<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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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, 1998
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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
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Commission file number 1-8547
LINCORP HOLDINGS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 23-2161279
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(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
3900 Park Ave., Suite 102
Edison, NJ 08820
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(Address of Principal Executive (Zip Code)
Offices)
Registrant's Telephone Number,
Including Area Code: (732) 494-9455
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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 NONE
$.01 per share
<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 1998 and through February 26, 1999. 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 26, 1999, 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
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Recent Developments
At December 31, 1998, the Company had approximately $175.7 million of
principal and accrued interest (the "Indebtedness") outstanding under its
various debt obligations. The Company's parent company, Unicorp Energy
Corporation ("UEC"), holds all of the Company's Indebtedness. The Company is in
payment default under several of the debt obligations comprising the
Indebtedness. The Indebtedness is secured by a senior security interest in all
of the Company's assets. See Note 5 to the Company's Consolidated Financial
Statements.
During 1998, UEC agreed to waive substantially all interest owing by
the Company on its Indebtedness to UEC that would otherwise accrue for the
period July 1, 1998 through December 31, 1998. For the six months ended
December 31, 1998 the interest waived was approximately $5.6 million.
The Company's sources of funds during the year ended December 31,
1998, and to date, have been primarily from its previously existing cash
balances and borrowings from UEC. 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 lender continues 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 hopes that it will be able
to continue as a going concern so that it may seek out opportunities which,
among other matters, will allow it to realize on its intangible assets and tax
attributes. As of December 31, 1998, the Company's stockholders' deficit was
$178.7 million.
Real Estate and Mortgage Loan Transactions
On December 16, 1998, the Company sold its limited partnership
interest in the Cambridge Park Partnership (the "Partnership") for $1,035,000
cash plus an interest free $247,500 promissory note (the "Note") payable within
three years of closing. The Note can be prepaid by the purchaser at various
discounted values if the total Note is prepaid within two years. The discounts
range from 10% to 20% depending upon how soon the prepayment is made. The
Company's investment in the Partnership was $900,000. Since the Company cannot
be sure it will collect the Note, it has not recorded the value of the Note at
this time and will record it as income only when and if the Note is collected.
Therefore, the gain recorded on this transaction in 1998 was $135,000.
During the fourth quarter of 1997, the Company made a $0.6 million
secured first mortgage loan to Republic Development Co. (the "Republic Mortgage
Loan") for the purpose of developing a commercial real estate property. The
Republic Mortgage Loan bears interest at 15% and matured on May 19, 1998. The
Company had the option, which expired April 17, 1998, to convert the Republic
Mortgage Loan into a 50%
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ownership interest in the underlying real estate property. To finance this
loan, the Company borrowed funds from UEC. The UEC borrowing was in the form of
a $602,000 discounted note (the "UEC Republic Note") which matured on May 19,
1998 in the amount of $620,000 and is secured by the Republic Mortgage Loan.
The Republic Mortgage Loan was not repaid on May 19, 1998 and the Company is
currently negotiating the repayment of the loan with the borrower. At this
time, the Company cannot determine the outcome of these negotiations. The UEC
Republic Note, which matured on May 19, 1998, was not repaid by the Company as
its payment is dependent upon collecting the Republic Mortgage Loan. UEC has
agreed to defer the collection of its note until the Republic Mortgage Loan
issue is resolved.
Employees
The Company presently has no compensated employees.
Item 3. Legal Proceedings
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(A) Joseph Frazier ("Frazier") has instituted three (3) lawsuits in
which Lincorp Holdings, Inc., Lincorp's predecessors in interest, Greit Realty
Trust Company and Unicorp America Corporation (collectively the "Company"), and
other parties were named as defendants. All three actions arose from a series
of real estate-related transactions which began in 1978 with respect to
property in Bucks County, PA (the "Bucks Property"). More specifically,
Frazier's partnership used a mortgage as a vehicle pursuant to which Greit paid
the partnership $400,000 contemporaneously with entering into the agreement and
gave the partnership a Promissory Note in the amount of $850,000 which further
provided for nineteen (19) annual payments of $10,000 each and a final
installment of $660,000. In return, the partnership assigned its rights in an
Agreement of Sale for the Bucks Property to Greit. The Company has not made any
payment to the partnership since 1992 and has a $730,000 unsecured liability
recorded in its financial statements.
