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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
January 16, 1998 1-7432
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(Date of Report [date of earliest (Commission File Number)
event reported])
TRANSCAPITAL FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Florida 54-0886031
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1221 Brickell Avenue, Miami, Florida 33131
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(Address of principal executive (Zip Code)
offices)
(305) 536-1400
Registrant's telephone number, including area code
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ITEM 5 - OTHER EVENTS
DISCLOSURE MATTERS
As a result of the financial reversals associated with the receivership
of Transohio Savings Bank ("Transohio"), America Capital Corporation ("ACC") and
Transcapital Financial Corporation ("TFC") have not maintained any operating
businesses since 1992 and have not had sufficient resources to comply with the
periodic reporting requirements of the Securities Exchange Act of 1934 since
filing their Form 10-Ks for the year 1994 and Form 10-Qs for 1995. Transohio was
the principal operating entity and a 100% owned subsidiary of TFC which in turn
is approximately 65% owned by ACC. In connection with the tender offer described
below under "Tender Offer", the Company has deemed it advisable to set forth the
information contained herein.
TENDER OFFER
On January 16, 1998, ACC and TFC were notified of a tender offer by
Alliance Standard II, LLC and Alliance Standard II Corp. (the "Offerors")to
purchase up to $30,000,000 of ACC subordinated notes at $100 per $1,000
principal amount, up to 1,100,000 shares ACC preferred stock at $.50 per share
and up to 1,950,000 shares of TFC common stock at $1.00 per share. The offer is
more fully described in the Schedule 14D-1 filed by the Offerors with the
Securities and Exchange Commission (the "Schedule 14D-1").
On February 6, 1998, the Offerors announced that they were withdrawing
their offer for shares of ACC preferred stock due to the pendency of a lawsuit
between ACC and certain creditors (TFC is not a party to such lawsuit) that the
Offerors learned of after the commencement of their offer.
GOODWILL CLAIM
With respect to ACC and TFC's litigation in connection with its prior
supervisory acquisitions (the "Goodwill Claim"), the following information
(excluding bracketed language) has been excerpted from pages 21 - 24 of the
Offerors' offer to purchase for cash, which constitutes a part of the Schedule
14D-1:
Prior to its seizure in [July, 1992] by the [Office of Thrift
Supervision], Transohio had been an Ohio chartered building and loan
association since January 16, 1987; prior thereto, it was a federally
chartered savings bank formed in December, 1970. Transhohio was a
member of the Federal Home Loan Bank ("FHLB") of Cincinnati, and its
deposits were insured by the Savings Association Insurance Fund
("SAIF") of the FDIC. As of December 31, 1991 Transohio operated
through 65 branch offices located in Ohio, and had its headquarters in
Cleveland.
On August 8, 1995, ACC and TFC ("Plaintiffs") instituted a
suit (the "Action") against the United States of America ("Defendant")
in the U.S. Court of Federal Claims (the "Claims Court"). The complaint
in the Action alleges that in connection
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with certain government-assisted acquisitions by Plaintiffs in the
1980's, Defendant (through its agencies the FHLBB and FSLIC), in
exchange for the purchase of certain assets and assumption of certain
liabilities of Defendant by Transohio, agreed among other things to
provide Transohio with more than $107 million of capital credits and
authorized Transohio to treat those credits and supervisory goodwill as
part of regulatory capital. The complaint further alleges that in
connection with the enactment of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA"), Defendant caused
Transhohio to write off such capital credits and supervisory goodwill.
Plaintiffs allege breach of contract by the United States, resulting in
substantial injury to Plaintiffs, effecting a taking of Plaintiff's
property without just compensation for the damages caused by the
breach, just compensation for the property taken, and disgorgement of
the amounts by which Defendant has been unjustly enriched. Plaintiffs'
claims are separate and distinct from the claims of Transohio. An
agency of Defendant [the Federal Deposit Insurance Corporation("FDIC")]
now serves as the receiver for Transohio and is maintaining Transohio's
claims against Defendant. There are several similar cases pending
before the Claims Court. No prediction as to the outcome of Plaintiffs'
case can be made at this time.
The case is one of several similar cases pending before the
Claims Court. The Action was stayed pending the outcome of certain
other suits. On July 1, 1996, the U.S. Supreme Court held that the
government was liable to certain other plaintiff thrift holding
companies in cases arising out of similar facts patterns (the "Winstar
Litigation"). Further information regarding the Winstar Litigation is
set forth below.
