<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (fee required)
For the fiscal year ended December 31, 1998
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (no fee required)
For the Transition Period From ________ To ________
Commission file Number 333-44155
COAST FEDERAL LITIGATION CONTINGENT PAYMENT RIGHTS TRUST
(Exact name of registrant as specified in its charter)
DELAWARE 13-7140975
(State of Incorporation) (I.R.S. Employer Identification No.)
E.A. Delle Donne Corporate Center, Montgomery Building, 1011 Centre Road,
Wilmington, Delaware 19805-1266
(Address of principal executive offices)
Registrant's telephone number, including area code: (302) 636-3300
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Contingent Payment Rights Certificates
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
At March 3, 1999 the aggregate market value of registrant's securities
(consisting solely of the Contingent Payment Rights Certificates (the "CPR
Certificates")) held by nonaffiliates of the registrant, based on the average
bid and asking price of the CPR Certificates on that date of $6.69 per
Certificate, was approximately $138.5 million.
At March 3, 1999 there were 20,703,817 CPR Certificates, no par value,
outstanding.
Documents incorporated by reference:
None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [X]
<PAGE>
Table of Contents
- ------------------------------------------------------------------------------
PART I
Item 1. Business....................................................... 3
Item 2. Properties..................................................... 3
Item 3. Legal Proceedings.............................................. 3
Item 4. Submission of Matters to a Vote of Security Holders............ 3
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters.................................... 3
Item 6. Selected Financial Data........................................ 3
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................. 3
Item 8. Financial Statements and Supplementary Data.................... 10
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................ 14
PART III
Item 10. Directors and Executive Officers of the Registrant............. 15
Item 11. Executive Compensation......................................... 15
Item 12. Security Ownership of Certain Beneficial
Owners and Management.......................................... 15
Item 13. Certain Relationships and Related Transactions................. 15
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................................ 15
2
<PAGE>
PART I
ITEM 1. BUSINESS
The information required by this Item is set forth under Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - General."
ITEM 2. PROPERTIES
The CPR Trust leases an office at 136 South Oak Knoll Avenue, Suite 320,
Pasadena, California 91101.
ITEM 3. LEGAL PROCEEDINGS
The CPR Trust is not a party to any legal proceedings. For a discussion of
Coast Federal Bank, FSB v. The United States, which is the Litigation to which
the Registrant's CPR Certificates relate, see Part II, Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations - The
Litigation."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The CPR Certificates trade on The NASDAQ Stock Market under the symbol CCPRZ.
The CPR Certificates' first year of trading was 1998.
<TABLE>
<CAPTION>
- -----------------------------------
1998
High Low
- -----------------------------------
<S> <C> <C>
First Quarter $16.31 $13.50
Second Quarter 17.13 14.25
Third Quarter 15.31 9.06
Fourth Quarter 10.56 5.00
- -----------------------------------
</TABLE>
As of February 11, 1999, there were approximately 2,972 beneficial owners of the
CPR Certificates. No dividends were declared or paid on the CPR Certificates
in 1998. For a description of the CPR Certificates, see Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - General."
ITEM 6. SELECTED FINANCIAL DATA
See Part II, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Summary Financial Information."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
3
<PAGE>
The following discussion should be read in conjunction with the Registration
Statement on Form S-1 with respect to the CPR Certificates referred to herein
filed by Coast Savings Financial, Inc. ("Coast") with, and declared effective
by, the Securities and Exchange Commission (the "SEC") on January 13, 1998 (SEC
File Number 333-44155).
GENERAL
The Coast Federal Litigation Contingent Payment Rights Trust (the "CPR Trust")
is a statutory business trust created under Delaware law on January 8, 1998. The
CPR Trust was created by Coast in connection with its merger, effected on
February 13, 1998 (the "Merger"), with and into H. F. Ahmanson & Co.
("Ahmanson"), for the purpose of holding the Commitment Agreement entered into
by Ahmanson and the CPR Trust, dated as of February 13, 1998 (the "Commitment").
