INDEX NO. 90 Civ. - ( )

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

FEDERAL DEPOSIT INSURANCE CORPORATION, et al., Plaintiffs,

against-

MICHAEL R. MILKEN, et al., Defendants.

USAT

171. At the direction of the Milken Group, USAT purchased approximately $1.4 billion of Drexel-underwritten junk bonds. In-exchange, the Milken Group financed a number of business schemes for Charles Hurwitz, the primary owner of United Financial Group, Inc. ("UFG²), USAT's parent.

172. In mid-1983, Hurwitz, through two companies he controlled, Federated Development Co. and MCO Holdings, Inc., acquired approximately 23% of UFG. As of March 1985, the Milken Group had caused Drexel to acquire 7.2% of UFG's stock, and by March 1987, the Milken Group had caused Drexel to increase its ownership interest to 9.7%. Drexel and Hurwitz were the largest shareholders of UFG during the entire period in which junk bonds were purchased by USAT, together-controlling more than 30% of UFG's outstanding stock from 1984 until 1988, when USAT failed.

173. Between 1985 and 1988, the Milken Group raised about $1.8 billion of financing for Hurwitz's takeover ventures. In return, Hurwitz caused USAT to purchase huge amounts of Drexel--underwritten junk-bonds.

In 1984, USAT purchased only $5 million of Drexel-underwritten junk bonds.
Thereafter:
 

• In 1985, USAT purchased about $280 million of Drexel- underwritten junk bonds;
• In 1986, USAT purchased approximately $688 million of Drexel-underwritten junk bonds;
• In 1987, USAT purchased over $321 million of Drexel-underwritten junk bonds; and
• In 1988, USAT purchased over $58 million of Drexel-underwritten junk bonds.

174. The Milken Group placed much of the debt Drexel underwrote for USAT with its network. For example, about $272 Million face amount of the $615 million of senior subordinated -Extendible notes (the "zero coupon notes") underwritten by Drexel to finance Hurwitz's takeover of the Pacific Lumber Company ("Pacific Lumber") in 1986 was purchased by First Executive and various of its subsidiaries, Columbia and GNOC Corporation:on ("GNOC"), a subsidiary of Golden Nugget, Inc. ("Golden Nugget"). Similarly, the Milken Group placed a significant . amount . of the senior subordinated extendible notes issued in connection with the Pacific Lumber takeover with S&Ls, including AMCOR, a wholly-owned subsidiary of Lincoln, Federal Savings & Loan, Hunter savings Association and Pima.

175. In exchange for these entities' purchase of the Pacific Lumber acquisition financing, the Milken Group and Hurwitz arranged for USAT to purchase other Drexel-underwritten junk bonds. 'For example, in return for GNOC's purchase of a significant amount of the zero coupon notes, USAT purchased Golden Nugget junk bonds underwritten by Drexel. In addition, National Can Corporation ("National -Can"), controlled by Nelson Peltz and Peter May, close Milken associates, purchased both the zero coupon notes and the extendible notes. USAT purchased Drexel-underwritten junk bonds issued by Triangle Industries ("Triangle"), the vehicle used by Peltz and May to acquire National Can, and by Uniroyal Chemical, a company controlled by Triangle.