receivables, which is included in other
income.
During 1995, the Company sold substantially all of its interest in the Main
and California Partnerships for $6.9 million which equalled the Company's
recorded net book value for these investments.
Interest expense increased $2.6 million, of which $2.4 million is
attributable to the debt on real estate assets which was included in
discontinued operations during 1994, and the balance reflects an increase in
interest rates.
FINANCIAL POSITION
MATERIAL CHANGES DURING 1996
During the second quarter of 1996, the Company acquired through a
wholly-owned subsidiary, DB Holdings, Inc. ("DBH"), a parcel of land (the "DBH
Land") underlying a commercial real estate project in Minneapolis, Minnesota.
The DBH Land was acquired for $13.0 million, with the total purchase price
funded from a senior unsecured obligation of DBH (the "DBH Loan"), payable the
earlier of January 2, 1999, or immediately upon the sale, transfer or disposal
of the DBH Land. The DBH Loan is with a company affiliated to UEC. Interest on
the DBH Loan is payable monthly, starting July 1996, at a rate equal to the 180
day Libor rate plus 3%. The DBH Land is leased to a project developer (the
"Project Developer") through February 2086, and for 1996, had an annual minimum
lease payment of $1.0 million. DBH has an agreement with the Project Developer
that at any time up to January 2, 1999, both DBH and the Project Developer have
the option to cause the transfer of the DBH Land to the other at a price of
$13.0 million plus accrued and unpaid lease payments. Should the Project
Developer exercise its option to purchase the DBH Land, DBH has the right to
sell the DBH Land, to the Project Developer for a 25% interest in the project
including the DBH Land.
During the third quarter of 1996, the Company sold its real estate
investment in the Montgomery St. Land Lease for $6.6 million resulting in a gain
of $1.0 million. The proceeds from this sale were used to paydown a portion of
the secured debt on this asset held by UEC.
During the fourth quarter of 1996, the General Partner to the Main
Partnership exercised its option to purchase from the Company its remaining 1%
interest in the Main Partnership for $70,000.
Also during the fourth quarter of 1996, the Company contributed its $.9
million bridge loan mortgage receivable to a newly formed limited partnership
(the "Cambridge Park Partnership") in exchange for a 28.125% limited partnership
interest. The purpose of
-8-
<PAGE>
the Cambridge Park Partnership is to develop, construct, and sell approximately
232 townhouse units. Under the terms of the partnership agreement, the Company
is to receive a 18% priority return on its investment. Depending upon when the
project is sold, the Company will also receive between approximately 8.4% and
14% of any profits from the partnership.
The Company has a 25% limited partnership interest in a commercial building
known as the Colorado State Bank Building. During 1996 the Company funded its
partnership share of capital expenditures and tenant improvements totaling $.5
million.
During the fourth quarter of 1996, the Company and UEC agreed to
restructure certain debt between the companies. This debt restructuring dealt
with the Colorado State Bank Building Note (the "CSBB Note") and the Montgomery
St. Land Lease Note (the "MSLL Note") both of which were acquired by UEC in
September 1995. The debt restructuring, which was effective September 30, 1996,
forgave all interest accrued on these two notes as of September 30, 1996, and
through February 6, 1997. UEC also forgave a portion of the principal of each
note. For accounting purposes, the total of the principal and interest forgiven
($3.0 million on the CSBB Note and $2.2 million on the MSLL Note), has been
recorded as a capital contribution by UEC in the fourth quarter of 1996. After
the restructuring, the new principal amount owing as of September 30, 1996, on
the MSLL Note and the CSBB Note was $1.4 million and $3.6 million, respectively.
The terms of the two notes were also changed to reflect an extension of the
principal and interest maturity date to June 30, 2005, and a decrease in the
interest rate to 6.38%.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements of the Company are set forth in Part IV on pages
F-1 to F-15 and incorporated herein by reference. See "Item 14. Exhibits,
Financial Statement Schedules and Reports on Form 8-K" for a complete list of
Financial Statements and Financial Statement Schedules.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
-9-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The term of each director is for one year and thereafter until his
successor shall have been elected and qualified. The Company's executive
officers are elected by, and serve at the discretion of the Board of Directors.
The following table sets forth certain information with respect to each
director and executive officer of the Company on March 21, 1997.
Service with
Name Age Position with Company Company from
- ---- --- --------------------- ------------
George S. Mann 64 Chairman of the Board (1) 1981
Ronald W. Cantwell 53 Director (1) (2) (3) and 1996
Executive Vice President
Ian G. Cockwell 49 Director 1994
William Kirschenbaum 52 Director (2) (3) 1982
Ralph V. Marra 59 Director 1994
Jack R. Sauer 44 President 1996
- --------------------------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Arms Length Committee.
-10-
<PAGE>
George S. Mann has served as Chairman of the Board since 1981, and as
President from 1989 through August, 1996. He served as Chairman of the Board of
UEC from 1983, until June 1990, and now serves as a Director. In connection with
the Lincoln Agreement, without admitting or denying the allegations contained
therein, and in order to avoid the significant costs of potential litigation,
Mr. Mann consented to the entry of an order by the OTS which permanently
prohibited him from participation in the conduct of the affairs of, or
exercising any voting rights with respect to, depository institutions in the
United States.