The Commitment represents Ahmanson's obligation to pay to the CPR Trust an
amount equal to any net after-tax proceeds, as more particularly defined in the
CPR Trust Agreement referred to below (the "Commitment Amount"), that may be
received by Coast's wholly-owned subsidiary, Coast Federal Bank, FSB ("Coast
Federal") (or its successor), from Coast Federal's regulatory capital litigation
claims against the United States government in the case entitled Coast Federal
Bank, FSB v. United States, No. 92-466C (Cl. Ct. filed July 9, 1992) (the
"Litigation"). Subsequent to the merger, Ahmanson merged Coast Federal with and
into Ahmanson's wholly-owned subsidiary, Home Savings of America, FSB ("Home
Savings"), with Home Savings being the successor institution.
Ahmanson merged into Washington Mutual, Inc. ("WAMU") on October 3, 1998, and
Home Savings was thereafter merged into WAMU's wholly-owned subsidiary
Washington Mutual Bank, F.A.
The governing instrument of the CPR Trust is the Amended and Restated
Declaration of Trust, dated as of February 13, 1998 (the "CPR Trust Agreement"),
entered into among Coast, the Litigation Trustees, Bankers Trust Company (the
"Institutional Trustee") and Bankers Trust (Delaware) (the "Delaware Trustee").
Pursuant to the CPR Trust Agreement, the four senior executives of Coast with
knowledge of the facts underlying the Litigation were appointed as "Litigation
Trustees" of the CPR Trust, and were given full authority to make all decisions
on behalf of Coast Federal (and its successors) with respect to the prosecution
and resolution of the Litigation.
The assets of the CPR Trust consist solely of the Commitment and the right to
draw on amounts in the Expense Fund for purposes of funding expenses of the CPR
Trust, including expenses of the Litigation, fees and expenses of the Litigation
Trustees and all administrative expenses. Under the CPR Trust Agreement,
Ahmanson agreed to provide the sum of $19,884,294 (which is equal to $20 million
less expenses related to the Litigation incurred by Coast Federal between
September 1, 1997 and February 13, 1998) (the "Expense Fund") to fund the
Litigation and other expenses of the CPR Trust, which amount is to be reimbursed
to Ahmanson from any proceeds of the Litigation, including any amounts received
in settlement of the Litigation, prior to the payment of any amounts to holders
of the CPR Certificates. The Expense Fund is on deposit in a non-interest
bearing demand deposit account established by Ahmanson in the name of the CPR
Trust.
Within 60 days of the receipt of any Commitment Amount, the CPR Trust is
required under the CPR Agreement to pay such amounts (other than $10 million or
such greater amount as the Litigation Trustees reasonably determine may be
4
<PAGE>
reasonably likely to be required to pay additional expenses or to satisfy the
CPR Trust's indemnification obligations (the "Retained Amount")) less the amount
of any accrued but unpaid expenses payable by the CPR Trust but not covered by
the Expense Fund, to the holders of the CPR Certificates as of a record date to
be set by the Litigation Trustees. The Retained Amount will be retained for a
period of two years, or such longer period as the Litigation Trustees reasonably
determine may be required.
THE LITIGATION
The following description of the Litigation does not purport to be a complete
description of the legal and factual issues presented, the court opinions
rendered or the relevant law, and the description is in all respects qualified
by reference to the documents filed in the Litigation, such opinions and the
relevant law.
On July 9, 1992, Coast Federal commenced litigation entitled Coast Federal Bank,
Federal Savings Bank v. United States, Civil Action Number 92-466C, against the
United States in the U.S. Claims Court (now the U.S. Court of Federal Claims,
the "Claims Court") alleging that the United States is in breach of a contract
with Coast Federal and has unlawfully taken Coast Federal's property without
just compensation or due process of law in violation of the U.S. Constitution.
As further described below, Coast Federal's claims arose from changes, mandated
by the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") and certain regulations promulgated thereunder, with respect to the
rules for computing Coast Federal's regulatory capital.