In 1993, Frazier instituted an action in the Court of Common Pleas
of Philadelphia County asserting claims against the Company for breach of
contract, i.e., the failure to make certain payments due and owing to Frazier
and/or a general partnership in which he had an interest in connection with a
mortgage granted to Frazier's partnership by Greit. In 1997, Frazier instituted
a second action in the Court of Common Pleas of Philadelphia County alleging
fraudulent conveyancing of the Bucks Property by five (5) separate parties,
including the Company. These actions have been consolidated with Frazier v.
Estate of Wright, an action previously filed in the Court of Common Pleas of
Philadelphia County by Frazier against his late partner and attorney, Bruce
Wright, alleging legal malpractice. While acknowledging its failure to make
payments since 1992, the Company has been vigorously defending the claims to
the extent that they seek relief beyond that arising from the mortgage-based
transaction or to the extent the claims allege fraud or any other improper
conduct. Moreover, the Court recently raised questions concerning whether the
Court has jurisdicition of the case and whether the 1993 and 1997 actions
should be dismissed.
In 1998, Frazier instituted an action in the Court of Common Pleas of
Bucks County, PA asserting vague claims arising from the conveyance of the
Bucks Property. Frazier has asserted claims against the
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Company and numerous other parties, including approximately 475 homeowners who
currently reside on the Bucks Property. Frazier is seeking to eject the
homeowners from their homes and regain possession of the Bucks Property. In
addition, Frazier is seeking damages of $84 million from the Company and from
other defendants. The Company is vigorously defending the claims that have been
asserted in the Bucks County action.
(B) 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
Revenue (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
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Not Applicable.
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<PAGE>
PART II
Item 5. Market Price of and Dividends on the Registrant's Common Equity
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and Related Stockholder Matters
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The Company's Common Stock is traded over the counter. During 1998,
there were no identifiable stock transactions.
On February 26, 1998, 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 1998 and 1997.
Item 6. Selected Financial Data
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<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ----------- ---------- ----------- --------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Interest income................................... $ 34 $ 19 $ 23 $ 144 $ 47
Interest expense.................................. (5,595) (12,418) (13,720) (13,316) (10,751)
Rental income..................................... -- 357 1,169 487 --
Gain on sale of real estate assets................ 135 6,631 1,033 -- --
Other income...................................... -- 236 479 253 1,537
Other expense..................................... (213) (190) (160) (312) (375)
----------- ----------- ----------- ----------- ----------
Loss from continuing operations before
income taxes................................. (5,639) (5,365) (11,176) (12,744) (9,542)
Provision for income taxes........................ 22 16 17 23 300
---------- ---------- ---------- ---------- ---------
Loss from continuing operations................... (5,661) (5,381) (11,193) (12,767) (9,842)
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 relating
to discontinued operations................... -- -- -- -- 3,370
---------- ---------- ---------- ---------- ---------
Net income (loss)................................. $ (5,661) $ (5,381) $ (11,193) $ (12,767) $ 4,181
=========== =========== =========== =========== ===========
</TABLE>
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Item 6. Selected Financial Data, continued
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<TABLE>
<CAPTION>
At or for the Year ended December 31,
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1998 1997 1996 1995 1994
----------- --------- ------------ ----------- -----------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Per share amounts
Basic income (loss) per share of common stock..... $ (3.27) $ (3.11) $ (6.47) $ (7.38) $ 2.42
============ =========== ============ ============ =============
Weighted average shares of common stock
outstanding.................................. 1,731 1,731 1,731 1,731 1,731
============ =========== ============ ============ =============
BALANCE SHEET DATA
Total assets...................................... $ 746 $ 1,535 $ 23,978 $ 16,181 $ 660
============ =========== ============ ============ =============
Other borrowed funds, excluding accrued interest.. $ 97,154 $ 97,814 $ 106,614 $ 105,215 $ 97,229
============ =========== ============ ============ =============
Total stockholders' deficit....................... $ (178,697) $ (173,036) $ (167,655) $ (161,666) $ (148,899)
============= ============ ============ ============ =============
</TABLE>
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<PAGE>
Item 7. Management's Discussion and Analysis of Financial
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Condition and Results of Operations
-----------------------------------
LIQUIDITY AND GOING CONCERN
At December 31, 1998, the Company had approximately $175.7 million of
principal and accrued interest (the "Indebtedness") outstanding under its
various debt obligations. The Company's parent company, Unicorp Energy
Corporation ("UEC"), holds all of the Company's Indebtedness. The Company is in
payment default under several of the debt obligations comprising the
Indebtedness. The Indebtedness is secured by a senior security interest in all
of the Company's assets. See Note 5 to the Company's Consolidated Financial
Statements.
