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FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-47309
PROSPECTUS
14,636,000 SHARES
GOLDEN STATE BANCORP INC.
COMMON STOCK
This Prospectus relates to shares of the common stock, par value $1.00 per
share ("Common Stock"), of Golden State Bancorp Inc. (the "Company" or "Golden
State") that may be issued from time to time upon exercise of the Litigation
Tracking Warrants(TM) described herein (the "LTW(TM)s"). On April 23, 1998,
the Company's Board of Directors declared a distribution (the "Distribution")
of one LTW(TM) for each share of Common Stock outstanding at the close of
business on May 7, 1998 (the "Distribution Record Date") and reserved
additional LTW(TM)s for future issuance to holders of outstanding Convertible
Securities (as defined herein) of the Company.
The LTW(TM)s distributed to the holders of Common Stock will, if the
Triggering Event described herein occurs, entitle the holders thereof (the
"LTW(TM) Holders") to purchase shares of Common Stock having, in the
aggregate, an Adjusted Market Value (as defined herein) equal to the Adjusted
Litigation Recovery (as defined herein), if any. Each LTW(TM) will be
exercisable for the number of shares of Common Stock having an Adjusted Market
Value equal to the Adjusted Litigation Recovery divided by the number of
LTW(TM)s issued or reserved for issuance as of the Distribution Record Date
(85,759,465 in the aggregate) at an exercise price per LTW(TM) equal to the
number of shares of Common Stock for which the LTW(TM) is then exercisable
multiplied by $1.00 (the "Exercise Price"). The Adjusted Litigation Recovery
represents a portion of the proceeds that may be received by the Company from
the United States Government (the "Government") as a result of the civil
action (the "Litigation") filed by the Company's subsidiary, Glendale Federal
Bank, Federal Savings Bank (the "Bank" or "Glendale Federal"), against the
Government in 1990 in the United States Court of Federal Claims (the "Claims
Court"). In the Litigation, the Claims Court has determined that the
Government has breached its contract with the Bank, as a result of certain
changes, mandated by the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 and certain regulations promulgated thereunder
(collectively, "FIRREA"), with respect to the rules for computing the Bank's
regulatory capital and such determination has been upheld on appeal. A trial
is presently underway in the Claims Court to determine the amount of damages,
if any, due to Glendale Federal as a result of the Government's breach of
contract.
The Common Stock is listed on the New York Stock Exchange and the Pacific
Exchange under the trading symbol "GSB".
This Prospectus does not cover any resales of Common Stock received upon
exercise of the LTW(TM)s. No person is authorized to make any use of this
Prospectus in connection with any such resale or in connection with any other
transaction or the offer or sale of any other securities.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS
OR OTHER OBLIGATIONS OF ANY SAVINGS BANK OR NON-BANK
SUBSIDIARY OF THE COMPANY AND ARE NOT INSURED BY THE SAVINGS ASSOCIATION
INSURANCE FUND OR THE BANK INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
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The date of this Prospectus is May 22, 1998
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports and other information with the
Securities and Exchange Commission (the "SEC"). Prior to the completion on
July 24, 1997 of the reorganization transaction pursuant to which the Company
became the parent holding company for Glendale Federal (the "Reorganization"),
Glendale Federal was also subject to such informational requirements and filed
such reports and other information with the Office of Thrift Supervision (the
"OTS"). Such reports and other information filed by the Company may be
inspected and copied at prescribed rates at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the SEC's regional offices at The Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and
Seven World Trade Center, Thirteen Floor, New York, New York 10048. Copies of
such material can be obtained by mail from the Public Reference Section of the
SEC, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
SEC also maintains a site accessible to the public by computer on the World
Wide Web, at http://www.sec.gov, which contains registration statements,
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC, including the Company. Such
reports and other information filed by the Bank may be inspected and copied at
the public reference facilities maintained by the OTS at 1700 G Street, N.W.,
Washington, D.C. 20552, or at the OTS Western Region Office, One Montgomery
Street, San Francisco, California 94120.
The Common Stock is listed on the New York Stock Exchange (the "NYSE") and
the Pacific Exchange, Inc. (the "Pacific Exchange"). Reports and other
information concerning the Company may also be inspected at the NYSE located
at 11 Wall Street, New York, New York 10006 and at the Pacific Exchange
located at 301 Pine Street, San Francisco, California 94104.
The Company has filed a Registration Statement with the SEC on Form S-3
(including the exhibits and any amendments thereto, the "Registration
Statement") covering the shares of Common Stock issuable upon exercise of the
LTW(TM)s referred to herein. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which
are omitted from this Prospectus as permitted by the rules and regulations of
the SEC. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed or
incorporated by reference as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference. The
Registration Statement may be inspected and copied at prescribed rates at the
above described offices of the SEC, or obtained by mail as described above or
through the SEC World Wide Web site described above. In addition, the Company
will promptly provide copies of these documents without charge upon receipt of
a written or oral request made to the Company at 700 North Brand Boulevard,
Glendale, California 91203, Attention: Corporate Relations, telephone (818)
500-2723, facsimile (818) 409-3296.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR GLENDALE FEDERAL. NEITHER THE DELIVERY HEREOF NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY OR GLENDALE FEDERAL SINCE THE DATE HEREOF OR THAT THE INFORMATION IN
THIS PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the OTS under OTS Docket No.