Ronald W. Cantwell has been the President and Director of The Catalyst
Group, Inc. since October, 1988. He is also the President, Director and owner
of VC Holdings, Inc, which is the managing member of Trilon Dominion Partners,
LLC. Mr. Cantwell is also a Director of Caldera Environmental Corp., Shepherd
Surveillance Solutions, Inc., Morrison International, Inc. and Odyssey
Nutriceutical Science, Inc. He has been the Executive Vice President of the
Company since 1995 and a Director since August, 1996.
Ian G. Cockwell has been President of Westcliff Management Services Inc.
since prior to 1988, and UEC since 1992. He has been a Director of the Company
since November 1994.
William Kirschenbaum has been the Chairman of the Board of Hamilton
Financial Services Corporation, successor to Hamilton Savings Bank, since prior
to 1988.
Ralph V. Marra has been a Senior Managing Director of Grubb and Ellis Inc.
since October of 1994. He was the Chief Financial Officer of Lincoln from
November 1989, until October of 1994, and was the Chief Accounting Officer and
Treasurer of Lincoln from December 1988, through November 1989. From March 1988,
to December 1988, Mr. Marra was the Chief Administrative Officer of Lincoln.
From August 1984, to December 1993, he was a Senior Vice President of the
Company and from March 1987, until December 1993, he was the Company's
Treasurer. He has been a Director of the Company since November 1994.
Jack R. Sauer has been the Vice President and Director of the Catalyst
Group, Inc. since February, 1990. He is also the Vice President and a Director
of VC Holdings, Inc., which is the managing member of Trilon Dominion Partners,
LLC. Mr. Sauer is also a Director of Shepherd Surveillance Solutions, Inc.,
Microspeed, Inc. and Accessware, Inc. He has been the President of the Company
since August, 1996.
-11-
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors and persons who own more than 10% of the Company's Common Stock to
file initial reports of ownership and reports of changes of ownership (Forms 3,
4 and 5) of the Company's Common Stock with the Securities and Exchange
Commission (the "SEC"). Officers, directors and beneficial owners of more than
10% of the Company's Common Stock are required by the SEC regulations to furnish
the Company with copies of such forms that they file.
To the Company's knowledge, based solely on the Company's review of the
copies of such reports received by the Company during the fiscal year ended
December 31, 1996, all Section 16(a) filing requirements applicable to its
officers, directors and beneficial owners of more than 10% of the Company's
Common Stock, were complied with.
DIRECTORS REMUNERATION
Directors of the Company receive a quarterly fee of $1,500 in addition to
a fee of $600 for actual attendance at each directors' or committee meeting. For
meetings of any committee held on the same day as any meeting of the Board of
Directors, the fee for attendance at the committee meetings is $300. Where
meetings of the Board or committees thereof are held by telephone conference,
directors receive a fee of $150. Fees paid to all directors for attendance at
the Board and committee meetings during the year ended December 31, 1996,
totaled approximately $30,000.
DIRECTORS MEETING AND COMMITTEES
The Board of Directors of the Company held 5 meetings during the fiscal
year ended December 31, 1996. During fiscal year 1996, all of the directors
attended at least 75% of the meetings of the Board of Directors.
The Board of Directors has a standing Audit Committee which represents the
Board of Directors in its relations with the Company's independent accountants
and oversees the Company's compliance with operating procedures and policies.
This committee also approves the scope of the Company's financial statement
examinations, monitors the adequacy of the Company's internal controls and
reviews and monitors any other activity that the committee deems necessary or
appropriate. The Company does not have a standing Compensation or Nominating
Committee. The Executive Committee is authorized to act on behalf of the Board
of Directors between Board meetings and to have such powers and duties which may
lawfully be assigned to it under Delaware law. The
-12-
<PAGE>
Board of Directors has an Arms Length Committee comprised of independent
directors to review transactions involving both the Company and UEC.
The only Committee which held a meeting during the Company's fiscal year
ended December 31, 1996, was the Audit Committee which held one meeting.
ITEM 11. EXECUTIVE COMPENSATION
No executive officer of the Company, received any compensation for their
services during any of the fiscal years ended December 31, 1996, 1995 or 1994.
No compensation committee report or performance graph is included herein
because none of the executive officers' draw any salary from the Company.
-13-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF DIRECTORS, NOMINEES AND OFFICERS
AND OTHER PRINCIPAL HOLDERS OF THE COMPANY'S VOTING
SECURITIES
The table below sets forth information concerning the shares of the Common
Stock beneficially owned by the individual directors, all directors and officers
of the Company as a group without naming them and each person who is known by
the Company to be the beneficial owner of more than five percent of the Common
Stock as of February 28, 1997. The address of each of the directors is c/o
Lincorp Holdings, Inc., 245 Park Avenue, 28th Floor, New York, New York 10167.
