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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8 - K
Current Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
October 28, 1997
(Date of earliest event reported)
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GOLDEN STATE BANCORP INC.
(Exact name of registrant as specified in its charter)
333-28037
(Commission File Number)
Delaware 95-4642135
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
414 North Central Avenue, Glendale, California 91203
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code
(818) 500-2000
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Item 5. Other Events
Golden State Bancorp Inc. ("Golden State"), parent company of Glendale
Federal Bank ("Glendale Federal"), has announced plans to issue
Litigation Tracking Warrants ("LTWs") to its security holders
representing the right to receive Golden State common stock equal in
value to 85 percent of the net after-tax proceeds, if any, from
Glendale Federal's pending goodwill lawsuit against the United States
Government. The issuance of the LTWs is subject to final Board action
approving the LTWs and to receipt of shareholder approval of certain
corporate changes required for their issuance. It is anticipated that
the LTWs would be tradable by Golden State's security holders after
issuance.
Further information regarding the proposed LTWs is contained in the
press release and related attachments included as Exhibit 99A hereto.
Item 7. Financial Statements, Pro-Forma Financial Information and Exhibits
(c) Exhibits
99A. Press release, dated October 28, 1997, regarding proposed
Litigation Tracking Warrants, with attachments.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Golden State Bancorp Inc.
---------------------------------
(Registrant)
Date: October 28, 1997 By: /s/ John E. Haynes
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John E. Haynes
Chief Financial Officer
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EXHIBIT 99A
NEWS GOLDEN STATE BANCORP
FOR INFORMATION CONTACT: Jeff Misakian (818) 500-2824
FOR IMMEDIATE RELEASE
GOLDEN STATE BANCORP ANNOUNCES PLANS TO
DISTRIBUTE GOODWILL LITIGATION TRACKING WARRANTS(TM)
-- Distribution to be Tax-Free to Golden State and Security Holders --
GLENDALE, CA - October 28, 1997 - Golden State Bancorp Inc. (NYSE: GSB),
parent company of Glendale Federal Bank, today announced plans to distribute
Litigation Tracking Warrants(TM) (LTW(TM)) to its security holders representing
the right to receive, upon exercise of the LTW(TM)s, Golden State common stock
equal in value to 85 percent of the net after-tax proceeds, if any, from
Glendale Federal's pending goodwill lawsuit against the United States
Government. The distribution is subject to Board action and shareholder
approval of certain corporate changes necessary to issue the LTW(TM)s. Golden
State intends to apply for an exchange listing of the LTW(TM)s, and it is
anticipated that the LTW(TM)s would be freely tradable after the distribution.
As a distribution of stock rights to existing stockholders, Golden State
expects the distribution to be tax-free to both Golden State Bancorp and its
security holders. The LTW(TM)s would be exercisable after notification by
Golden State of its receipt of proceeds from a final judgment in or settlement
of the litigation. The LTW(TM)s would expire 60 days after such notification is
given.
Stephen J. Trafton, chairman and chief executive officer of Golden State,
commented, "The distribution of the LTW(TM)s will provide a mechanism to allow
the market to track the value of our pending goodwill lawsuit separately from
the franchise value of the bank. The separation of the value of the underlying
franchise from that of the goodwill lawsuit should allow both assets to be more
accurately valued in the marketplace. In contrast with other previously
announced or issued goodwill certificates, this structure would allow the
LTW(TM)s to be the first goodwill lawsuit security to be distributed on a tax-
free basis for both security holders and the distributing institution."
-more-
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The LTW(TM)s would be exercisable for common stock of Golden State Bancorp
at an exercise price of $0.01 per share of common stock to be issued upon
exercise of the LTW(TM)s. The number of shares of Golden State common stock for
which an LTW(TM)s would be exercisable would be determined according to a
formula that divides the result of 85 percent of the net after-tax proceeds from
the litigation, if any, over the total number of LTW(TM)s distributed, or
reserved for distribution, by the average closing price of Golden State's common
stock during the 30 trading days prior to the receipt of a final judgment in the
goodwill lawsuit.
It is anticipated that the distribution of the LTW(TM)s would be declared
and the record date set in the March 1998 quarter. Holders of the company's
common stock as of the record date would receive one LTW(TM) for each share of
common stock they hold. In addition, a sufficient number of LTW(TM)s would be
reserved for future distribution to allow each of the company's outstanding
convertible preferred, warrant and stock option holders to receive, upon
conversion or exercise, one LTW(TM) for each common stock equivalent underlying
their securities.