3088 by Glendale Federal prior to completion of the Reorganization, and the
following additional documents indicated as having been filed by the Company
with the SEC, are hereby incorporated by reference in this Prospectus: (i) the
Annual Report on Form 10-K for the year ended June 30, 1997; (ii) the
Quarterly Reports on Form 10-Q of the Company for the quarterly periods ended
September 30, 1997, December 31, 1997 and March 31, 1998; (iii) the Proxy
Statement on Schedule 14A, dated June 24, 1997, sent to Glendale Federal
stockholders in connection with the special meeting thereof held on July 23,
1997; (iv) the Proxy Statement on Schedule 14A (the "LTW(TM) Proxy"), dated
March 4, 1998, sent to the holders of the Common Stock in connection with the
special meeting convened April 8, 1998; (v) the description of the Common
Stock contained in the Registration Statement on Form S-3, File No. 333-28037,
of the Company filed with the SEC on May 29, 1997, including any amendment or
report filed for the purpose of updating such description; and (vi) the
Company's Current Reports on Form 8-K filed with the SEC dated July 24, 1997,
August 17, 1997, September 26, 1997, October 28, 1997 (as amended by Amendment
No. 1 thereto, filed with the SEC on February 3, 1998), November 30, 1997,
February 4, 1998 (as amended by Amendment No. 1 thereto, filed with the
Commission on March 5, 1998) (the "Cal Fed Merger 8-K") and May 5, 1998.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the effectiveness of the Registration Statement shall be
deemed to be incorporated herein by this reference and to be a part hereof
from the respective dates of filing thereof. Any statement contained in an
incorporated document shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein or
in any other such subsequently filed incorporated document modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents are available upon request made
to the Company by mail at 700 North Brand Boulevard, Glendale, California
91203, Attention: Corporate Relations, by telephone at (818) 500-2723 or by
facsimile at (818) 409-3296. In addition, the documents incorporated herein by
reference that are filed by Glendale Federal may be inspected without charge
at the public reference facilities of the OTS referred to under "Available
Information" above and copies of such documents may be obtained from the OTS
at prescribed rates. The documents incorporated herein by reference that are
filed by the Company may be inspected and copied or obtained by mail from the
public reference facilities and the World Wide Web site maintained by the SEC
referred to under "Available Information" above.
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. When
used in this Prospectus, the words "intend," "estimate" and "expect" and
similar expressions are intended to identify forward-looking statements. These
forward-looking statements speak only as of the date hereof. The Company
undertakes no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events or
otherwise. Although management believes, based on the information currently
available to it, that the expectations reflected in such forward-looking
statements are reasonable, there can be no assurance that such expectations
will prove to be correct. Important factors that could cause actual matters to
differ materially from management's expectations ("Cautionary Statements") are
disclosed in this Prospectus, including, without limitation, in conjunction
with the forward-looking statements included or incorporated by reference in
this Prospectus. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by such Cautionary Statements.
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THE COMPANY
Golden State Bancorp Inc. (the "Company") was incorporated under Delaware
law on June 9, 1997 by Glendale Federal Bank, Federal Savings Bank ("Glendale
Federal") for the purpose of becoming the holding company for Glendale
Federal. The Company conducted no business, and had no significant assets or
liabilities, prior to the completion of the holding company formation
transaction in July 1997. At December 31, 1997, Golden State had total
consolidated assets of $16.0 billion, deposits of $9.5 billion and
stockholders' equity of $1.1 billion. The principal executive offices of the
Company are located at 414 North Central Avenue, Glendale, California 91203
and the telephone number of such offices is (818) 500-2000.
Glendale Federal is a federally chartered savings bank and is one of the
largest savings institutions in the United States. Glendale Federal's business
consists primarily of attracting deposits from the general public and using
such deposits, together with the proceeds of borrowings and its stockholders'
equity, to originate and purchase loans, including residential real estate
loans as well as business and consumer banking loans and other products. As of
December 31, 1997, Glendale Federal operated 180 banking offices and 26 loan
offices located throughout the State of California.
RECENT DEVELOPMENTS
CALIFORNIA FEDERAL MERGER
On February 5, 1998, the Company and First Nationwide (Parent) Holdings Inc.