On April 10, 1987, Coast Federal acquired substantially all of the assets and
liabilities of Central Savings and Loan Association ("Central") from the Federal
Savings and Loan Insurance Corporation (the "FSLIC") in a supervisory
transaction (the "Acquisition") that Coast Federal alleges was induced and
arranged by the FSLIC and the Federal Home Loan Bank Board ("FHLBB"). As part of
the Acquisition, Coast Federal entered into a contract with the FSLIC (the
"Assistance Agreement") under which the FSLIC made a cash contribution to Coast
Federal in the amount of $298.3 million (the "Capital Credit"). In the
Litigation, Coast Federal alleges that the Assistance Agreement and certain
resolutions and a forbearance letter issued by the FHLBB in connection with the
Assistance Agreement each expressly provided that the Capital Credit was to be
treated as a permanent addition to Coast Federal's regulatory capital. Coast
Federal further alleges that such treatment of the Capital Credit for regulatory
capital purposes was essential to inducing Coast Federal to consummate the
Acquisition.
Pursuant to FIRREA, which became effective on August 9, 1989, the FSLIC and the
FHLBB were eliminated and were replaced as the regulators of federally insured
savings institutions by the Office of Thrift Supervision (the "OTS"). In
regulations implementing FIRREA (the "Capital Regulations") and subsequent
actions, the OTS took the position that the Capital Credit should be classified
as supervisory goodwill, as defined in the Capital Regulations, which action
resulted in an immediate exclusion of the Capital Credit from one of the three
measures of Coast Federal's regulatory capital, and effected a five year phase-
out of the Capital Credit from such inclusion in the other two measures.
Coast Federal alleges that FIRREA and the Capital Regulations constituted a
breach by the United States of its contractual commitment regarding the
regulatory capital treatment of the Capital Credit and an unlawful taking of
Coast Federal's property rights in the Capital Credit. Coast Federal seeks
5
<PAGE>
damages for such breach of the alleged contract by the United States.
RELATED CASES
The Litigation is one of a number of cases filed against the federal government
in the Claims Court involving acquisitions of failed savings institutions and
alleging that the changes in regulatory capital calculations brought about by
FIRREA and the Capital Regulations constitute a breach of the contract between
the acquiring institution and the federal government. For purposes of the
administration of such claims, the Claims Court bifurcated the trial proceedings
in the first three of such cases to be heard by it (Winstar Corporation, et al.
v. United States, Docket No. 90-8C; Statesman Savings Holding Corp., et al. v.
United States, Docket No. 90-773C (the "Statesman Case"); and Glendale Federal
Bank v. United States, Docket No. 90-772C (the "Glendale Case"), which cases are
collectively referred to herein as the "Related Cases"). In July 1992, the
Claims Court ruled in favor of the plaintiffs in the Related Cases on the
initial question of liability, finding in each case that the plaintiff had a
contract as alleged with the federal government and that the federal government
is in breach of that contract as a result of the enactment of FIRREA and the
issuance of the Capital Regulations thereunder. The decision of the Claims Court
on liability was appealed by the federal government. After extended appellate
proceedings, culminating in an appeal to the Supreme Court, the Supreme Court
ruled in favor of the plaintiffs in the Related Cases in United States v.
Winstar Corp., et al., 518 U.S. 839 (1996) (the "Winstar Case").
Post-trial arguments in the Glendale Case on the issue of damages resulting from
the United States' breach of contract occurred in September 1998 and the Judge
in that case has designated April 9, 1999, as the date that he anticipates
releasing his ruling on damages. The trial of the Statesman Case commenced in
May of 1998, but the government and the plaintiffs in that case reached a
settlement prior to completion of the trial.
In an attempt to manage the numerous cases against the federal government
involving the calculation of regulatory capital as a result of the adoption of
FIRREA (all such cases being referred to herein as the "Regulatory Capital
Cases"), twelve cases were designated as priority cases (the "Priority Cases")
which will be the first cases to go to trial following the trial on damages in
the Glendale Case. Closing arguments in the first of the Priority Cases to go to
trial, California Federal Bank v. the United States, Docket No. 92-138C (the
"CalFed Case"), took place on March 3, 1999. The Judge in the CalFed Case has
not indicated when he will conclude and file his opinion. Another Priority Case,
LaSalle Talman Bank, FSB v. the United States, Docket No. 92-652C ("LaSalle
Talman Case"), is currently in trial. The Litigation is scheduled to be among
the first group of thirty cases to go to trial following completion of trial in
each of the Priority Cases.