During the period that the LTW(TM)s are outstanding but not exercisable,
holders of the convertible preferred stock, warrants and stock options who
convert or exercise their securities would receive common stock plus one LTW(TM)
for each common stock equivalent underlying their securities at the time of
distribution. Those holders who convert or exercise after the LTW(TM)s become
exercisable would not receive LTW(TM)s, but would instead receive the additional
shares of common stock to which they would have been entitled pursuant to the
exercise of LTW(TM)s had they converted or exercised their existing securities
prior to the LTW(TM)s becoming exercisable.
It is currently expected that approximately 86 million LTW(TM)s would be
distributed, or reserved for distribution. The distribution of the LTW(TM)s
would not affect Golden State's fully diluted shares outstanding as the amount
of the proceeds and the number of shares of common stock to be issued cannot be
determined until such time as the LTW(TM)s become exercisable.
Golden State expects to hold a shareholders' meeting in the March 1998
quarter to approve certain corporate changes necessary to issue the LTW(TM)s,
including an increase in the number of shares of common stock that the company
is authorized to issue, a decrease in the per share par value of the company's
common stock from $1.00 to $0.01 and amendments to certain terms of the
company's Noncumulative Convertible Preferred Stock, Series A. Distribution of
-more-
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the LTW(TM)s is also subject to a final determination by Golden State's Board of
Directors, which is expected to be made subsequent to the shareholders' meeting.
Because it is anticipated that the LTW(TM)s will be distributed after the
close of Golden State's pending acquisition of CENFED Financial Corporation,
holders of shares of Golden State common stock issued in the CENFED transaction
who retain their Golden State shares would have the opportunity to participate
in the distribution of LTW(TM)s along with the rest of Golden State's security
holders.
Following the adoption of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 (FIRREA), Glendale Federal brought an action against the
United States Government contending that FIRREA's treatment of supervisory
goodwill constituted a breach of the government's contract with the bank, under
which contract the bank had merged with a Florida thrift and was permitted to
include the goodwill resulting from the merger in the bank's regulatory capital.
On July 1, 1996, the United States Supreme Court, by a 7-2 vote, upheld previous
rulings by the United States Court of Appeals for the Federal Circuit and the
United States Court of Federal Claims that the federal government had breached
its contract with Glendale Federal and was liable to the bank for damages.
The trial to determine the amount of damages commenced on February 24,
1997. The bank completed presentation of its case in chief on July 21, 1997.
On September 2, 1997, the government began the presentation of its case in
chief. It is anticipated that the taking of testimony in the damages trial will
conclude in the March 1998 quarter. Assuming that the trial concludes in the
March 1998 quarter, post-trial briefs would likely be filed and closing
arguments conducted in the June 1998 quarter. A decision by the Claims Court is
expected thereafter.
Trafton commented, "The distribution of the LTW(TM)s will have no impact
whatsoever on the goodwill lawsuit itself, which will continue to be an asset of
the bank. Management intends to continue to pursue the case aggressively to a
successful resolution."
Credit Suisse First Boston Corporation is Golden State's financial advisor
in the transaction. Litigation Tracking Warrants(TM) and LTW(TM) are trademarks
of Credit Suisse First Boston Corporation.
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Golden State Bancorp, with $16.4 billion in assets, is the parent company
of Glendale Federal Bank - California's leading community bank, serving the
business and consumer banking needs of Californians through 178 banking offices
and 26 loan offices. Customers can reach the bank by calling 1-800-41FEDUP, or
get information through its Internet site at HTTP://WWW.GLENFED.COM.
###
This news release contains statements regarding the possibility of the receipt
by Glendale Federal of net proceeds in connection with its goodwill litigation
against the United States Government, the expected distribution of LTW(TM)s and
the timing and the terms thereof, the market price performance of Golden State
common stock in connection with the distribution of the LTW(TM)s and the
expected tax and accounting impact of the LTW(TM)s. These statements may
constitute forward-looking statements (within the meaning of the Private
Securities Litigation Reform Act of 1995), and involve significant risks and
uncertainties. Actual results may differ materially from the results discussed
in these forward-looking statements. Factors that might cause such a difference
include, but are not limited to: (1) an adverse outcome of Glendale Federal's
goodwill litigation against the United States Government or a delay in the
resolution thereof; (2) a change in any applicable law, rule, regulation or
practice with respect to tax or accounting issues or otherwise; (3) the failure
of Golden State to receive the requisite approvals of its stockholders; (4)
adverse changes or conditions in capital or financial markets; or (5) the delay
of the consummation of the proposed business combination with CENFED Financial
Corporation.