The address of UEC is BCE Place Suite 2320 Toronto, Ontario, Canada M5J151.
Shares of
Common Stock
Beneficially
Name of Owned as of Percent of
Beneficial Owner February 28, 1997 Class
- ---------------- ----------------- ----------
Unicorp Energy 1,286,886 74.3%
Corporation (1)
Ian G. Cockwell (1) 1,286,886 74.3%
William Kirschenbaum 3,767 *
George S. Mann (1) 1,286,886 74.3%
All officers and directors 1,290,653 74.6%
as a group (4 persons) (1)
- ------------
* Less than 1%
(1) The stockholdings indicated for Messrs. Cockwell and Mann are all owned
directly by UEC. Messrs. Cockwell and Mann disclaim beneficial ownership
of all such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Item 2 - Real Estate Transactions and Debt Restructuring.
-14-
<PAGE>
PART IV
ITEM 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PAGE
(a) (1) Consolidated Financial Statements
Report of Independent Accountants................ F-1
Consolidated Balance Sheets as of
December 31, 1996 and 1995...................... F-2
Consolidated Statements of Operations for the
years ended December 31, 1996, 1995, and 1994... F-3
Consolidated Statements of Changes in
Stockholders' Deficit for the years ended
December 31, 1996, 1995, and 1994............... F-4
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994.... F-5
Notes to Consolidated Financial Statements....... F-7
All schedules have been omitted because they are not required or
because the required information is contained in the consolidated
financial statements or notes thereto.
(b) Reports on Form 8-K
None.
(c) Exhibits
PAGE
3.1 Restated Certificate of Incorporation of the Company, *
as amended to date (incorporated by reference to
Exhibit 3.1 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1987).
-15-
<PAGE>
3.2 By-Laws of the Company as amended to date (incorporated *
by reference to Exhibit 3.2 to the Company's Annual
Report Form 10-K for the year ended December 31, 1986).
10.01 Subscription and Purchase Agreement dated December *
31, 1987, between the Company and UEC
(incorporated by reference to Exhibit 2.2 to the
Company's Current Report Form 8-K dated January
14, 1988).
10.02 Letter Agreement re: Line of Credit dated November 30, *
1989, between UEC and the Company (incorporated by
reference to Exhibit 10.23 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1989).
10.03 Revolving Demand Note dated November 30, 1989, *
from the Company to UEC (incorporated by reference
to Exhibit 10.24 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1989).
10.04 Consulting Agreement dated as of February 13, 1990, *
between the Company and Coscan Inc. (incorporated
by reference to Exhibit 10.27 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1989).
10.05 Letter Agreement re: Operating Deficit Loan Agreement *
dated February 13, 1990, between the Company and
Coscan Inc. (incorporated by reference to Exhibit
10.28 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1989).
10.06 Form of Promissory Note from the Company to Coscan *
Inc. (incorporated by reference to Exhibit 10.29 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1989).
-16-
<PAGE>
10.07 Closing Agreement, dated as of July 23, 1990, among *
the Company, Coscan Colorado Inc. ("CCI"), Coscan
Colorado LHI Inc. and Coscan Commercial Limited
Partnership, a California Limited Partnership
("Coscan California) (incorporated by reference to
Exhibit 28.1 to the Company's Report on Form 8-K
dated August 13, 1990).
10.08 Closing Agreement, dated as of July 23, 1990, among *
the Company, Coscan California Commercial Inc. ("CCC"),
Coscan California LHI Inc. and Coscan Commercial
Limited Partnership, a California Limited Partnership
("Coscan California) (incorporated by reference to
Exhibit 28.2 to the Company's Report on Form 8-K
dated August 13, 1990).
10.09 Agreement of Limited Partnership of Coscan Commercial, *
dated as of July 23, 1990 (incorporated by reference
to Exhibit 28.3 to the Company's Report on Form 8-K
dated August 13, 1990).
10.10 Agreement of Limited Partnership of Coscan Commercial, *
dated as of July 23, 1990 (incorporated by reference
to Exhibit 28.3 to the Company's Report on Form 8-K
dated August 13, 1990).
10.11 Letter Agreement, dated as of July 23, 1990, among *
CCI, CCC, the Company, Coscan Commercial and Coscan
California, regarding loans by CCI and CCC
(incorporated by reference to Exhibit 28.5 to the
Company's Report on Form 8-K dated August 13, 1990).
10.12 $24,000,000 Secured Revolving Credit Agreement, *
dated as of July 25, 1990 (the "Senior Credit
Agreement"), among the Company, Hees International
Bancorp Inc. ("Hees"), National Bank of Canada
("NBC") and NBC, as Agent (incorporated by reference
to Exhibit 28.6 to the Company's Report on Form 8-K
dated August 13, 1990).
-17-
<PAGE>
10.13 Amended and Restated Credit Agreement, dated as of *
July 25, 1990, between the Company and NBC
(incorporated by reference to Exhibit 28.7 to the
Company's Report on Form 8-K dated August 13, 1990).