During 1998, UEC agreed to waive substantially all interest owing by
the Company on its Indebtedness to UEC that would otherwise accrue for the
period July 1, 1998 through December 31, 1998. For the six months ended
December 31, 1998 the interest waived was approximately $5.6 million.
The Company's sources of funds during the year ended December 31,
1998, and to date, have been primarily from its previously existing cash
balances and borrowings from UEC. 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 lender continues 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.
RESULTS OF OPERATIONS
1998 Compared to 1997
- ---------------------
For the year ended December 31, 1998, the Company had a net loss of
$5.7 million compared to a net loss of $5.4 million for the year ended December
31, 1997. Excluding the impact of the gains on sale of real estate assets of
$.1 million in 1998 and $6.6 million in 1997, and the $5.6 million of interest
waived by UEC in 1998, the comparative net loss for 1998 and 1997 was $11.4
million and $12.0 million, respectively.
Excluding the gains on sale of real estate assets, total income for
1998 decreased $.6 million compared to 1997. This decrease is primarily due to
a $.4 million decrease in rental income. The Company's rental income was
generated solely by a subsidiary it sold in April 1997.
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<PAGE>
Interest expense decreased $6.8 million primarily because UEC agreed
to waive substantially all interest owing by the Company on it's Indebtedness
to UEC that would otherwise accrue for the period July 1, 1998 through December
31, 1998.
1997 Compared to 1996
- ---------------------
For the year ended December 31, 1997, the Company had a net loss of
$5.4 million compared to a net loss of $11.2 million for the year ended
December 31, 1996. Excluding the gains on sale of real estate assets of $6.6
million in 1997 and $1.0 million in 1996, the comparative net loss for 1997 and
1996 were $12.0 million and $12.2 million, respectively.
Excluding the gains on sale of real estate assets, total income for
1997 decreased $1.1 million compared to 1996. This decrease is primarily due to
a $.8 million decrease in rental income. The Company's rental income was
generated solely by a subsidiary it sold as of April 30, 1997, which accounts
for the total rental income variance.
Interest expense decreased $1.3 million primarily as the result of the
Company's debt decreasing $24.8 million during the year.
FINANCIAL POSITION
Material Changes Since December 31, 1997
- ----------------------------------------
During 1998, UEC agreed to waive substantially all interest owing by
the Company on its Indebtedness to UEC that would otherwise accrue for the
period July 1, 1998 through December 31, 1998. For the six months ended
December 31, 1998 the interest waived was approximately $5.6 million.
On December 16, 1998, the Company sold its limited partnership
interest in the Cambridge Park Partnership (the "Partnership") for $1,035,000
cash plus an interest free $247,500 promissory note (the "Note") payable within
three years of closing. The Note can be prepaid by the purchaser at various
discounted values if the total Note is prepaid within two years. The discounts
range from 10% to 20% depending upon how soon the prepayment is made. The
Company's investment in the Partnership was $900,000. Since the Company cannot
be sure it will collect the Note, it has not recorded the value of the Note at
this time and will record it as income only when and if the Note is collected.