-more-
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TERM SHEET
THE DISTRIBUTION
On October 28, 1997, Golden State Bancorp Inc. (the "Company") announced
its intention to distribute (the "Distribution") one Litigation Tracking Warrant
("LTWs") for each outstanding share of common stock, par value $1.00 per share
(the "Common Stock"), on a date to be set by the Board of Directors of the
Company (the "Record Date"), which is currently expected to be during the first
quarter of 1998. At the time of the Distribution, the Company will also reserve
additional LTWs for future distribution to holders of outstanding Convertible
Securities (as defined herein) of the Company. The currently contemplated terms
of the LTWs are summarized below.
THE LITIGATION TRACKING WARRANTS
The LTWs will, upon the occurrence (if any) of the Triggering Event (as
defined herein), entitle the holders thereof (the "LTW Holders") to purchase
shares of Common Stock with an aggregate market value equal to the Adjusted
Litigation Recovery (as defined herein), if any. Each LTW will be exercisable
for the number of shares of Common Stock with a market value equal to the
Adjusted Litigation Recovery divided by the number of LTWs issued or reserved
for issuance on the Record Date at an exercise price per LTW equal to the number
of shares of Common Stock for which the LTW is then exercisable multiplied by
$0.01 (the "Exercise Price"). The shares of Common Stock issued upon exercise
of the LTWs will be registered under the Securities Act of 1933, as amended,
prior to the issuance thereof. The LTWs do not entitle the holders to receive
any dividends paid on, or to exercise any voting or other rights in respect of,
the Common Stock prior to the exercise of the LTW.
The "Adjusted Litigation Recovery" will equal 85% of the amount obtained
from the following equation: (a) the aggregate amount of any cash payment (or
any cash resulting from the monetization of any assets received) (the "Cash
Payment"), actually received by the Bank pursuant to a final, nonappealable
judgement in or final settlement of the Litigation (including any post-judgement
interest actually received by the Bank on any cash payment), minus (b) the sum
of the following: (i) the aggregate expenses incurred previously and hereafter
by Glendale Federal Bank, Federal Savings Bank ("Glendale Federal" or the
"Bank") in prosecuting the Litigation (as defined herein) and obtaining the Cash
Payment, (ii) the aggregate expenses incurred by the Company in connection with
the creation, issuance and trading of the LTWs, including, without limitation,
legal, financial advisory and accounting fees and the fees and expenses of the
warrant agent and (iii) an amount equal to the net Cash Payment (Cash Payment
less the expenses described in the preceding clauses (i) and (ii)) multiplied by
the highest, combined statutory rate of federal, state and local income taxes
applicable to the Company during the tax year in which the full Cash Payment is
received (currently approximately 42%).
THE LITIGATION
The "Litigation" is the case against the United States Government
(the "Government") in the United States Court of Federal Claims (the "Claims
Court") entitle Glendale Federal
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2
Bank, F.S.B. v. United States, No. 90-772C, filed on August 15, 1990, in which
the Bank contends that the Government is in breach of its contract with the Bank
and, separately, that the Government unlawfully took the Bank's property without
just compensation or due process in violation of the U.S. Constitution. The
Bank's claims arose from changes, mandated by the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 and certain regulations promulgated
thereunder, with respect to the rules for computing the Bank's regulatory
capital.
In July 1992, the Claims Court found in favor of the Bank's breach of
contract claim, ruling that the Government breached its express contractual
commitment to permit the Bank to include supervisory goodwill in its regulatory
capital and that the Bank is entitled to seek financial compensation. On appeal
the United States Supreme Court, by a vote of 7 to 2, ruled that the Government
had breached its contract with the Bank and remanded the case to the Claims
Court for a determination of damages.
The trial to determine damages commenced on February 24, 1997 and is
expected to end in the March 1998 quarter, with a decision currently anticipated
during the summer of 1998. The Bank has presented evidence on three alternative
damages theories: (i) "Expectation Damages", pursuant to which the Bank
presented evidence of damages in the amount of approximately $1.5 billion, (ii)
"Restitution", pursuant to which the Bank presented evidence of damages in
excess of approximately $1.9 billion and (iii) "Reliance Damages", pursuant to
which the Bank presented evidence of damages in the amount of approximately $900
million. The Government began the presentation of its case in chief on September
2, 1997. It is possible that one or both parties to the Litigation may appeal
the Claims Court's judgment when entered.