LIABILITY
The Claims Court stayed proceedings in each of the other cases against the
federal government, including the Litigation, pending the outcome of
the liability phase of the Related Cases. Subsequent to the Supreme Court's
decision in the Winstar Case in July of 1996, such stay was lifted and Coast
reinstated its motion for partial summary judgment as to the federal
government's liability, which had been pending since March of 1993. On February
20, 1998, the United States filed its response to Coast Federal's motion. In its
response, the Government stated that "at this point, entry of an order regarding
the Government's liability would be appropriate. We believe that such an order
6
<PAGE>
should reflect the Government's concession that a contract existed with respect
to Coast's claim for a capital credit to its net worth, and that the Government
acted inconsistently with the contract." On March 23, 1998, Chief Judge Loren
A. Smith entered an order in the Litigation granting Coast Federal's motion for
partial summary judgment as to liability with respect to Coast Federal's
claim for a capital credit to its net worth.
DAMAGES
Although Coast Federal has conducted preliminary reviews of the damages it
believes it suffered as a result of the government's actions, Coast has not made
a final determination regarding the amount or type of such damages it will seek
to recover. Each savings institution affected by FIRREA's and the Capital
Regulations' limitation on the inclusion in regulatory capital of supervisory
goodwill or FSLIC capital contributions reacted to the resulting reduction in
their regulatory capital in an individual fashion dictated by the unique facts
and circumstances faced by the institution. Accordingly, the extent and amount
of damages awarded to each such institution that has brought an action against
the federal government is expected to be fact-specific. Even if the plaintiffs
in the Related Cases are successful in securing damage awards, there can be no
assurance that Coast Federal will obtain a damage award.
In response to the federal government's request, Coast Federal agreed to
participate in the alternative dispute resolution process (the "ADR Process")
established by Judge Smith in his order dated March 3, 1998, with respect to the
Regulatory Capital Cases. However, by Order dated October 22, 1998, Judge
Margolis, the Claims Court Judge appointed to implement the ADR Process,
released the parties to the Litigation from further participation in the ADR
Process following the communication by the parties to Judge Margolis of their
mutual agreement that such participation was not likely to be fruitful.
The United States has argued in the Glendale Case and the Priority Cases that
have gone to trial, the CalFed Case and the LaSalle Talman Case, that some or
all of the damages alleged by the plaintiffs in those case are too speculative
to permit a recovery. Any trial of Coast Federal's damage claims will likely
occur after the trial court rulings on damages in those cases have been
released. In addition, the remaining Priority Cases are scheduled for trial
before the damages phase of Coast Federal's case is likely to go to trial, and
rulings in those cases may occur before trial of Coast Federal's damage claims.
Appeals are likely of judgments in the Glendale Case and the Priority Cases to
the United States Courts of Appeals for the Second Circuit, and any decisions
reached by the Court of Appeals in those cases could affect Coast Federal's
damage claims. For these and related reasons, there can be no assurance as to
the type or amount, if any, of damages that Coast Federal may recover. Without
limiting the generality of the foregoing, there can be no assurance that Coast
Federal will obtain any monetary or other recovery in the Litigation.
MANAGEMENT OF THE LITIGATION
The Litigation Trustees are Ray Martin, Robert L. Hunt II, Norman H. Raiden and
James F. Barritt, who at the time of the Merger were the four senior Coast
executives with knowledge of the facts underlying the Litigation. Mr. Martin,
Mr. Hunt and Mr. Barritt were officers of Coast and Coast Federal both at the
time of the agreement with the federal government (to treat certain amounts as a
permanent addition to Coast Federal's regulatory capital) in connection with
Coast Federal's acquisition of Central Savings and Loan Association, and also at
the time of the alleged breach of this agreement by the federal government,
which gave rise to the claims underlying the Litigation. Mr. Martin, Mr. Hunt
and Mr. Barritt, together with Mr. Raiden (who joined Coast soon after the
7
<PAGE>
alleged breach of the agreement by the federal government), had been involved in
the prosecution of the Litigation prior to the Merger.
