American Underwriters, Inc. - Page 7

                                        - 7 -                                         
          advance.  On October 19, 1987, the Dow Jones industrial average             
          fell 22.6 percent (hereinafter, this fall is referred to as the             
          Crash), which was the worst decline since World War I and greater           
          from a numerical standpoint than the 12.82 percent drop on                  
          October 28, 1929.  Some stocks dropped 50 percent on that day,              
          and petitioner and Kenilworth's 3 percent trigger for repurchase            
          of the LPO's was hit 15 times, resulting in extraordinary losses            
          to them.  Kenilworth lost at least $23.6 million on the day of              
          the Crash, mainly with respect to its LPO's.                                
               Before the Crash, petitioner and Kenilworth had entered into           
          cross-collateral and guarantee agreements with Bear Stearns and             
          Prudential Bache under which:  (1) Every LPO owned by petitioner            
          was collateralized by an LPO owned by Kenilworth, and vice versa,           
          and (2) petitioner was liable for any charges incurred by                   
          Kenilworth on its purchase of an LPO, and vice versa.  Mr. Roven            
          approved all of these agreements.  Petitioner and Kenilworth were           
          both financially healthy and profitable when they signed these              
          agreements, and they entered into these agreements with a proper            
          and valid business purpose, both providing consideration for the            
          agreements and receiving value therefrom.  Petitioner's primary             
          business purpose was to increase its profits and net worth, and             
          petitioner realized this purpose until the Crash.  The Crash                
          caused the leverage which had allowed petitioner and Kenilworth             
          to grow extraordinarily during 1986 and 1987 to backfire and                
          generate extraordinary losses to the two entities.                          




Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  Next

Last modified: May 25, 2011