There can be no assurance as to the amount or the timing of receipt of any
damage award should such award be made.
TAX CONSEQUENCES
In general, for federal income tax purposes the distribution of the LTWs
is expected to be tax-free to the Company and to the holders of Common Stock and
other Convertible Securities of the Company.
THE SPECIAL MEETING
Prior to the Record Date, the Company intends to call a special meeting of
its stockholders for the purpose of having the Company's stockholders consider
and vote on proposals (i) to increase the number of shares of Common Stock that
the Company is authorized to issue, (ii) to decrease the per share par value of
its Common Stock from $1.00 to $.01 and (iii) to amend certain terms of the
certificate of designation of the Company's Noncumulative Convertible Preferred
Stock, Series A (the "Preferred Stock"). The approval of the Company's
stockholders (the "Stockholder Approvals") of these proposals would be necessary
to effect the Distribution. Until such time as the Company obtains the
Stockholder Approvals and the Board of Directors of the Company declares the
Distribution, the Company
<PAGE>
3
will have no obligation to make the Distribution. Accordingly, there can be no
assurance that the Distribution will ever be declared or that the LTWs will
ever be issued. If the Distribution occurs, no fractional LTWs or cash in lieu
thereof will be issued or paid.
TREATMENT OF OUTSTANDING CONVERTIBLE SECURITIES
Prior to the Distribution, the Company will take appropriate steps to
provide that (i) upon exercise or conversion of the Company's Preferred Stock,
Seven-Year Warrants, Five-Year Warrants and Stock Options (collectively, the
"Convertible Securities") prior to the Triggering Event, the holders thereof
would receive the shares of Common Stock underlying the Convertible Securities,
plus a number of LTWs equal to the number of LTWs such holders would have
received had such holders exercised or converted such Convertible Securities
immediately prior to the Record Date of the Distribution and (ii) upon the
exercise of the Convertible Securities on or after the Triggering Event, the
holders would receive the shares of Common Stock underlying the Convertible
Securities, plus an additional number of shares of Common Stock equal to the
number of shares of Common Stock such holders would have received had such
holders (a) exercised or converted such Convertible Securities into LTWs
immediately prior to the Triggering Event and (b) exercised such LTWs for shares
of Common Stock immediately after the Triggering Event. In addition, on the
Triggering Event, the conversion or exercise price of the Convertible Securities
would increase by an amount equal to the Exercise Price of the number of LTWs
underlying the Convertible Securities immediately prior to the Triggering Event.
Based on the number of shares of Common Stock, Preferred Stock, Seven-Year
Warrants, Five-Year Warrants and Stock Options outstanding at September 30,
1997, and taking into account the currently expected issuances of Common Stock
and Stock Options in connection with the acquisition of CENFED Financial
Corporation ("CENFED"), if the Distribution occurred as currently anticipated,
the number of LTWs that would be issued or reserved for issuance in respect of
the Company's current security holders on a fully distributed basis would be
approximately, 86,000,000. Of this total, the Common Stockholders would receive
approximately 57,600,000 LTWs, the number of LTWs reserved for issuance to
holders of the Company's Preferred Stock, Seven-Year Warrants, Five-Year
Warrants and Stock Options would be approximately 11,100,000; 10,900,000; 1,500
and 6,200,000, respectively.
The Company will not issue any additional LTWs after the Distribution other
than those reserved for issuance pursuant to outstanding Convertible Securities
as described above.
EXERCISE OF THE LTWS
Subject to the procedures established by the Company, LTW Holders will be
entitled to exercise their LTWs only upon the occurrence of all of the
following: (a) receipt by the Bank of the full Cash Payment, (b) calculation by
the Bank of the full amount of the Adjusted Litigation Recovery and (c) receipt
of all regulatory approvals necessary to issue the shares of Common Stock to be
issued upon the exercise of the LTWs, including the effectiveness of a
registration statement relating to the issuance of such Common Stock under
<PAGE>
4
the Securities Act. The occurrence of the events described in clauses (a)
through (c) is referred to herein as the "Triggering Event." Once the Triggering
Event occurs, the Company will publicly announce, by means of a press release
and by written notice (the "Exercise Notice") mailed to each record holder of
LTWs (i) that the Triggering Event has occurred, (ii) the aggregate number of
shares for which the LTWs are exercisable, (iii) the number of shares of Common
Stock for which one LTW is exercisable, (iv) the Exercise Price per LTW, (v) the
manner in which the LTWs are exercisable and (vi) the date on which the LTWs
will no longer be exercisable. The LTWs will be exercisable for a period of 60
days following the date on which the Exercise Notice is sent to the LTW Holders.