Since the termination of Resolution Trust Corporation in 1995,
the FDIC has acted as receiver for Transohio, and has been granted
leave to intervene in the litigation on behalf of Transohio in its
capacity as receiver. [...T]he FDIC filed [an action in April 1997 (the
"FDIC Intervention Action")]. The [Offerors] believe that the FDIC has
intervened in the Action principally to recover any losses on account
of the receivership of Transohio that were paid out by the insurance
fund. The [Offerors] also believe that the FDIC will assert that, under
applicable FDIC regulations, the FDIC's claim will be senior to the
claims of TFC, as Transohio's sole stockholder. The [Offerors] further
believe that it is not possible to predict how the Claims Court will
resolve the FDIC's claims, or the timing of any such resolution.
On December 22, 1997, the Claims Court ruled in favor of the
plaintiffs on the issue of liability in four cases involving financial
institutions other than Transohio. These four cases were selected as
"Test Cases" for the purposes of extending summary judgement from the
Supreme Court's decision in the Winstar Litigation. The Claims Court
ordered that, in all Winstar-related cases where there are pending
summary judgment motions or cross-motions filed by plaintiffs, the
defendant must show cause, within 60 days, why those motions should not
be granted, and liability found on all Winstar contract issues based
upon its December 22, 1997 decision. The government has vigorously
defended its position
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as to both liability and damages. No assurance as to an outcome of this
process can be made.
Proceedings in the Action had been stayed pending a decision
by the Supreme Court of the United States in three cases involving
claims by banks against the United States for, among other things,
breach of contract based upon the elimination by FIRREA of the
treatment of goodwill and capital credits contemplated at the time the
ailing thrifts were taken over by healthier thrifts or other investors.
On July 1, 1996, the Supreme Court decided an appeal in three of these
cases brought against the government (the "Winstar Cases"). The
plaintiffs were Winstar Corporation, Glendale Federal Bank FSB and The
Statesman Group, Inc. In the Winstar Cases, based upon their facts and
circumstances and based upon the documents relating to the plainfiffs'
acquisitions of ailing savings institutions, the Claims Court had
granted summary judgment on the issue of liability in favor of the
plaintiffs. Thereafter a panel of the Court of Appeals for the Federal
Circuit (the "Federal Circuit") reversed the summary judgments granted
in favor of the plaintiffs and ruled against them. Subsequently, the
Federal Circuit, sitting EN BANC, reversed the panel's decision and
ruled in favor of the plaintiffs. The Government then sought a further
review in the Supreme Court. In its July 1996 decision, the Supreme
Court affirmed the judgments of liability in favor of the plaintiffs,
holding that, based upon the language of the applicable documents
executed in connection with plaintiffs' take-over of ailing thrifts,
such plaintiffs have stated claims for breach of contract against the
government. Because the Claims Court had not made any findings as to
whether the plaintiffs had suffered damages and, if so, in what amount,
the Supreme Court remanded for further proceedings consistent with its
opinion. Since the Supreme Court's decision in July 1996, the Claims
Court has conducted evidentiary proceedings in which it took testimony
and reviewed documentary evidence on the measure and amount of damages
regarding the claim of Glendale Federal Bank FSB. The government has
opposed Glendale's claim for damages. Although in published reports the
presiding judge made remarks favorable to the plaintiffs prior to
hearing evidence from the government, the Court has not yet rendered a
decision on the measure or the amount of damages to which Glendale may
be entitled. The Court has not yet begun to hear evidence concerning
damages to which any other plaintiffs may be entitled. Following any
decision on damages, it is anticipated that one or both parties may
appeal to the Federal Circuit. There can be no prediction whether the
Claims Court will make a damage award or when any such damage award
will become final, nonappealable and enforceable.
Although the plaintiffs in the Winstar Cases prevailed in the
Supreme Court and the plaintiffs in the four "Test Cases" prevailed in
the Claims Court, such decisions are not necessarily dispositive of the
outcome of the Action. A court may still determine that the Plaintiffs'
claims involve sufficiently different facts and/or legal issues as to
render the Winstar Cases inapplicable to the Action and thereby result
in a different conclusion from that of the Winstar Cases. Moreover, the
damages portion of the claims presented by the Winstar plaintiffs
remain to be litigated and
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could take several years to resolve. The government has vigorously
defended its position as to both liability and damages.
Following any decision on liability with respect to the
Action, it is possible that one or both parties may seek to appeal to
the Federal Circuit. It is uncertain when any such judgment will become
final, nonappealable and enforceable. If the Claims Court rules in
favor of the Plaintiffs on the issue of liability and, assuming there
are one or more appeals from that decision, if the judgment of
liability is upheld following any such appeals, it would nevertheless
be uncertain when the Claims Court would conduct proceedings on damages
and, following a decision, if any, on damages and any appeals from such
decision, when any such decision would become final. The measure and
amount of damages, if any, are uncertain.
ACC and TFC believe that the foregoing presents a fair summary of the
Goodwill Claim and provide the additional information below.