Therefore, the gain recorded on this transaction in 1998 was $135,000.
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<PAGE>
There were no other significant changes in the Company's financial
position since December 31, 1997.
Item 8. Financial Statements and Supplementary Data
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The Financial Statements of the Company are set forth in Part IV on
pages F-1 to F-13 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.
-8-
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PART III
Item 10. Directors and Executive Officers of the Registrant
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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 23, 1999.
<TABLE>
<CAPTION>
Service with
Name Age Position with Company Company from
- ---- --- --------------------- ------------
<S> <C> <C> <C>
George S. Mann 66 Chairman of the Board (1) 1981
Ian G. Cockwell 51 Director (2) 1994
William Kirschenbaum 54 Director (2) 1982
Ralph V. Marra 61 Director (1) 1994
Jack R. Sauer 46 President 1996
Gordon Flatt 36 Vice President and 1998
Chief Financial Officer
</TABLE>
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(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
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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 served as a Director until July 1998.
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 Corporate Controller for SSR Realty Advisors,
Inc. since April 1998. Prior to that he was Director of Planning from December
1997. From October 1994 through December 1997 he was the Senior Managing
Director of Grubb and Ellis Inc.
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. He has been the President of the Company since August, 1996.
Gordon Flatt has been the President of UEC since March 10, 1999. Prior
to that he was the Chief Operating Officer of UEC since September 1997. He has
been the Vice President and Chief Financial Officer of the Company since
December 1998.
Ronald W. Cantwell resigned his position with the Company effective
December 15, 1998. He was the Executive Vice President of the Company since
1995 and a Director since August, 1996.
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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, 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, 1998,
totaled approximately $27,000.
Directors Meeting and Committees
- --------------------------------
The Board of Directors of the Company held 5 meetings during the
fiscal year ended December 31, 1998. During fiscal year 1998, four of the
directors attended at least 60% of the meetings and one director attended 40%
of the meetings.
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.
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The only Committee which held a meeting during the Company's fiscal
year ended December 31, 1998, was the Audit Committee which held one meeting.
Item 11. Executive Compensation
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No executive officer of the Company, received any compensation for
their services during any of the fiscal years ended December 31, 1998, 1997 or
1996.
No compensation committee report or performance graph is included
herein because none of the executive officers draws any salary from the
Company.
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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 26, 1999. The address of each of the directors
is c/o Lincorp Holdings, Inc., 3900 Park Ave., Suite 102, Edison, NJ 08820. The
address of UEC is 67 Yonge Street Suite 1101 Toronto, Ontario, Canada M5E1J8.
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially
Name of Owned as of Percent of
Beneficial Owner February 26, 1999 Class
---------------- ----------------- ----------
<S> <C> <C>
Unicorp Energy 1,286,886 74.3%
Corporation (1)
Ian G. Cockwell (1) 1,286,886 74.3%
Gordon Flatt (1) 1,286,886 74.3%
William Kirschenbaum 3,767 *
All officers and directors 1,290,653 74.6%
as a group (4 persons) (1)
</TABLE>
- ----------------
* Less than 1%
(1) The stockholdings indicated for Messrs. Cockwell and Flatt are all
owned directly by UEC. Messrs. Cockwell and Flatt disclaim beneficial
ownership of all such shares.
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
See Items 1 and 2 - Real Estate and Mortgage Loan Transactions.
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PART IV
Item 14.
- --------
Exhibits, Financial Statement Schedules and Reports on Form 8-K
<TABLE>
<CAPTION>
Page
----
<S> <C>
(a) (1) Consolidated Financial Statements
Report of Independent Accountants....................................... F-1
Consolidated Balance Sheets as of
December 31, 1998 and 1997............................................ F-2
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997, and 1996..................................... F-3
Consolidated Statements of Changes in Stockholders' Deficit
for the years ended December 31, 1998, 1997, and 1996................. F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996...................................... F-5
Notes to Consolidated Financial Statements.............................. F-7
(2)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
<CAPTION>
Page
----
<S> <C> <C>
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).