("First Nationwide"), the principal holding company for California Federal
Bank FSB, announced that they had entered into an agreement to merge in a tax-
free exchange of shares (the "Cal Fed Merger"). After giving effect to the Cal
Fed Merger, the resulting company, which will be named California Federal Bank
FSB at the operating level and Golden State Bancorp Inc. at the holding
company level, will be California's largest statewide community bank and,
taking into account other pending mergers in the thrift industry, the fourth
largest depository institution, with a 6.4% statewide deposit market share, as
well as a leading in-state provider of consumer, business and mortgage banking
services. In addition, the combined entity will be the third-largest thrift
institution in the country, with assets in excess of $51 billion and deposits
of $28 billion.
The transaction will take the form of a merger of First Nationwide into the
Company, with the Company being the surviving entity (the "Combined Entity").
The Company's stockholders will initially own 55% to 58% of the fully diluted
common stock of the Combined Entity. The terms and conditions of the Cal Fed
Merger call for the Company's stockholders to own 58% of such stock if the
adjusted volume-weighted average trading price (the "Adjusted Average Price")
of the Common Stock during a period preceding the close of the Cal Fed Merger,
but after the Distribution (the "Pricing Period"), is $32 per share or less,
and to own 55% of such stock if the Adjusted Average Price is $33 per share or
more. For purposes of determining the Adjusted Average Price, the volume-
weighted average trading price of the Common Stock over the Pricing Period
will be adjusted downward by the implied market value per share of Common
Stock of the Company's retained interest in the Litigation, as determined by
the volume-weighted average trading price of the LTW(TM)s during the Pricing
Period. The remainder of the fully diluted common stock of the Combined Entity
will be owned by affiliates of the two principal shareholders of First
Nationwide, who will initially own between 42% and 45% of such stock, before
giving effect to provisions in the merger agreement for the contingent
issuance of additional shares of common stock that could substantially
increase such ownership percentage. In addition, the merger agreement provides
that two-thirds of the directors of the Combined Entity will be designated by
such affiliates.
Because the Company will be the surviving entity in the Cal Fed Merger,
LTW(TM)s outstanding immediately prior to the Cal Fed Merger will remain
outstanding and will continue to be exercisable into shares of Common Stock
should the Triggering Event described herein occur after the Cal Fed Merger.
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The Cal Fed Merger requires regulatory approval and the approval of the
stockholders of the Company. A proxy statement with respect to the approval of
the Cal Federal Merger by the Company's stockholders is expected to be mailed
to the holders of the Company's Common Stock during July 1998. The
consummation of the Cal Fed Merger is also subject to other closing
conditions. The Cal Fed Merger is expected to be completed in the September
1998 quarter.
ACQUISITION OF CENFED
Golden State acquired CENFED Financial Corporation ("CENFED") on April 21,
1998 pursuant to an Agreement and Plan of Merger entered into between Golden
State and CENFED as of August 17, 1997 (the "CENFED Merger"). CENFED was the
holding company for CenFed Bank, a federally chartered savings bank that had
18 branches in Pasadena and in other locations in Los Angeles, Orange,
Riverside and San Bernardino Counties in southern California. CenFed Bank was
merged into Glendale Federal. The acquisition of CENFED was accounted for as a
purchase. At December 31, 1997, CENFED had total assets of $2.2 billion,
deposits of $1.6 billion and stockholders' equity of $136 million.
REDFED MERGER
On November 30, 1997, Golden State entered into an Agreement and Plan of
Merger (the "RedFed Merger Agreement") providing for the acquisition of RedFed
Bancorp Inc. ("RedFed") through the merger of RedFed with and into a wholly-
owned subsidiary of Golden State (the "RedFed Merger"). Concurrently with or
shortly after completion of the RedFed Merger, RedFed's wholly-owned banking
subsidiary, Redlands Federal Bank, will be merged into Glendale Federal.
Golden State Common Stock will be issued to the stockholders of RedFed in the
RedFed Merger in exchange for their shares of RedFed Common Stock at an
exchange ratio to be derived by dividing $20.75 by the average daily closing
price of Golden State Common Stock, as reported on the New York Stock Exchange
Composite Tape, for the ten trading days on which Golden State Common Stock is
traded immediately preceding the date that is two business days prior to the
effective date of the RedFed Merger. Cash will be paid in lieu of the issuance
of fractional shares. RedFed operates 14 banking offices in Southern
California's Riverside and San Bernardino Counties. At December 31, 1997,
RedFed had total assets of $1.0 billion, deposits of $845 million and
stockholders' equity of $84 million. The transaction, which has been approved
by the OTS, is subject to approval by the RedFed stockholders and satisfaction
or waiver of other conditions, will be accounted for as a purchase business
combination under generally accepted accounting principles. RedFed
stockholders will not be entitled to receive LTW(TM)s in respect of the Golden
State Common Stock they receive in the RedFed Merger.
USE OF PROCEEDS
The net proceeds received by the Company from sales of Common Stock to
holders of the LTW(TM)s upon exercise thereof will be used by the Company for
its general corporate purposes.
MARKET FOR THE COMMON STOCK AND THE LTW(TM)S
The Common Stock is listed on the NYSE and the Pacific Exchange under the
trading symbol of "GSB". The LTW(TM)s are listed on the Nasdaq National Market
under the trading symbol "GSBNZ".