10.14 Letter Agreement, dated July 25, 1990, between UEC *
and the Company regarding the revolving line of
credit from UCC to the Company (incorporated by
reference to Exhibit 28.8 to the Company's Report
on Form 8-K dated August 13, 1990).
10.15 Securities Pledge Agreement, dated as of July 25, *
1990, by the Company in favor of UEC (incorporated
by reference to Exhibit 28.8 to the Company's
Report on Form 8-K dated August 13, 1990).
10.16 Lincorp Pledge Agreement, dated as of July 25, *
1990, by Lincorp Inc. in favor of UEC (incorporated
by reference to Exhibit 28.10 to the Company's
Report on Form 8-K dated August 13, 1990).
10.17 Subsidiaries Pledge Agreement, dated as of July 25, *
1990, by Unicorp Delaware I, Inc., Unicorp Delaware
II, Inc. and ITT Missouri Corp. in favor of UEC
(incorporated by reference to Exhibit 28.11 to the
Company's Report on Form 8-K dated August 13, 1990).
10.18 Security Agreement, dated as of July 25, 1990, by the *
Company in favor of UEC (incorporated by reference to
Exhibit 28.12 to the Company's Report on Form 8-K
dated August 13, 1990).
10.19 Agreement Relating to the Lincoln Savings Bank, FSB *
dated as of December 31, 1992, among the OTS, the
Company and certain other parties (incorporated by
reference to Exhibit A to the Company's Current Report
on Form 8-K dated January 20, 1993).
10.20 Trust Agreement dated as of January 20, 1993, among *
the OTS, the Company and certain other parties
(incorporated by reference to Exhibit B to the
Company's Current Report on Form 8-K dated January
20, 1993).
-18-
<PAGE>
10.21 Consent Agreement dated March 4, 1994, among UEC, *
Union Holdings, Inc., Lincorp, Inc., the Company,
Hees International Bancorp, Inc., National Bank of
Canada, Anthony M. Frank, as trustee, the Lincoln
Savings Bank, FSB and Anchor Savings Bank FSB
(incorporated by referenced to Exhibit 10.23 to
the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
10.22 Loan Modification Agreement dated as of September 28, *
1995, by and between Coscan, Inc. and the Company
(incorporated by reference to Exhibit B to the
Company's Report on Form 8-K dated September 28, 1995).
10.23 Loan Modification Agreement dated as of September 28, *
1995, by and between CCI and the Company
(incorporated by reference to Exhibit C to the
Company's Report on Form 8-K dated September 28, 1995.)
10.24 Agreement dated as of September 5, 1995,by and among *
CCI, the Company, Coscan Limited Partner Corporation,
CCC, Coscan California Limited Partner Corporation
and Coscan, Inc.
22 Subsidiaries of the Company.
- ------------------
* Incorporated by reference.
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 in New York, New York.
Dated: March 26, 1997
LINCORP HOLDINGS, INC.
By: s/ Jack R. Sauer
----------------------------
Jack R. Sauer
President
-20-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
- ---- ----- ----
s/George S. Mann Chairman of the March 25, 1997
- ----------------------- Board of Directors
George S. Mann (Principal Executive Officer)
s/Jack R. Sauer President March 25, 1997
- ----------------------- (Principal Accounting Officer)
Jack Sauer
s/Ronald W. Cantwell Director March 25, 1997
- -----------------------
Ronald W. Cantwell
s/Ian G. Cockwell Director March 25, 1997
- -----------------------
Ian G. Cockwell
s/William Kirschenbaum Director March 25, 1997
- -----------------------
William Kirschenbaum
s/Ralph V. Marra Director March 25, 1997
- -----------------------
Ralph V. Marra
-21-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and
Stockholders of Lincorp Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Lincorp
Holdings, Inc. and Subsidiary ("Company") as of December 31, 1996 and 1995, and
the related consolidated statements of operations, changes in stockholders'
deficit, and cash flows for each of the years in the three year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lincorp Holdings,
Inc. and Subsidiary as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 4 to
the financial statements, the Company is in default on all of its credit
facilities and, at December 31, 1996, has $106.6 million of principal
indebtedness, and $64.4 million of accrued and unpaid interest. In addition the
Company has a net capital deficiency of $167.7 million as of December 31, 1996.