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
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).
</TABLE>
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<TABLE>
<S> <C> <C>
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).
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
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).
</TABLE>
-17-
<PAGE>
<TABLE>
<S> <C> <C>
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.
</TABLE>
- --------------------
* Incorporated by reference.
-18-
<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 Edison, New
Jersey.
Dated: March 30, 1999
LINCORP HOLDINGS, INC.
By: /s/ Jack R. Sauer
-------------------------
Jack R. Sauer
President
-19-
<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.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ George S. Mann Chairman of the March 30, 1999
- --------------------------------- Board of Directors
George S. Mann (Principal Executive Officer)
/s/ Jack R. Sauer President March 30, 1999
- --------------------------------- (Principal Accounting Officer)
Jack Sauer
/s/ Ian G. Cockwell Director March 30, 1999
- ---------------------------------
Ian G. Cockwell
/s/ William Kirschenbaum Director March 30, 1999
- ---------------------------------
William Kirschenbaum
/s/ Ralph V. Marra Director March 30, 1999
- ---------------------------------
Ralph V. Marra
</TABLE>
-20-
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Lincorp Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Lincorp
Holdings, Inc. ("Company") as of December 31, 1998 and 1997, 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,
1998. 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 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. as of December 31, 1998 and 1997, and the results of their operations and
their cash flows for each of the years in the three year period ended December
31, 1998 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 1 to
the financial statements, the Company is in default on several of its credit
facilities and, at December 31, 1998, has $97.2 million of principal
indebtedness, and $77.9 million of accrued and unpaid interest. In addition,
the Company has a net capital deficiency of $178.7 million as of December 31,
1998. 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 Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
New York, New York
March 17, 1999
F-1
<PAGE>
LINCORP HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------------
1998 1997
-------------- --------------
(dollars in thousands)
<S> <C> <C>
ASSETS
Cash............................................................ $ 100 $ 23
Investment in real estate and mortgage loan, net................ 646 1,512
-------------- --------------
$ 746 $ 1,535
============== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities:
Debt secured by mortgage loan,
including accrued interest............................... $ 620 $ 606
Other borrowed funds, including accrued interest............. 175,099 170,179
Other liabilities............................................ 3,724 3,786
-------------- --------------
179,443 174,571
-------------- --------------
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.................. 153,638 153,638
Accumulated deficit......................................... (332,352) (326,691)
-------------- --------------
(178,697) (173,036)
-------------- --------------
$ 746 $ 1,535
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-2
<PAGE>
LINCORP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------
1998 1997 1996
-------------- ------------ ------------
(in thousands, except
per share amounts)
<S> <C> <C> <C>
Income:
Rental income....................................... $ - $ 357 $ 1,169
Interest income..................................... 34 19 23
Gain on sale of real estate assets.................. 135 6,631 1,033
Other income........................................ - 236 479
-------------- ------------ ------------
Total income................................... 169 7,243 2,704
-------------- ------------ ------------
Expense:
Interest expense.................................... 5,595 12,418 13,720
General and administrative expense.................. 213 190 160
-------------- ------------ ------------
Total expense.................................. 5,808 12,608 13,880
-------------- ------------ ------------
Loss before income taxes.................................. (5,639) (5,365) (11,176)
Provision for state and local income taxes................ 22 16 17
-------------- ------------ ------------
Net loss.................................................. $ (5,661) $ (5,381) $ (11,193)
============== ============ ============
Basic loss per share of common stock outstanding.......... $ (3.27) $ (3.11) $ (6.47)
============== ============= ============
Weighted average shares of common stock................... 1,731 1,731 1,731
============== ============= ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
LINCORP HOLDINGS, INC.