DISTRIBUTION OF LTW(TM)S
The Company has distributed one LTW(TM) for each share of Common Stock
outstanding on the Distribution Record Date. Prior to the Distribution, the
Company took appropriate steps to provide that (i) upon exercise or
conversion, prior to the occurrence of the Triggering Event for the LTW(TM)s,
of the Company's Noncumulative
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Convertible Preferred Stock, Series A (the "Preferred Stock"), its common
stock purchase warrants (the "Five-Year Warrants") issued under the Warrant
Agreement, dated February 23, 1993, by and between the Company and ChaseMellon
Shareholder Services L.L.C. (as successor to Chemical Trust Company of
California), as Warrant Agent, its common stock purchase warrants (the "Seven-
Year Warrants") issued under the Warrant Agreement, dated August 15, 1993, by
and between the Company and ChaseMellon Shareholder Services L.L.C. (as
successor to Chemical Trust Company of California), as Warrant Agent, and its
stock options issued by the Company (the "Stock Options", and together with
the Preferred Stock, the Five-Year Warrants and the Seven-Year Warrants, the
"Convertible Securities"), the holders of such Convertible Securities would
receive the shares of Common Stock underlying the Convertible Securities, plus
a number of LTW(TM)s equal to the number of LTW(TM)s such holders would have
received had such holders exercised or converted such Convertible Securities
immediately prior to the Distribution Record Date and received LTW(TM)s in the
Distribution and (ii) upon the exercise or conversion of Convertible
Securities on or after the Triggering Event, the holders of such Convertible
Securities would receive the 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 LTW(TM)s
and the shares of Common Stock underlying the Convertible Securities
immediately prior to the Triggering Event and (b) then exercised such LTW(TM)s
for the additional shares of Common Stock underlying such LTW(TM)s immediately
after the Triggering Event. In addition, upon the occurrence of the Triggering
Event, the conversion or exercise price of the Convertible Securities would
increase by an amount equal to the aggregate Exercise Price of the number of
LTW(TM)s underlying the Convertible Securities immediately prior to the
Triggering Event. As a consequence of the anti-dilution provision described in
clause (ii) above, the Convertible Securities holders would not be required to
exercise or convert their Convertible Securities during the period that the
LTW(TM)s are exercisable in order to obtain the benefit of the LTW(TM)s
underlying their Convertible Securities.
Based on the number of shares of Common Stock, Preferred Stock, Five-Year
Warrants, Seven-Year Warrants, and Stock Options outstanding on the
Distribution Record Date (taking into account the Common Stock and Stock
Options issued in connection with the CENFED Merger), the number of LTW(TM)s
that have been issued or reserved for issuance in respect of the Company's
security holders on a fully distributed basis is 85,759,465. Of this total,
the holders of the Company's Common Stock of record as of the Distribution
Record Date received approximately 58,690,700 LTW(TM)s and an aggregate of
approximately 27,068,765 LTW(TM)s were reserved as of the Distribution Record
Date for issuance on conversion or exercise of the Company's Convertible
Securities.
THE LITIGATION
The "Litigation" referred to herein is the case against the Government in
the Claims Court captioned Glendale Federal 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 regarding the
calculation of regulatory capital 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 FIRREA, 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 had 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 U.S. Supreme Court (the "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 a decision
is anticipated during the December 1998 quarter. The Bank has presented
evidence on three alternative damages theories in amounts ranging from $900
million to $1.9 billion. The Government denies that the Bank has suffered any
compensable damages.
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Following the Claims Court's entry of judgment, the unsuccessful party in
the case, or both parties, may appeal some or all of the decision to the U.S.
Court of Appeals for the Federal Circuit (the "Federal Circuit"). Following
receipt of the decision of the Federal Circuit, the unsuccessful party may
petition for a rehearing en banc by such Court of Appeals. If such a request
for rehearing is denied, the proceedings in the Federal Circuit are expected
to take approximately one year from the date of the Claims Court's decision on
damages, and could take longer. Appeal from the final decision of the Federal
Circuit would be to the Supreme Court, although the Supreme Court could
determine in its sole discretion not to hear the case.
There can be no assurance as to the amount or the timing of receipt of any
damage award should such an award be obtained.
Further information concerning the Litigation is contained in the documents
filed with the SEC that are incorporated herein by reference and the Company
anticipates that additional such information will, to the extent feasible, be
included in future filings with the SEC that will also be incorporated by
reference herein. The Company's ability to disclose details of the Litigation
on a regular basis may be limited, however, by the inherent nature and rules
of judicial proceedings, including, among other things, proceedings and
filings that are sealed by the court, matters involving attorney-client
privilege and proceedings that are conducted on a confidential basis by
agreement of the parties, such as settlement negotiations.