Mr. Martin is 63 years old and prior to the Merger served as Chairman of the
Board, Chief Executive Officer and Director of Coast and Coast Federal. Mr. Hunt
is 48 years old and prior to the Merger served as Director, President and Chief
Operating Officer of Coast and Coast Federal. Mr. Raiden is 66 years old and
prior to the Merger served as Senior Executive Vice President of Coast and Coast
Federal and General Counsel of Coast, and until December 3, 1997, served as
General Counsel of Coast Federal. Mr. Barritt is 40 years old and prior to the
Merger served as Senior Executive Vice President and Chief Financial Officer of
Coast and Coast Federal.
Pursuant to the CPR Trust Agreement, the Litigation Trustees have sole and
exclusive right to instruct Coast Federal and its successors with respect to the
prosecution of the Litigation (including all decisions as to retention,
dismissal and the terms of engagement of existing or new counsel for Coast
Federal, which retention may involve fees that are partly contingent, and other
advisors). The CPR Trust Agreement also provides that the Litigation Trustees
have the right, in their sole discretion, to instruct Coast Federal and its
successors to dismiss, settle or cease prosecution of the Litigation at any time
and on any terms; Ahmanson, including any successor, is required by the CPR
Trust Agreement to cause Coast Federal and its successors to follow such
instructions from the Litigation Trustees other than instructions that are not
reasonable.
The Litigation Trustees have entered into a letter agreement with the law firm
which has prosecuted the Litigation to date, Cooper, Carvin & Rosenthal, LLP
(the "Firm"), dated February 13, 1998 (the "Letter Agreement"), pursuant to
which the Firm agrees that it will not bill Coast Federal or the CPR Trust for
any fees incurred subsequent to September 1, 1997 in excess of $7,650,000 (the
"Cap"). In addition, up to $2 million of the Cap, i.e., any amounts over
$5,650,000, will only be payable to the Firm out of the Commitment Amount, if
any, when received by the CPR Trust from Ahmanson. In consideration of such
limitations on the Firm's customary charges for professional services, the
Letter Agreement provides that the CPR Trust will pay to the Firm, in addition
to the Cap, a contingent incentive fee in the amount of one percent (1%) of the
Commitment Amount, provided that no such incentive fee shall be payable in the
events (1) that both Charles J. Cooper and Steven S. Rosenthal shall cease to be
partners of the Firm prior to a final decision, including appeals, or other
final resolution of the Litigation, or (2) that either Mr. Cooper or Mr.
Rosenthal shall cease to be a partner of the Firm prior to a final decision,
including any appeals, or other final resolution of the Litigation, other than
by death, disability, or appointment to federal office.
The CPR Trust Agreement provides that as compensation the CPR Trust will pay
each Litigation Trustee, during the term of his service as a Litigation Trustee,
fees of $400,000 per year for five years (except that if the Litigation is
sooner terminated, the remainder of such fees (but in no event with respect to a
period longer than the remainder of such year plus two additional years) will be
accelerated upon final resolution of the Litigation and receipt by Ahmanson of
the Litigation Proceeds), plus reimbursement of all reasonable out-of-
pocket expenses. If the services of the Litigation Trustees continue to be
necessary after the initial five-year period or such receipt of Litigation
Proceeds, the Litigation Trustees shall be entitled to a fee of $200 per hour
until termination of the CPR Trust. Pursuant to the CPR Trust Agreement, each
Litigation Trustee may, but is not obligated to, defer all or part of his
8
<PAGE>
compensation until 30 days after the earliest to occur of (i) the date on which
he elected to defer such compensation, (ii) the date he ceases to be a
Litigation Trustee, and (iii) the date of the receipt of the Commitment Amount
in full by the CPR Trust. Any Litigation Trustee electing to so defer will
receive the compensation he would have received plus an amount, calculated on a
monthly basis during the period of deferral (and included in the amount
deferred), equal to the product of the monthly balance of the amount deferred
and an annual rate equal to the Reference Rate, as defined in the CPR Trust
Agreement, plus 250 basis points. For the year ending December 31, 1998, Mr.