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, 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)
Net loss.............................................. - - (5,381)
---------------- --------------- -----------------
Balances, December 31, 1997............................... 17 153,638 (326,691)
Net loss.............................................. - - (5,661)
---------------- --------------- -----------------
Balances, December 31, 1998............................... $ 17 $ 153,638 $ (332,352)
================ =============== =================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
LINCORP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------
1998 1997 1996
------------- ------------ ---------------
(dollars in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss........................................................ $ (5,661) $ (5,381) $ (11,193)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Gain on sale of subsidiary................................ - (146) -
Gain on sale of real estate assets........................ (135) (6,631) (1,033)
Equity income from real estate partnership................ - (60) (254)
Decrease (increase) in other assets....................... (34) 74 (86)
Increase (decrease) in other liabilities.................. (62) 10 (419)
Increase in interest payable.............................. 5,594 11,840 13,033
------------- ------------ ---------------
Net cash provided by (used in) operating activities............. (298) (294) 48
-------------- ------------- ---------------
INVESTING ACTIVITIES
Proceeds from sale of subsidiary................................ - 50 -
Proceeds from sale of real estate assets........................ 1,035 - 6,649
Investment in real estate and mortgage loans.................... - (745) (498)
------------- ------------- --------------
Net cash provided by (used in) investing activities............. 1,035 (695) 6,151
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
LINCORP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------
1998 1997 1996
-------------- ----------- --------------
(dollars in thousands)
<S> <C> <C> <C>
FINANCING ACTIVITIES
Funds borrowed ............................................... - 802 -
Repayment of borrowed funds..................................... (660) - (6,649)
-------------- ----------- --------------
Net cash provided by (used in) financing activities............. (660) 802 (6,649)
-------------- ----------- --------------
Net increase (decrease) in cash................................. 77 (187) (450)
Cash, beginning of year......................................... 23 210 660
------------- ----------- -------------
Cash, end of year............................................... $ 100 $ 23 $ 210
============= =========== =============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during the year for:
Interest.................................................. $ - $ 579 $ 706
Income taxes.............................................. 22 16 17
Noncash investing and financing activities:
Assets sold............................................... $ - $ 22,989 $ -
Liabilities sold.......................................... - 13,210 -
Debt repurchased.......................................... - 16,506 -
Fair value of assets acquired............................. - - 13,025
Liabilities assumed....................................... - - 13,025
Debt forgiveness.......................................... - - 5,204
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
LINCORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - LIQUIDITY AND GOING CONCERN
- ------------------------------------
At December 31, 1998, Lincorp Holdings, Inc. (the "Company") had
approximately $175.7 million of principal and accrued interest
(the"Indebtedness") outstanding under its various debt obligations. The
Company's parent company, Unicorp Energy Corporation ("UEC") holds all of the
Company's Indebtedness. The Company is in payment default under several of the
debt obligations comprising the Indebtedness. The Indebtedness is secured by a
senior security interest in all of the Company's assets.
The Company's sources of operating funds during the year ended
December 31, 1998, and to date, have been primarily from its previously
existing cash balances and borrowings from UEC. 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 lender continues 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 2 - REAL ESTATE OPERATIONS
- -------------------------------
On December 16, 1998, the Company sold its limited partnership
interest in the Cambridge Park Partnership (the "Partnership") for $1,035,000
cash plus an interest free $247,500 promissory note (the "Note") payable within
three years of closing. The Note can be prepaid by the purchaser at various
discounted values if the total Note is prepaid within two years. The discounts
range from 10% to 20% depending upon how soon the prepayment is made. The
Company's investment in the Partnership was $900,000. Since the Company cannot
be sure it will collect the Note, it has not recorded the value of the Note at
this time and will record it as income only when and if the Note is collected.
Therefore, the gain recorded on this transaction in 1998 was $135,000.