DESCRIPTION OF LTW(TM)S
GENERAL
The LTW(TM)s are issued pursuant to a warrant agreement (the "Warrant
Agreement") between the Company and ChaseMellon Shareholder Services, L.L.C.,
as warrant agent (the "Warrant Agent"). The following summary of certain
material provisions of the Warrant Agreement and the LTW(TM)s does not purport
to be complete and is qualified in its entirety by reference to the Warrant
Agreement and the LTW(TM)s, including the definitions therein of certain
terms.
The LTW(TM)s, in the aggregate, will, upon exercise, entitle the LTW(TM)
Holders to purchase shares of Common Stock (the "Warrant Shares") with an
Adjusted Market Value (as defined herein) equal to the Adjusted Litigation
Recovery, if any. Each LTW(TM) will be exercisable for the number of shares of
Common Stock having an Adjusted Market Value equal to the Adjusted Litigation
Recovery divided by the number of LTW(TM)s issued or reserved for issuance as
of the Distribution Record Date at an exercise price per LTW(TM) equal to the
number of whole shares of Common Stock into which the LTW(TM) is then
exercisable times $1.00 (the "Exercise Price"). Unless exercised, the LTW(TM)s
will automatically expire on the date, which is not subject to extension by
the Company, that is the earlier of (a) 60 days after the date on which the
Exercise Notice is first sent to LTW(TM) Holders or (b) the giving of notice
by the Company to the Warrant Agent that the Litigation has been disposed of
in a manner such that no shares of Common Stock will be issuable under the
terms of the LTW(TM)s (the "Expiration Date").
To determine the number of Warrant Shares for which an LTW(TM) would be
exercisable and the value of such LTW(TM), an LTW(TM) holder can apply the
following formula:
ALR= Adjusted Litigation Recovery
AMV= the Adjusted Market Value of a share of Common Stock
ALTWs= the number of LTW(TM)s issued or reserved for issuance on the
Distribution Record Date (85,759,465)
WS= the number of Warrant Shares
Number of Warrant Shares per LTW(TM) = ALR x 1
--- ---------
AMV ALTW(TM)s
The value of one LTW(TM) = (WS x (AMV + $1.00)) - (WS x $1.00)
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For example, if the Adjusted Market Value of the Common Stock on the
occurrence of the Triggering Event were $30.00 and the Adjusted Litigation
Recovery were $250 million, then the number of Warrant Shares issuable upon
exercise of each LTW(TM) would be 0.0972 and the value per LTW(TM) would be
$2.9151. If, in the same example, the Adjusted Litigation Recovery were $500
million, then the number of Warrant Shares issuable upon exercise of each
LTW(TM) would be 0.1943 and the value per LTW(TM) would be $5.8303, and if the
Adjusted Litigation Recovery were $1.0 billion, then the number of Warrant
Shares issuable upon exercise of each LTW(TM) would be 0.3887 and the value
per LTW(TM) would be $11.6605. However, if the Adjusted Litigation Recovery
were zero, the LTW(TM)s would be worthless.
The holders of the LTW(TM)s have no right to vote on matters submitted to
the stockholders of the Company and have no right to receive dividends or
other distributions on the Common Stock prior to the exercise of the LTW(TM)s.
The holders of the LTW(TM)s would not be entitled to share in the assets of
the Company in the event of the liquidation, dissolution or winding up of the
Company's affairs.
ADJUSTED LITIGATION RECOVERY
The "Adjusted Litigation Recovery" will equal 85% of the amount obtained
from the following equation: (a) the aggregate amount (the "Payment") of any
cash payment and the Fair Market Value of any property actually received by
the Bank pursuant to a final, nonappealable judgment in or final settlement of
the Litigation (including any post-judgment interest actually received by the
Bank on any payment), minus (b) the sum of the following: (i) the aggregate
expenses incurred previously and hereafter by the Bank in prosecuting the
Litigation and obtaining the Payment, (ii) the aggregate expenses incurred by
the Company in connection with the creation, issuance and trading of the
LTW(TM)s, 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 Payment (the 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 Payment is received (currently
approximately 42%). The expenses contemplated by clauses (i) and (ii) of the
immediately preceding sentence will include, without limitation, that portion
of the costs and expenses contemplated by the Litigation Management Agreement
(as defined herein) that is attributable to the Litigation. The Company's
determination of the amounts to be deducted from the Payment and the amount of
the Adjusted Litigation Recovery will be final, conclusive and binding on the
LTW(TM) Holders.