Based on the defense strategy of the United States in similar cases,
the Company believes that in litigation relating to the Goodwill Claim, the
United States may assert that 1) the deposit insurer and receiver of Transohio
(FDIC) is entitled to recovery proceeds, 2) Transohio's deterioration was caused
by other business factors including loan and investment losses, 3) Transohio
would have failed its capital ratios even if full credit for Supervisory
Goodwill were allowed, 4) Transohio's damages are too speculative to permit
recovery and 5) the claims asserted by ACC and TFC are derivative in nature and
are therefore beyond the Court's jurisdiction. While the Supreme Court ruling
was favorable, no plaintiffs have been awarded damages to date and Transohio's
circumstances are unique, therefore it is not practicable to predict the outcome
of ACC's and TFC's claims.
The FDIC Intervention Action poses additional risk in that if seniority
is granted to FDIC and the amount of an award is insufficient to cover all
claims, the amount that may otherwise be received by ACC and TFC could be
reduced or eliminated. While ACC and TFC plan to assert they have separate
claims, such matter will likely be addressed as part of the Goodwill Claim
litigation.
The United States has moved to consolidate the claims of ACC and TFC
with a claim filed by an ACC preferred stockholder and counsel for the Company
has advised that such action is unavoidable. The Company cannot assess the
impact of this prospective action on the conduct of its claim or on any eventual
recovery.
ACC and TFC have participated in joint discovery and common issues
hearings, together with approximately 120 other plaintiffs. ACC and TFC have
been notified that case specific discovery for their case is expected to begin
in 1999 or 2000.
GOODWILL CLAIM FINANCING
In connection with the settlement of litigation described below under
"Transohio Noteholder Claim and Settlement", TFC's insurance company agreed to
advance up to $500,000 for certain legal fees and expenses of pursuing the
Goodwill Claim (the "Insurance Advance"). Subsequently, an agreement with the
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law firm representing TFC and ACC in the Goodwill Claim agreed to a fee
arrangement of $250,000 (payable from the Insurance Advance, leaving $250,000 of
the Insurance Advance for expenses) and 15% of any proceeds from the Goodwill
Claim. The Insurance Advance, together with an additional $235,000 of settlement
and cost payments in connection with the Transohio Noteholder Claim Settlement,
must be repaid to TFC's insurance company from any Goodwill Claim proceeds.
TRANSOHIO NOTEHOLDER CLAIM AND SETTLEMENT
On September 21, 1994, certain Transohio noteholders initiated an
action against ACC, TFC and others asserting various claims in connection with
their note purchases. In April 1997, the parties agreed to a settlement whereby
the noteholders received $71,500 in cash (of which $70,000 was paid by a TFC
insurer) and up to $910,000 to be paid from 50% of any net TFC Goodwill Claim
proceeds.
SETTLEMENT OF DIRECTOR/OFFICER LIABILITIES
On January, 31, 1997, TFC entered into settlement agreements with those
of its directors and officers who were owed monies under indemnification
agreements and compensation arrangements with TFC. Such agreements provide for
the issuance of notes which are secured by an assignment of TFC's Goodwill Claim
proceeds, if any. The aggregate outstanding notes are $668,361 with respect to
indemnifications and $675,313 with respect to compensation. ACC entered into
similar agreements with respect to indemnification liabilities in July, 1997
(such amounts are liabilities of each entity but are not required to be paid
twice). Additionally 10% of TFC's Goodwill Claim proceeds, if any, were assigned
to officers and directors of TFC in connection with amounts granted as
compensation.
SUMMARY OF ASSIGNMENTS OF GOODWILL CLAIM PROCEEDS
TFC and ACC have made assignments of the Goodwill Claim proceeds as follows:
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Reimburse insurer 1 $335,000 - $735,000
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Goodwill Claim counsel 15% of Goodwill Claim proceeds
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Transohio noteholders 2 Up to $910,000 from 50% of net TFC Goodwill Claim proceeds
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Indemnification 3 $668,631 plus interest
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Officer and director compensation 2 3 $675,313 plus interest
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Officer and director compensation 2 10% of Goodwill Claim proceeds
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Notes:
1. Minimum obligation is 12/31/97 liability. Maximum amount reflects
additional advances available to fund Goodwill Claim expenses.
2. Amount is due, irrespective of Goodwill Claim proceeds. Others are
contingent liabilities. 3. TFC only.
ITEM 7 (C) EXHIBITS
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Exhibits are being compiled and will be filed in a subsequent 8-k as soon as
practicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused the report to be signed on its behalf by the
undersigned hereto duly authorized.
Dated: February 9, 1998 Transcapital Financial Corporation
By: /s/ STEVEN R. COOK
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Steven R. Cook
Senior Vice President
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