These matters raise substantial doubt about the Company's ability to continue
as a going concern. The Company's plans in regard to these matters are also
described in Notes 2 and 4. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/KPMG Peat Marwick LLP
New York, New York
February 27, 1997
<PAGE>
LINCORP HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31,
-----------------------
1996 1995
---- ----
(dollars in thousands)
ASSETS
Cash........................................ $ 210 $ 660
Investment in real estate assets, net....... 23,608 15,517
Other assets................................ 160 4
---------- ---------
$ 23,978 $ 16,181
========== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities:
Debt on real estate assets, including
accrued interest........................ $ 16,812 $ 15,663
Other borrowed funds, including
accrued interest........................ 171,045 157,989
Other liabilities......................... 3,776 4,195
---------- ---------
191,633 177,847
Commitments and contingent liabilities
Stockholders' deficit:
Preferred stock, Series A;
200 shares authorized;
no shares issued and outstanding....... - -
Preferred stock, $.01 par value;
10,000 shares authorized;
no shares issued and outstanding....... - -
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 value............................ 153,638 148,434
Accumulated deficit...................... (321,310) (310,117)
---------- ---------
(167,655) (161,666)
---------- ---------
$ 23,978 $ 16,181
========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
LINCORP HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
-----------------------------------
1996 1995 1994
---- ---- ----
(in thousands, except
per share amounts)
Income:
Rental income...................... $ 1,169 $ 487 $ -
Interest income.................... 23 144 47
Gain on sale of real estate asset.. 1,033 - -
Other income....................... 479 253 1,537
--------- -------- --------
Total income................... 2,704 884 1,584
--------- -------- --------
Expense:
Interest expense................... 13,720 13,316 10,751
General and administrative expense 160 312 375
--------- -------- --------
Total expense.................. 13,880 13,628 11,126
--------- -------- --------
Loss from continuing operations
before income taxes.................. (11,176) (12,744) (9,542)
Provision for state and local
income taxes......................... 17 23 300
--------- -------- --------
Loss from continuing operations........ (11,193) (12,767) (9,842)
--------- -------- --------
Discontinued operations:
Recovery on writedown of investment
in the Lincoln Savings Bank...... - - 6,143
Decrease in estimated writedown
of assets from discontinued real
estate operations................ - - 4,510
Reversal of provision for
income taxes..................... - - 3,370
--------- -------- --------
Income from discontinued operations - - 14,023
--------- -------- --------
Net income (loss)................... $ (11,193) $(12,767) $ 4,181
========= ========= ========
Loss from continuing operations
per share of common stock......... $ (6.47) $ (7.38) $ (5.68)
Income from discontinued operations
per share of common stock......... - - 8.10
---------- --------- --------
Income (loss) per share of common
stock outstanding................. $ (6.47) $ (7.38) $ 2.42
========== ========= ========
Weighted average shares of common... 1,731 1,731 1,731
========== ========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
LINCORP HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Capital
contributed
Common in excess Accumulated
stock of par value deficit
------ ------------ -----------
(dollars in thousands)
<S> <C> <C> <C>
Balances, December 31, 1993............ $ 17 $ 148,434 $ (301,531)
Net income.......................... - - 4,181
----------- ---------- -----------
Balances, December 31, 1994............ 17 148,434 (297,350)
Net loss............................ - - (12,767)
----------- ---------- ----------
Balances, December 31, 1995............ 17 148,434 (310,117)
Debt forgiveness by parent company - 5,204 -
Net loss............................ - - (11,193)
----------- ---------- ----------
Balances, December 31, 1996............ $ 17 $ 153,638 $ (321,310)
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
LINCORP HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------
1996 1995 1994
-------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).............................................. $(11,193) $(12,767) $ 4,181
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Gain on sale of real estate asset.......................... (1,033) - -
Equity income from real estate partnership................. (254) (26) -
Recovery on writedown of investment in the
Lincoln Savings Bank..................................... - - (6,143)
Decrease in estimated writedown of assets
from discontinued real estate operations................. - - (4,510)
Decrease in marketable securities.......................... - 535 286
Decrease (increase) in other assets........................ (86) 274 270
Increase (decrease) in other liabilities................... (419) 694 (1,503)
Decrease in income taxes payable........................... - (129) (3,370)
Increase in interest payable............................... 13,033 8,797 10,751
Operating activities of discontinued operations............ - - 50
---------- ------------ ----------
Net cash provided by (used in) operating activities........... 48 (2,622) 12
---------- ------------ ----------
INVESTING ACTIVITIES
Proceeds from sale of real estate assets....................... 6,649 6,930 -
Investment in real estate assets............................... (498) (3,450) -
---------- ------------ ----------
Net cash provided by investing activities...................... 6,151 3,480 -
---------- ------------ ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
LINCORP HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Year ended December 31,
----------------------------------
1996 1995 1994
---- ---- ----
(dollars in thousands)
FINANCING ACTIVITIES
Funds borrowed.............................. - 8,877 -
Repayment of borrowed funds................. (6,649) (9,200) -
--------- --------- ---------
Net cash used in financing activities....... (6,649) (323) -
--------- --------- ---------
Net increase (decrease) in cash............. (450) 535 12
Cash, beginning of year..................... 660 125 113
-------- -------- ---------
Cash, end of year........................... $ 210 $ 660 $ 125
======== ======== =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during the year for:
Interest................................ $ 706 $ 4,519 $ -
Income taxes............................ $ 17 $ 23 $ 16
Noncash investing and financing activities:
Fair value of assets acquired........... $ 13,025 $ - $ -
Liabilities assumed..................... $ 13,025 $ - $ -
Debt forgiveness........................ $ 5,204 $ - $ -
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
LINCORP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - REAL ESTATE OPERATIONS
Effective January 1, 1995, as a result of an improving real estate market,
Lincorp Holdings, Inc. (the "Company") reformulated their business plan to focus
on such activity. Accordingly, effective January 1, 1995, the Company restated
its balance sheet to reflect the real estate operations as a continuing
operation. The restatement had no effect on prior period Statements of
Operations but effective January 1, 1995, the Company recognized the results of
its real estate operations as part of its results from continuing operations.
