The $5 million operating loan was not mentioned in the purchase agreement.
And, most important, Keating's promise to pay R.A. Homes the first $2.5 million in profits resulting from the sale of the land within the next 12 months. Also missing at closing was the development agreement, which Keating had promised would be ready.
These provisions were not included in the written purchase agreement, Wischer would later testify, because they would have been a signal to American Continental's outside auditors and federal regulators that the Continental Ranch transaction was not a true sale and that it would have been improper for the company to book the $8 million profit.
"Representations that were made to R.A. [Homes] and the way in which the loans and the sale were actually handled over a long period of time would have definitely affected the fact that this was not a sale and that the profit could not have been recorded," Wischer testified.
Despite the absence of key provisions, most notably the promise to pay R.A. Homes the $2.5 million profit-sharing arrangement for holding title to the land, Ron Ober plowed forward and signed the purchase agreement.
Ober says he expected the development agreement would soon be ready. He says Keating's pledge to sell the land within a year was never to be included in written documentation. As for the $2.5 million, he says that was documented when the loan was refinanced in August 1987.
The promised development agreement never materialized.
Cole said he repeatedly asked Lincoln Savings for the development agreement, but it never appeared. Mike Hawkins says R.A. Homes' insistence to get a development agreement proved that the homebuilding company was not part of Keating's conspiracy to cook Lincoln's books.
Before long, other problems popped up. The actual amount of property sold to R.A. Homes was only 1,300 acres, rather than the 1,400 acres promised. Some of the property had already been sold to Silverado Savings in Denver.
On November 25, 1986, Ober sent a letter to Wischer reminding her that R.A. Homes expected to receive the first $2.5 million of profits stemming from the expected sale of Continental Ranch and to split 50-50 any additional profits with Lincoln Savings.
Lincoln would do nothing to confirm the profit-sharing arrangement in writing until the following summer, when a crisis developed.
Throughout the spring of 1987, R.A. Homes devoted 90 percent of its time conducting lengthy and expensive negotiations with Wall Street investment bankers about the possibility of taking the homebuilding company public, according to Cole.
Dealing with armies of lawyers, accountants and investment advisers was expensive and R.A. Homes needed some more working capital. Lincoln Savings was tapped for an additional $2 million loan on April 7, 1987, five days after DeConcini and three other senators held their meeting with Ed Gray on behalf of Keating.
But going public would also require R.A. Homes to make complete disclosures of its financial activities, including its unusual land deal at Continental Ranch with Keating.
On May 1, 1987, R.A. Homes prepared a draft disclosure statement that would be sent to the Securities and Exchange Commission. A copy was sent to Lincoln Savings. In the disclosure, the company said it intended to sell $20 million in stock and $30 million in subordinated debt, also known as junk bonds. There was plenty of incentive to make the public offering work. A portion of the stock proceeds would be distributed to R.A. Homes' owners.
Cole said in a sworn deposition that the draft SEC disclosure also contained details on the Continental Ranch transaction, including the stipulations that a Lincoln Savings subsidiary still controlled the land and intended to sell the property and that R.A. Homes planned to enter a formal development agreement. These were the same stipulations that Judy Wischer said never appeared in the Continental Ranch loan documentation because they would be red flags to auditors and thrift regulators.
Soon after Lincoln Savings received R.A. Homes' draft SEC disclosure, the Obers, Cole and Earl Katz met with Keating and his aides. During the meeting, Keating began discussing the problems and expense of running a public corporation and urged the R.A. Homes executives to reconsider going public.
Instead, Keating proposed that R.A. Homes sell $30 million worth of junk bonds to one of Keating's companies.
"It caught us all by surprise," Cole said of Keating's offer.
Keating added one stipulation to the $30 million junk-bond deal. He wanted the right to recall the bonds within 30 days if the Obers left R.A. Homes. Keating didn't like doing business with Cole because Cole asked too many questions.