During the fourth quarter of 1997, the Company made a $0.6 million
secured first mortgage loan to Republic Development Co. (the "Republic Mortgage
Loan") for the purpose of developing a commercial real estate property. The
Republic Mortgage Loan bears interest at 15% and was to mature on May 19, 1998.
The Company had the option, which expired April 17, 1998, to convert the
Republic Mortgage Loan into a 50% ownership interest in the underlying real
estate property. To finance this loan, the Company borrowed funds from UEC. The
UEC borrowing was in the form of a $602,000 discounted note (the "UEC Republic
Note") which matured on May 19, 1998 in the amount of $620,000 and is secured
by the Republic Mortgage Loan.
The Republic Mortgage Loan was not repaid on May 19, 1998 and the Company is
currently negotiating the repayment of the loan with the borrower. At this
time, the Company cannot determine the outcome of these negotiations, and under
current accounting principles the Republic Mortgage Loan is considered
impaired. The UEC Republic Note, which matured on May 19, 1998, was not repaid
by the Company as its
F-7
<PAGE>
LINCORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
payment is dependent upon collecting the Republic Mortgage Loan. UEC has agreed
to defer the collection of its note until the Republic Mortgage Loan issue is
resolved.
During the third quarter of 1997, the Company sold its interest in the
Colorado State Bank Building (the "CSBB") to one of the other owners of CSBB
(the "Purchaser") in exchange for $16.5 million of the Company's outstanding
debt ($12.6 million in principal and $3.9 million in accrued interest) which
the Purchaser acquired from UEC. As of the date of sale, the Company's recorded
net book value for the CSBB was $9.9 million and therefore the gain on the sale
was approximately $6.6 million.
During the second quarter of 1997, the Company sold its wholly-owned
subsidiary, DB Holdings, Inc. ("DBH") for $50,000. At the time of sale, DBH's
liabilities exceeded its assets by approximately $96,000, resulting in a gain
on the sale of approximately $146,000.
During the third quarter of 1996, the Company sold its real estate
investment in the Montgomery Street Land Lease ("MSLL") for $6.6 million
resulting in a gain of $1.0 million. The proceeds from this sale were used to
pay down a portion of the secured debt (the "MSLL Note").
During the second quarter of 1996, the Company acquired through 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"). The DBH Loan was with a company affiliated to UEC.
The following summarizes the Company's net investment in real estate and
mortgage loans:
December 31,
-----------------------------------
1998 1997
-------------- --------------
(dollars in thousands)
Cambridge Park Partnership $ - $ 900
Republic Mortgage Loan 646 612
-------------- --------------
$ 646 $ 1,512
============== ==============
F-8
<PAGE>
LINCORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - DEBT RESTRUCTURING
- ---------------------------
During 1998, UEC agreed to waive substantially all interest owing by
the Company on its Indebtedness to UEC that would otherwise accrue for the
period July 1, 1998 through December 31, 1998. For the six months ended
December 31, 1998 the interest waived was approximately $5.6 million.
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 two notes held by UEC, the CSBB
Note and 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 5.
NOTE 4 - 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 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.
INVESTMENTS IN MORTGAGE LOANS AND REAL ESTATE
F-9
<PAGE>
LINCORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Investments in mortgage loans and real estate are carried at cost. Mortgage
loans are considered to be impaired when it is probable that the Company will
not be able to collect both principal and interest in accordance with the
contractual terms of the loan agreement.
NOTE 5 - OTHER BORROWED FUNDS
- -----------------------------
The Company's other borrowed funds are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1997
----------- -----------
(dollars in thousands)
<S> <C> <C>
Principal
Senior secured revolving credit facility (a)................... $ 10,261 $ 10,921
Subordinated term loan (b)..................................... 65,000 65,000
Junior line of credit (c)...................................... 20,494 20,494
MSLL Note (d).................................................. 1,399 1,399
----------- -----------
97,154 97,814
Accrued interest............................................... 77,945 72,365
----------- -----------
$ 175,099 $ 170,179
=========== ===========
</TABLE>
F-10
<PAGE>
(a) This debt facility, which is held by UEC, 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 matured 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.