DETERMINATION OF THE NUMBER OF WARRANT SHARES
At such time, if any, as the Company receives the Payment, the Company shall
determine the Adjusted Market Value of a share of Common Stock on the 30th
calendar day prior to the date on which the Bank receives the total amount of
the Payment (the "Determination Date"). The "Adjusted Market Value" of a share
of Common Stock on the Determination Date will equal the average of the daily
Closing Prices (as defined below) for the thirty consecutive Trading Days
ending on and including the Determination Date, minus $1.00; provided that if
the context in which this defined term is used is with respect to securities
other than shares of Common Stock, then "Adjusted Market Value" means the
average daily Closing Prices of a unit of such securities for the thirty
consecutive Trading Days ending on and including the Determination Date, minus
$1.00; and provided further that if the context in which this defined term is
used is with respect to property other than securities, then "Adjusted Market
Value" means the Fair Market Value of the amount of such property
distributable in respect of one share of Common Stock. The term "Closing
Price" on any day shall mean the closing sale price regular way (with any
relevant due bills attached) on such day, or in case no such sale takes place
on such day, the average of the reported closing bid and asked prices regular
way (with any relevant due bills attached), in each case on the NYSE
Consolidated Tape (or any successor composite tape reporting transactions on
national securities exchanges), or, if the Common Stock is not listed or
admitted to trading on the NYSE, on the principal national securities exchange
on which the Common Stock is listed or admitted to trading (which shall be the
national securities exchange on which the greatest number of shares of Common
Stock has been traded during the five consecutive Trading Days ending on and
including the Determination Date), or, if not listed or admitted to trading on
any national securities exchange, the average of the closing bid and asked
prices regular way (with
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any relevant due bills attached) of the Common Stock on the over-the-counter
market on the day in question as reported by Nasdaq, or a similar generally
accepted reporting service, or if not so available as determined in good faith
by the Board of Directors, on the basis of such relevant factors as it in good
faith considers appropriate. The term "Trading Day" shall mean a day on which
the NYSE or Nasdaq (or any of their successors) is open for the transaction of
business. The aggregate number of Warrant Shares will equal the Adjusted
Litigation Recovery divided by the Adjusted Market Value of a share of Common
Stock on the Determination Date. Each LTW(TM) will be exercisable for the
number of shares of Common Stock (or other securities or property as described
above) having an Adjusted Market Value equal to the Adjusted Litigation
Recovery divided by the number of LTW(TM)s issued or reserved for issuance on
the Distribution Record Date.
EXERCISE OF THE LTW(TM)S
Subject to the procedures established by the Company and described herein,
the LTW(TM) Holders will be entitled to exercise their LTW(TM)s only upon the
occurrence of all of the following: (a) receipt by the Company of the full
Payment, (b) calculation by the Company of the full amount of the Adjusted
Litigation Recovery and (c) receipt by the Company of all regulatory approvals
necessary to issue the Warrant Shares, including the effectiveness of a
registration statement relating to the issuance of such shares under the
Securities Act. The occurrence of the events described in clauses (a) through
(c) is referred to herein as the "Triggering Event." If the Payment is payable
by the Government in installments, the Triggering Event will not occur until
the Bank receives the last installment of the Payment.
Holders of LTW(TM)s 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 Payment in connection with the Litigation
and the date on which the LTW(TM)s become exercisable.
If the Triggering Event occurs, the Company will publicly announce (not more
than 15 calendar days after the occurrence thereof) by means of a press
release and by written notice mailed to each record holder of LTW(TM)s (i)
that the Triggering Event has occurred, (ii) the aggregate number of shares
for which the LTW(TM)s are exercisable, (iii) the number of shares of Common
Stock for which one LTW(TM) is exercisable, (iv) the Exercise Price per
LTW(TM), (v) the manner in which the LTW(TM)s are exercisable and (vi) the
date on which the LTW(TM)s will no longer be exercisable. The LTW(TM)s may be
exercised prior to the Expiration Date by surrendering to the Company the
certificates representing the LTW(TM)s (the "LTW(TM) Certificates"), with the
accompanying form of election to purchase, properly completed and executed,
together with payment of the Exercise Price. Payment of the Exercise Price may
be made in the form of a certified or official bank check or personal check
payable to the order of the Company or by wire transfer of funds to an account
designated by the Company for such purpose. Upon surrender of the LTW(TM)
Certificate and payment of the Exercise Price, the Warrant Agent will deliver
or cause to be delivered, to or upon the written order of such holder, stock
certificates representing the number of whole Warrant Shares or other
securities or property to which such holder is entitled under the LTW(TM)s and
Warrant Agreement, including, without limitation, any cash payable to adjust
for fractional interests in Warrant Shares issuable upon such exercise. If
less than all of the LTW(TM)s evidenced by an LTW(TM) Certificate are
exercised, a new LTW(TM) Certificate will be issued for the remaining number
of LTW(TM)s.
No fractional Warrant Share will be issued upon exercise of the LTW(TM)s. If
more than one Warrant shall be exercised in full at the same time by the same
Holder, the number of full Warrant Shares which shall be issuable upon such
exercise shall be computed on the basis of the aggregate number of Warrant
Shares purchasable pursuant thereto. If any fraction of a Warrant Share would,
except for the foregoing provision, be issuable upon the exercise of any
LTW(TM)s (or specified portion thereof), the LTW(TM) Holder will receive an
amount in cash equal to the sum of the Adjusted Market Value per Warrant Share
and $1.00 multiplied by such fraction, computed to the nearest whole cent.
