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TRECO, INC. v. LAND OF LINCOLN SAV. AND LOAN

October 31, 1983

TRECO, INC. AND WISCONSIN REAL ESTATE INVESTMENT TRUST, PLAINTIFFS,
v.
LAND OF LINCOLN SAVINGS AND LOAN, FRANK J. KINST, THOMAS A. KINST, RONALD R. DRAJKA, ROBERT J. HAJEK, PHILLIP R. KASIK, WILLIAM KINST, WARREN H. MUCHOW, JOHN A. STORCEL, JOHN J. LACHAJEWSKI, AND PAUL A. DOWNING, ILLINOIS COMMISSIONER OF SAVINGS AND LOAN ASSOCIATIONS, DEFENDANTS.



The opinion of the court was delivered by: Bua, District Judge.

  MEMORANDUM ORDER

The above-captioned matter came before the Court for trial on the merits of Counts IV and VII of plaintiffs' Second Amended Complaint.*fn1 Also pending before the Court is a motion to dismiss by defendant Paul A. Downing, Illinois Commissioner of Savings and Loan Associations. The Court, having heard testimony on October 24 and 25, 1983, and having reviewed deposition designations, exhibits and memoranda submitted by the parties, does hereby enter the following findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure.

FINDINGS OF FACT

1. Plaintiff Treco, Inc. ("Treco") is a Florida corporation with its principal office in Jacksonville, Florida.

2. Plaintiff Wisconsin Real Estate Investment Trust ("WREIT") is a common law business trust formed under the laws of the State of Wisconsin with its principal executive office in Chicago, Illinois.

3. Defendant Land of Lincoln Savings and Loan ("Lincoln") is a savings and loan association chartered under the laws of Illinois. Deposits at Lincoln are insured by the Federal Savings and Loan Insurance Corporation. Lincoln is regulated by the Federal Home Loan Bank Board and the Illinois Commissioner of Savings and Loan Associations.

4. Nine individual defendants are members of Lincoln's Board of Directors. The remaining defendant, Paul A. Downing, Illinois Commissioner of Savings and Loan Associations, was added as a party-defendant by the Second Amended Complaint filed October 18, 1983.

5. Between June 7 and June 23, 1983, plaintiffs' affiliate, Technical Equipment Leasing Corporation, acquired shares of Lincoln's stock. On June 24, 1983, WREIT and Treco each purchased shares of Lincoln's stock from Technical. On September 21, 1983, Lincoln had 2,496,956 shares of stock outstanding. Together, Treco and WREIT own approximately 9.956 percent of the outstanding common shares of Lincoln.

6. In June, 1983, Lincoln directors planned a public offering of Lincoln stock to be effective June 9, 1983.

7. On June 8, 1983, Randy E. Nonberg, legal counsel for Dean Witter Reynolds, Inc., underwriter of Lincoln's proposed public stock offering, received a telephone call from an attorney representing a California group of Lincoln's shareholders. The California attorney told Nonberg that his clients owned 41 percent of Lincoln shares and wanted Lincoln to delay or stop its public offering of stock, and if Lincoln refused, these shareholders would seek a special meeting of Lincoln stockholders in order to remove all the directors, elect new directors and liquidate the association.

8. Dean Witter and Lincoln determined to proceed with the offering. The California attorney then told Nonberg that his clients were attempting to stay Lincoln's permit to offer and sell securities in the State of California. Attorneys with Nonberg's office later verified that such an attempt had been made but was unsuccessful.

9. The threat was subsequently disclosed by Lincoln in the offering circular issued on June 9, 1983:

  Counsel for the Underwriters has been advised by
  telephone that certain stockholders, whose percentage
  ownership of the currently outstanding shares was
  reported to exceed the minimum number necessary to
  call a special stockholders' meeting, intend to call
  such a meeting for the purpose of removing incumbent
  directors, electing new directors and liquidating the
  Association. (Plaintiffs' Exhibit 4, p. 41.)

10. Based upon the testimony of Thomas Kinst, President, Chief Executive Officer and a member of the board of directors of Lincoln, Lincoln's directors reasonably believed that liquidation of Lincoln would substantially decrease the value of stock owned by Lincoln's shareholders. Lincoln's directors also reasonably believed that sudden removal of all of Lincoln's directors would cause many depositors to withdraw their savings. Such action would have not been in the best interest of Lincoln and its shareholders. Kinst and Dean Witter reasonably believed the threats of the California shareholders to be serious.

11. On June 15, 1983, a meeting was held at the offices of Dean Witter in Chicago to discuss how Lincoln should respond to the threats of the California group. At that meeting, potential bylaw amendments were discussed and Lincoln's attorneys were requested to draft bylaw amendments in response to the threats received from the California shareholders. Other anti-takeover and anti-liquidation measures were discussed.

12. On June 22, 1983, at a meeting of the board of directors, the directors, pursuant to recommendation of counsel, voted to amend Article XI of Lincoln's bylaws. ...


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