Any LTWs not exercised prior to the end of such 60 day period will expire.
Holders of LTWs will not be entitled to any interest or additional shares
of Common Stock from the Company for the period of time between the date on
which the Bank receives any cash payment in connection with the Litigation and
the date on which the LTWs become exercisable.
RIGHTS OF LTW HOLDERS
Notwithstanding the Distribution of the LTWs, the Bank will retain sole and
exclusive control of the Litigation and will retain 100% of any recovery from
the Litigation. The Company intends to pursue the Litigation with the same vigor
as it has in the past. The LTW Holders will not have any right to control or
manage the course or disposition of the Litigation or the proceeds of any
recovery therefrom. The LTW Holders will have no voting rights, no liquidation
preference and no rights to dividends or other distributions prior to the
exercise of such LTWs following the occurrence, if any, of the Triggering Event.
LISTING
The Company intends to apply for an exchange listing of the LTWs.
RISK FACTORS
Investment in the LTWs involves a high degree of risk. In deciding whether
to invest in the LTWs, persons should carefully consider all matters, including,
among others, the risk of limited or no recovery in the Litigation, in which
case the LTWs will expire without ever becoming exercisable; the possible lack
of an active trading market for the LTWs; the possibility that even if an active
trading market does develop, the prices at which the LTWs trade may be highly
volatile; possible limitations, due to the litigation process, on the Company's
ability to make public disclosures regarding potentially material developments
in the Litigation; and the fact that the number of shares of Common Stock for
which the LTWs may become exercisable, if any, will depend upon both the amount
for the Adjusted Litigation Recovery as well as the market value of the
Company's Common Stock at the time of such recovery, neither of which can be
predicted at this time.
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<TABLE>
<CAPTION>
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GOLDEN STATE BANCORP INC.
ILLUSTRATIVE IMPACT OF CONVERSION FORMULA TO LTW HOLDERS
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Dollars and Shares in Millions; Except Per Share Amounts)
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GROSS PROCEEDS FROM LAWSUIT
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<S> <C> <C> <C> <C> <C>
$0 $500 $1,000 $1,500 $2,000
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Gross Proceeds $ - $ 500 $ 1,000 $ 1,500 $ 2,000
Less: Deductible Expenses(1) (50) (50) (50) (50) (50)
--------- -------- ---------- ----------- -----------
Net Proceeds after Deductible Expenses (50) 450 950 1,450 1,950
Less: Taxes at 42.0%(2) 21 (189) (399) (609) (819)
--------- ------- ---------- ---------- ----------
Net After Tax Proceeds (29) 261 551 841 1,131
Less: 15% Retained at Bank - (39) (83) (126) (170)
--------- -------- ---------- ----------- -----------
Adjusted Litigation Recovery - $ 222 $ 468 $ 715 $ 961
Divided by GSB Common Stock Price(3) $ 30.00 $ 30.00 $ 30.00 $ 30.00 $ 30.00
Equals: GSB Common Shares to be
Issued to LTWs - 7.4 15.6 23.8 32.0
Divided by: LTWs Distributed and/or
Reserved 85.8 85.8 85.8 85.8 85.8
Number of GSB Shares Issued per LTW - 0.086 0.182 0.278 0.374
Multiplied by GSB Common Stock Price $ 30.00 $ 30.00 $ 30.00 $ 30.00 $ 30.00
Proceeds per LTW - 2.59 5.46 8.33 11.21
Less: Exercise Price Paid
($0.01/GSB Share Exercised Into) - (0.00) (0.00) (0.00) (0.00)
--------- -------- ---------- ----------- -----------
Net Value per LTW - $ 2.59 $ 5.46 $ 8.33 $ 11.21
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</TABLE>
(1) Assumes litigation and LTW distribution expenses equal $50MM pre-tax for
illustrative purposes.
(2) Reflective of current maximum state and federal tax rate.
(3) Assumed for illustrative purposes to be $30.00 per GSB share.