(d) This note matures June 30, 2005, and has an interest rate of 6.38. See
Note 3.
During 1998, the weighted average amount of total principal debt
outstanding was $98.4 million (1997 - $111.5 million) and the weighted
average interest cost of these funds during the year was 5.68 % (1997 -
10.94 %). The 1998 average interest cost is low due to the UEC waiver of
interest discussed in Note 3. The maximum amount of borrowed principal
funds outstanding at any one time during 1998 and 1997 was approximately
$98.4 million and $123.2 million, respectively.
SFAS No. 107 "Disclosures about Fair Value of Financial Instruments"
requires entities to disclose the fair value of on and off-balance sheet
financial instruments. In view of the financial position of the Company at
December 31, 1998, management has determined it is not practicable to
estimate the fair value of debt and other borrowed funds.
F-11
<PAGE>
LINCORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - INCOME TAXES
- ---------------------
Set forth below is an analysis of the Company's provision for income
taxes for the years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Current provision:
State and local income taxes.............................. $ 22 $ 16 $ 17
========= ========= =========
</TABLE>
A reconciliation of the total provision for income taxes to amounts
computed by applying the federal tax rate to income is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Computed at statutory rate..................................... $ (1,917) $ (1,824) $ (3,800)
State and local income taxes................................... 22 16 17
Effect of no benefit recognized for net operating losses....... 1,917 1,824 3,800
--------- --------- ---------
Provision for income taxes..................................... $ 22 $ 16 $ 17
========= ========= =========
</TABLE>
The accompanying balance sheets reflect no deferred tax assets or
liabilities as of December 31, 1998 and 1997.
As part of the sale of Lincoln, 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.
F-12
<PAGE>
LINCORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - LEGAL PROCEEDINGS
- --------------------------
(A) In 1993, Frazier instituted an action in the Court of Common Pleas
of Philadelphia County asserting claims against the Company for breach of
contract, i.e., the failure to make certain payments due and owing to Frazier
and/or a general partnership in which he had an interest in connection with a
mortgage granted to Frazier's partnership by Greit. In 1997, Frazier instituted
a second action in the Court of Common Pleas of Philadelphia County alleging
fraudulent conveyancing of the Bucks Property by five (5) separate parties,
including the Company. These actions have been consolidated with Frazier v.
Estate of Wright, an action previously filed in the Court of Common Pleas of
Philadelphia County by Frazier against his late partner and attorney, Bruce
Wright, alleging legal malpractice. While acknowledging its failure to make
payments since 1992, the Company has been vigorously defending the claims to
the extent the claims allege fraud or any other improper conduct. Moreover, the
Court recently raised questions concerning whether the Court has jurisdicition
of the case and whether the 1993 and 1997 actions should be dismissed.
In 1998, Frazier instituted an action in the Court of Common Pleas of
Bucks County, PA asserting vague claims arising from the conveyance of the
Bucks Property. Frazier has asserted claims against the Company and numerous
other parties, including approximately 475 homeowners who currently reside on
the Bucks Property. Frazier is seeking to eject the homeowners from their homes
and regain possession of the Bucks Property. In addition, Frazier is seeking
damages of $84 million from the Company and from other defendants. The Company
is vigorously defending the claims that have been asserted in the Bucks County
action.
(B) 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-13
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Document Name
- ----------- -------------
22 Subsidiaries of the Company
<PAGE>
Exhibit 22
Rev. 12/31/98
SUBSIDIARIES OF LINCORP 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> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 100
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 746
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> (178,714)
<TOTAL-LIABILITY-AND-EQUITY> 746
<SALES> 0
<TOTAL-REVENUES> 169
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 213
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,595
<INCOME-PRETAX> (5,639)
<INCOME-TAX> 22
<INCOME-CONTINUING> (5,661)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,661)
<EPS-PRIMARY> (3.27)
<EPS-DILUTED> (3.27)
</TABLE>