This included recording its equity in the operating results of its real estate
joint ventures in accordance with the equity method of accounting as well as
recording rental and other income and expenses from its other real estate
activities. Prior to January 1, 1995, the Company's real estate operations were
accounted for as discontinued operations. During 1994, the real estate
operations had total income of approximately $1.8 million and a net loss of
approximately $.3 million, which was charged against the net liability of real
estate operations.
The Company has a 25% limited partnership interest in a commercial
building known as the Colorado State Bank Building ("CSBB"). During 1996, the
Company funded its partnership share of capital expenditures and tenant
improvements totaling $.5 million.
During the second quarter of 1996, the Company acquired through a wholly
owned subsidiary, DB Holdings, Inc. ("DBH"), a parcel of land (the "DBH Land")
underlying a commercial real estate project in Minneapolis, Minnesota. The DBH
Land was acquired for $13.0 million, with the total purchase price funded from a
senior unsecured obligation of DBH (the "DBH Loan"), payable the earlier of
January 2, 1999, or immediately upon the sale, transfer or disposal of the DBH
Land. The DBH Loan is with a company affiliated to UEC. Interest on the DBH Loan
is payable monthly, starting July, 1996, at a rate equal to the 180 day Libor
rate plus 3%. The DBH Land is leased to a project developer (the "Project
Developer") through February 2086, and for 1996, had an annual minimum lease
payment of $1.0 million. DBH has an agreement with the Project Developer that at
any time up to January 2, 1999, both DBH and the Project Developer have the
option to cause the transfer of the DBH Land to the other at a price of $13.0
million plus accrued and unpaid lease payments. Should the Project Developer
exercise its option to purchase the DBH Land, DBH has the right to sell the DBH
Land, to the Project Developer for a 25% interest in the project including the
DBH Land.
During the third quarter of 1996, the Company sold its real estate
investment in the Montgomery St. Land Lease ("MSLL") for $6.6 million resulting
in a gain of $1.0 million. The proceeds from this sale were used to paydown a
portion of the secured debt (the "MSLL Note") on this asset held by its parent
company, Unicorp Energy Corporation ("UEC").
F-7
<PAGE>
LINCORP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1995, the Company made a $.9 million loan to a developer to
refinance land previously purchased by the developer for residential home
development. The loan was for one year and carried a 10% interest rate, payable
monthly, and was secured by a first mortgage on the land. In order to make this
loan, the Company borrowed $.6 million from UEC under its existing Junior credit
facility. During the fourth quarter of 1996, the Company contributed its $.9
million loan to a newly formed limited partnership (the "Cambridge Park
Partnership") in exchange for a 28.125% limited partnership interest. The
purpose of the Cambridge Park Partnership is to develop, construct, and sell
approximately 232 townhouse units. Under the terms of the partnership agreement,
the Company is to receive a 18% priority return on its investment. Depending
upon when the project is sold, the Company will also receive between
approximately 8.4% and 14% of any profits from the partnership. The Company uses
equity accounting to account for it's interest in this partnership.
During September 1995, the Company sold substantially all of its limited
partnership interests in the Main and California Partnerships to the General
Partner for $6.9 million, which equalled the Company's recorded net book value
for these investments. In connection with the sale, the Company granted the
General Partner an option, which the General Partner exercised in the fourth
quarter of 1996, to purchase it's remaining Main Partnership interest not sold
(1%) for $70,000. The 1995 proceeds from this sale were used to repay loans from
the General Partner relating to the Company's real estate investments in CSBB
and MSLL.
During September 1995, the Company drew down $6.0 million of an existing
but unutilized line of credit provided by the General Partner and secured by the
Company's investment in the CSBB (the "CSBB Note"), for the purpose of investing
an additional $2.3 million in CSBB and making an additional repayment against
the MSLL Note.
At the end of September 1995, UEC purchased from the General Partner the
outstanding balance on the Company's CSBB Note and MSLL Note at face value.