LTW(TM) Certificates will be issued in global form or registered form as
definitive certificates and no service charge will be made for registration of
transfer or exchange upon surrender of any LTW(TM) Certificate at the office
of the Warrant Agent maintained for that purpose. The Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
LTW(TM) Certificates.
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ADJUSTMENTS
In case of certain reclassifications, redesignations, reorganizations or
changes in the outstanding shares of Common Stock or consolidations or mergers
of the Company or the sale of all or substantially all of the assets of the
Company, each LTW(TM) shall thereafter be exercisable for the right to receive
the kind of shares of stock or other securities or property into which the
Common Stock was converted or for which the Common Stock was exchanged or
which was distributed to the holders of the Common Stock in such transaction
or event, such that each LTW(TM) may be exercised for a number of shares of
such stock or other securities or an amount of property equal to the Adjusted
Litigation Recovery divided by the number of LTW(TM)s issued or reserved for
issuance on the Distribution Record Date (85,759,465) divided by the Adjusted
Market Value of the shares of capital stock or other securities or property
for or into which one share of Common Stock was exchanged or converted as a
result of such event. For example, if the Company were to be acquired for
securities and, upon the occurrence of the Triggering Event, the Adjusted
Market Value of the number of securities that one share of Common Stock was
converted into was $30 and the Adjusted Litigation Recovery was $500 million,
then, upon exercise of an LTW(TM) and the payment of the Exercise Price of
$0.1943, the holder of such LTW(TM) would receive $5.8303 in such securities.
RIGHTS OF LTW(TM) HOLDERS
The Bank will retain sole and exclusive control of the Litigation and will
retain 100% of the proceeds of any recovery from the Litigation. The
Litigation will remain an asset of the Bank and the Bank intends to pursue the
Litigation with the same vigor as it has in the past. The Bank reserves the
right, however, to terminate the Litigation in any manner it deems appropriate
to serve the Bank's best interest. The LTW(TM) Holders will not have any
rights against the Company or the Bank for any decision regarding the conduct
of the Litigation or disposition of the Litigation for an amount less than the
amount it has claimed in damages in the ongoing trial in the Claims Court,
regardless of the effect on the value of the LTW(TM)s. Although the Bank
currently intends to continue prosecuting the Litigation and to seek a cash
recovery in the amount claimed, there can be no assurance that the Bank will
not make a different determination in the future. In connection with
consummation of the Cal Fed Merger, it is expected that the Litigation will be
pursued as contemplated by the Litigation Management Agreement, which is
included in the LTW(TM) Proxy and is an exhibit to the Cal Fed Merger 8-K (the
"Litigation Management Agreement").
All rights of action in respect of the LTW(TM)s will be vested in the
respective registered LTW(TM) Holders; provided, however, that no registered
LTW(TM) Holder will have the right to enforce, institute or maintain any suit,
action or proceeding against the Company to enforce, or otherwise act in
respect of, the LTW(TM)s, unless (a) such registered LTW(TM) Holder has
previously given written notice to the Company of the substance of such
dispute, and registered LTW(TM) Holders of at least 25% in interest of the
issued and outstanding LTW(TM)s have given written notice to the Company of
their support for the institution of such proceedings to resolve such dispute,
(b) written notice of the substance of such dispute and of the support for the
institution of such proceeding by such holders has been provided by the
Company to the Warrant Agent, and (c) the Warrant Agent has not instituted
appropriate proceedings with respect to such dispute within 30 days following
the date of such written notice to the Warrant Agent, it being understood and
intended that no one or more registered LTW(TM) Holders will have the right in
any manner whatsoever to affect, disturb or prejudice the rights of any other
registered LTW(TM) Holders, or to obtain or to seek to obtain priority or
preference over any other LTW(TM) Holders or to enforce any rights of the
LTW(TM) Holders, except in the manner described above for the equal and
ratable benefit of all registered LTW(TM) Holders. Except as described above,
no LTW(TM) Holder will have the right to enforce, institute or maintain any
suit, action or proceedings to enforce, or otherwise act in respect of, the
LTW(TM)s.
The LTW(TM) Holders will have no voting rights, no liquidation preference
and no rights to dividends or other distributions in their capacity as LTW(TM)
Holders.
RESERVATION OF SHARES
In the Warrant Agreement, the Company has covenanted and agreed that it will
use its best efforts to cause to be reserved and kept available out of its
authorized and unissued shares of Common Stock or any shares of
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Common Stock held in its treasury, such number of shares of Common Stock as
will be sufficient to permit the exercise in full of all outstanding LTW(TM)s.
The Company's Certificate of Incorporation was recently amended to increase
the number of shares of Common Stock that the Company is authorized to issue
to 250,000,000, which the Company estimates (based on various assumptions)
will be sufficient to permit the exercise in full of all LTW(TM)s expected to
be outstanding. There can be no assurance, however, that this will be the
case.