The following summarizes the Company's net investment in real estate
assets:
December 31,
-----------------------------
1996 1995
---- ----
(dollars in thousands)
CSBB $ 9,683 $ 8,931
DBH Land 13,025 -
Cambridge Park Partnership 900 900
Coscan Main Partnership - 70
MSLL - 5,616
---------- ----------
$ 23,608 $ 15,517
========== ==========
F-8
<PAGE>
LINCORP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summarizes the financial statements of CSBB:
December 31,
------------------------
1996 1995
---- ----
(dollars in thousands)
Assets:
Rental properties $ 37,645 $ 34,827
Other assets 1,557 1,430
---------- ---------
Total assets 39,202 36,257
Liabilities 731 790
---------- ---------
Total equity $ 38,471 $ 35,467
========== ========
Revenue $ 3,209 $ 2,645
Expenses 2,195 2,141
---------- ---------
Net operating income $ 1,014 $ 504
========== =========
Company's equity in net income $ 254 $ 96
========== =========
NOTE 2 - DEBT RESTRUCTURING
During the fourth quarter of 1996, the Company and UEC agreed to
restructure certain debt between the companies. This debt restructuring, which
was effective September 30, 1996, dealt with the the CSBB Note and the the MSLL
Note and forgave all interest accrued on these two notes as of September 30,
1996, and through February 6, 1997. UEC also forgave a portion of the principal
of each note. For accounting purposes,
the total of the principal and interest forgiven ($3.0 million on the CSBB Note
and $2.2 million on the MSLL Note), has been recorded as a capital contribution
by UEC in the fourth quarter of 1996. After the restructuring, the new principal
amount owing as of September 30, 1996, on the MSLL Note and the CSBB Note was
$1.4 million and $3.6 million, respectively. The terms of the two notes were
also changed to reflect an extension of the principal and interest maturity date
to June 30, 2005, and a decrease in the interest rate to 6.38%. See Note 6.
NOTE 3 - DIVESTITURE OF THE LINCOLN SAVINGS BANK, FSB
On January 20, 1993, in connection with the transaction described below,
the Company relinquished control of Lincoln by placing the common stock of
Lincoln into a trust for eventual sale, and by filing a divestiture notice with
the Office of Thrift Supervision (the "OTS").
F-9
<PAGE>
LINCORP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 a senior secured note for $80 million in cash. The
transaction was subject to, among other things, regulatory approval of the OTS
and the Federal Deposit Insurance Corporation. Approval of 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 as repayment of a portion of the principal amount of debt
owed them. This payment to the Company's lenders represented a reduction in the
loss recorded in 1992, relating to the Company's writedown of its investment in
Lincoln. Accordingly, the Company recorded a $6.1 million income adjustment in
1994, relating to the discontinued operations of Lincoln.
NOTE 4 - LIQUIDITY AND GOING CONCERN
At December 31, 1996, the Company had approximately $171.0 million of
principal and accrued interest (the"Indebtedness") outstanding under its various
debt obligations which are not secured by its real estate assets. UEC holds
$156.8 million of the Indebtedness. On December 30, 1996, approximately $14.3
million of the Company's Indebtedness, which was previously held by an affiliate
of UEC, was sold to an unrelated third party. The Company is in payment default
under each of the debt obligations comprising the Indebtedness. The Indebtedness
is secured by a senior security interest in all of the Company's non real estate
assets and a junior security interest in all the real estate assets.
The Company's sources of operating funds during the year ended December
31, 1996, and to date have been primarily from it's previously existing cash
balances. The assets being utilized to fund the Company's operations are part of
collateral package securing the above described credit facilities. Unless the
Company's lenders are prepared to continue to defer in realizing on the pledged
collateral and allow the Company to utilize the proceeds from such collateral to
fund its ongoing operations, the Company will be unable to continue as a going
concern.
NOTE 5 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in
F-10
<PAGE>
LINCORP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of change in tax rates is
recognized in income in the period that includes the enactment date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." This
statement established the recognition and measurement standards related to the
impairment of long-lived assets. Effective January 1, 1996, the Company adopted
SFAS No. 121. The adoption of this standard did not have any effect on the
Company's financial position or results of operations.
NOTE 6 - DEBT ON REAL ESTATE ASSETS AND OTHER BORROWED FUNDS
The Company's debt on real estate assets are as follows:
December 31,
------------------------
1996 1995
---- ----
(dollars in thousands)
CSBB Note (a).............................. $ 3,628 $ 6,153
MSLL Note (b).............................. - 9,510
DBH Loan (c)............................... 13,184 -
-------- --------
$ 16,812 $ 15,663
======== ========
(a) This is a $9 million promissory note line of credit with UEC which is
secured by the Company's investment in CSBB and is to be used to fund the
Company's share of any operating shortfalls of CSBB. As explained in Note 2,
the CSBB Note was restructured effective September 30, 1996. The
restructured note matures June 30, 2005, and has an interest rate of 6.38%.
F-11
<PAGE>
LINCORP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(b) As explained in Notes 1 and 2, $6.6 million of this note was paid off
during 1996 from the proceeds from the sale of the MSLL and the balance of
the note was restructured effective September 30, 1996. Since this note is
no longer secured by a real estate asset, the amount owing on this note has
been reclassified to other borrowed funds.
(c) See Note 1 for a description of this loan.
The Company's other borrowed funds are as follows:
December 31,
-----------------------
1996 1995
---- ----
(dollars in thousands)
Principal
Senior secured revolving credit facility (a)... $ 19,921 $ 19,921
Subordinated term loan (b)..................... 65,000 65,000
Junior line of credit (c)...................... 20,294 20,294
MSLL Note (d).................................. 1,399 -
-------- --------
106,614 105,215
Accrued interest............................... 64,431 52,774
-------- --------
$171,045 $157,989
(a) Through November 1996, the outstanding principal on this facility was held
by UEC ($12.0 million) and a company affiliated with UEC ($7.9 million).
During December 1996, the debt portion held by the UEC affiliate was sold to
an unrelated third party. This debt facility expired in August 1991 and the
Company has made no interest payments on this facility since its expiration.
(b) This $65 million facility with UEC matures in August 1997, and calls for
interest-only payments at a fixed rate of 11.4 %, payable semi-annually. The
Company may prepay the loan at any time in whole or in amounts aggregating
$1 million or any larger multiple of $1 million. The term loan includes
convenants, among others, that require the maintenance of a minimum level of
tangible net worth and limit aggregate levels of additional indebtedness. As
a result of the losses incurred by the Company, it was not in compliance
with the above covenants and it has not paid its semi-annual interest
payment since August 1991.
(c) In November 1989, the Company entered into an agreement with UEC that
provided the Company with a line of credit in the aggregate amount of $30
million (amended to $25 million on July 25,1990) due on demand with an
interest rate of prime plus 3.5% and a standby fee of one quarter of one
percent of the unused portion of the commitment.
F-12
<PAGE>
LINCORP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(d) This note matures June 30, 2005, and has an interest rate of 6.38% and has
been reclassified in 1996 from debt on real estate assets. See note (b) to debt
on real estate assets included in this Note 6.
During 1996, the weighted average amount of total principal debt
outstanding was $127.5 million (1995 - $123.0 million) and the weighted average
interest cost of these funds during the year was 10.76 % (1995 - 10.82 %). The
maximum amount of borrowed principal funds outstanding at any one time during
1996 and 1995 was approximately $133.2 million and $124.7 million, respectively.
In December 1991, the Financial Accounting Standards Board issued SFAS No.
107 "Disclosures about Fair Value of Financial Instruments" ("FAS 107"). The
statement generally became effective for fiscal years ending after December 15,
1992, at which time entities were required to disclose the fair value of on and
off-balance sheet financial instruments, determined on a basis consistent with
the requirements of FAS 107. In view of the financial position of the Company at
December 31, 1996, management has determined it is not practicable to estimate
the fair value of debt and other borrowed funds.
NOTE 7 - INCOME TAXES
Set forth below is an analysis of the Company's provision for income taxes
for the years ended December 31, 1996, 1995 and 1994.
1996 1995 1994
---- ---- ----
(dollars in thousands)
Current provision:
State and local income taxes............ $ 17 $ 23 $ 300
====== ====== ======
A reconciliation of the total provision for income taxes to amounts
computed by applying the federal tax rate to income is as follows:
1996 1995 1994
---- ---- ----
(dollars in thousands)
Computed at statutory rate................. $(3,800) $(4,333) $(3,241)
State and local income taxes............... 17 23 300
Effect of no benefit recognized for net
operating losses........................ 3,800 4,333 3,241
------- ------- -------
Provision for income taxes................. $ 17 $ 23 $ 300
======= ======= =======
F-13
<PAGE>
LINCORP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying balance sheets reflect no deferred tax assets or
liabilities as of December 31, 1996 and 1995.
As part of the sale of Lincoln (see Note 2), the Company's debt previously
owed to the National Bank of Canada ("NBC") of approximately $77 million plus
accrued and unpaid interest was transferred to UEC. The debt acquired from NBC
by UEC was acquired at a cost of $4.7 million. 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 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
federal or state taxes on this income because of its insolvency pursuant to
Internal Revenue Service Code Section 108 (Discharge of Indebtedness). However,
tax attributes of the Company (net operating loss carry forwards, capital losses
and built-in losses) will be reduced to the extent of the forgiveness of
indebtedness. Additionally, for 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. The Company has fully
reserved any deferred tax benefit associated with the net operating loss
carryforwards.
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
assessment of $1.2 million being made by the Massachusetts Department of Revenue
(the"MDR") on such transfer. Shortly thereafter, this subsidiary was dissolved
but the tax liability remains outstanding. On November 29, 1993, an Offer of
Settlement was forwarded to the MDR with respect to this assessment which was
rejected by the MDR on October 26, 1995, and there have been no subsequent
developments on this matter since that date. The ultimate outcome of this
assessment cannot be determined at this time.
F-14
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DOCUMENT NAME
- ----------- -------------
22 Subsidiaries of the Company
<PAGE>
EXHIBIT 22
REV. 12/31/96
SUBSIDIARIES OF LINCORP HOLDINGS, INC.
DB Holdings, Inc.
IIT Missouri Corp.
IIT Realty Corp.
Lincorp, Inc.
Pleasure Island Corp.
Unicorp Delaware I, Inc.
Unicorp Delaware II, Inc.
Unicorp Holdings (U.S.) Incorporated
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 210
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,978
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> (167,672)
<TOTAL-LIABILITY-AND-EQUITY> 23,978
<SALES> 0
<TOTAL-REVENUES> 2,704
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 160
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,720
<INCOME-PRETAX> (11,176)
<INCOME-TAX> 17
<INCOME-CONTINUING> (11,193)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,193)
<EPS-PRIMARY> (6.47)
<EPS-DILUTED> (6.47)
</TABLE>