If, upon the occurrence of the Triggering Event, the number of shares of
Common Stock authorized but unissued plus the number of shares of Common Stock
held in the Company's treasury is less than the number of shares of Common
Stock necessary to permit the exercise of the LTW(TM)s in full (the number of
shares of Common Stock comprising such deficiency being the "Number of
Shortfall Shares"), then the Company will be required by the terms of the
Warrant Agreement either (i) to the extent permitted by applicable law and any
material agreements then in effect to which the Company is a party, commence a
tender offer for an aggregate number of shares of Common Stock at least equal
to the Number of Shortfall Shares or (ii) call a special meeting of Common
Stockholders for the purpose of increasing the number of authorized shares of
Common Stock in an amount at least equal to the Number of Shortfall Shares. In
such an event, the Expiration Date of the LTW(TM)s will be automatically
extended to 60 days after (a) the date on which the tender offer referred to
in clause (i) is successfully completed or (b) the effective date of the
increase in the number of authorized shares of Common Stock referred to in
clause (ii) above.
The Warrant Agreement provides that shares of Common Stock issued upon
exercise of the LTW(TM)s will, upon such issuance, be fully paid and non-
assessable, free of preemptive rights and free from all taxes, liens, charges
and security interests with respect to the issue thereof.
AMENDMENT
From time to time, the Company and the Warrant Agent, without the consent of
the holders of the LTW(TM)s, may amend or supplement the Warrant Agreement for
certain purposes, including, without limitation, curing defects or
inconsistencies or making any change that does not adversely affect the rights
of any holder. Any amendment or supplement to the Warrant Agreement that has
an adverse effect on the interests of the holders of the LTW(TM)s will require
the written consent of the holders of a majority of the then outstanding
LTW(TM)s. The consent of each holder of the LTW(TM)s affected will be required
for any amendment pursuant to which the Exercise Price would be increased or
the number of Warrant Shares (or other securities or property) purchasable
upon exercise of LTW(TM)s would be decreased (other than pursuant to
adjustments provided for in the Warrant Agreement).
REPORTS
So long as any of the LTW(TM)s remain outstanding, the Company shall cause
copies of its annual report to stockholders and all other documents which are
provided to holders of its Common Stock generally to be filed with the Warrant
Agent and mailed to the holder at their addresses appearing in the register of
LTW(TM)s maintained by the Warrant Agent.
THE WARRANT AGENT
ChaseMellon Shareholder Services, L.L.C. acts as warrant agent for the
LTW(TM)s (the "Warrant Agent"). The Warrant Agent maintains books for
registration and transfer of the LTW(TM)s. The Company and its affiliates may
maintain banking relationships and obtain other services from the Warrant
Agent and its affiliates in the ordinary course of their respective
businesses.
RISK FACTORS REGARDING THE LTW(TM)S
The LTW(TM)s involve a high degree of risk. Such risks include, among
others, the risk of either no recovery in the Litigation or a recovery that is
less than the expenses of the Litigation and the LTW(TM) issuance, in either
of which cases the LTW(TM)s will expire without ever becoming exercisable; the
possible lack of an active trading market for the LTW(TM)s; the possibility
that even if an active trading market does develop, the prices at which
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the LTW(TM)s 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; the fact that
the LTW(TM) Holders will have no right to control the Litigation; and the fact
that the number of shares of Common Stock for which the LTW(TM)s may become
exercisable, if any, will depend upon both the amount of the Adjusted
Litigation Recovery as well as the Adjusted Market Value of the Company's
Common Stock on the Determination Date (as defined herein), neither of which
can be predicted prior to the occurrence of the Triggering Event.
DESCRIPTION OF THE COMMON STOCK
Shares of Common Stock are entitled to share equally in the assets available
for distribution upon liquidation, subject to any prior rights of the holders
of any series of preferred stock then outstanding. Holders of Common Stock are
entitled to receive dividends when, as and if declared by the Board of
Directors of the Company out of assets of the Company legally available for
payment, subject to the superior rights of the holders of any series of
preferred stock that may be issued. Because the Company is a holding company,
the right of the Company to participate in any distribution of the assets of
Glendale Federal or its other subsidiaries is subject to the prior claims of
creditors of Glendale Federal and such other subsidiaries. There are various
legal limitations on the extent to which the Bank may extend credit, pay
dividends or otherwise supply funds to, or engage in transactions with, the
Company. Each share of Common Stock is entitled to one vote, except as to the
cumulation of votes in the election of directors. There are no preemptive or
other rights to subscribe for any shares.
LEGAL OPINIONS
The legality of the Common Stock issuable upon exercise of the LTW(TM)s has
been passed upon for the Company by Mayer, Brown & Platt, Los Angeles,
California.
EXPERTS
The consolidated financial statements of Golden State Bancorp Inc. and
subsidiaries (formerly Glendale Federal Bank, Federal Savings Bank) as of June
30, 1997 and 1996, and for each of the years in the three-year period ended
June 30, 1997, have been incorporated by reference herein in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of such firm as
experts in accounting and auditing.
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