Martin, Mr. Hunt, Mr. Barritt and Mr. Raiden elected to defer one-half of their
1998 compensation.
SUMMARY FINANCIAL INFORMATION
The CPR Trust has no revenues. The Expense Fund is the CPR Trust's only source
of funding for the payment of the expenses of its operations. Following is a
statement that details the activity in the Expense Fund, and expenses that have
been accrued but not yet paid for the three months ended December 31, 1998, and
for the period February 13, 1998 (the date of commencement of operations of the
CPR Trust) through December 31, 1998, as well as the balance of the Expense Fund
that was available to cover future expenses as of December 31, 1998.
<TABLE>
<CAPTION>
For the Period
For the Three February 13, 1998
Months Ended Through
December 31, 1998 December 31, 1998
------------------ ------------------
<S> <C> <C>
Initial deposit by Ahmanson $19,884,294
Expense Fund balance available for future
Expenses as of September 30, 1998 $17,088,676
Disbursements:
Litigation Trustee fees (200,000) (633,333)
Litigation and trust administration (64,999) (205,832)
Outside legal counsel and expert witness fees (354,026) (734,234)
Premises and equipment (12,900) (118,122)
Insurance - (1,003,249)
Office and other expenses (37,915) (63,305)
-----------
Expense Fund balance as of
December 31, 1998 17,126,219
Accrued expenses:
Deferred Litigation Trustee fees (200,000) (700,000)
Accrued Litigation Trustee fees - (66,667)
Accrued litigation and trust
administration fees - (21,667)
Decrease (increase) in accrual for outside
legal counsel and expert witness fees (21,800) (121,800)
Accrued interest on deferred Litigation
Trustee fees (16,975) (36,024)
----------- -----------
Expense Fund balance available
for future expenses as of
December 31, 1998 $16,180,061 $16,180,061
=========== ===========
</TABLE>
In addition, $165,274 of expense was accrued through December 31, 1998, for
interest payable to Ahmanson or its successor on disbursements from the Expense
Fund. Payment of such accrued interest payable is contingent upon receipt of
sufficient Litigation Proceeds.
9
<PAGE>
Expenses for "Litigation and trust administration" refer to fees paid to
threeindividuals retained by the CPR Trust to provide litigation and trust
administration support services. The disbursement for insurance includes
$1 million for a single premium policy of indemnity insurance for the life of
the CPR Trust.
The amounts in the Expense Fund will be applied to a variety of expenses,
including the costs of prosecuting the Litigation (including the fees and
expenses of counsel, experts, support staff and consultants), compensation of
the Institutional Trustee, the Delaware Trustee and the Litigation Trustees, the
CPR Trust's indemnification obligations, liability insurance for the CPR Trust's
indemnification obligations and any liabilities of the Litigation Trustees. To
the extent that Coast Federal and its successors must engage in protracted
litigation, such fees and expenses may increase significantly, and there can be
no assurance that the Expense Fund will be sufficient to cover such fees and
expenses.
The CPR Trust may issue additional CPR Certificates that represent pro rata
interests in the assets of the CPR Trust in order to pay expenses. However, it
may not be possible to obtain purchasers of the additional CPR Certificates and
there is no assurance that the terms of any such purchases would be reasonable.
In the event additional CPR Certificates are issued and existing CPR Certificate
holders are not given the opportunity to purchase, or do not purchase, a pro
rata amount in such issuance, such CPR Certificate holders' indirect interest in
the Payment Amount will be diluted. The CPR Trust will be authorized to borrow
additional funds for the sole purpose of funding expenses of the CPR Trust, but
only if such borrowings represent debt of the CPR Trust (and not ownership
interests therein) for federal income tax purposes. Furthermore, it may not be
possible for the CPR Trust to borrow funds and, if it is able to borrow funds,
there can be no assurance as to the terms upon which such borrowings may be
available.
CERTIFICATEHOLDER INQUIRIES
Certificateholder inquiries, including requests for the following: (i) change of
address; (ii) replacement of lost stock certificates; (iii) Common Stock name
registration changes; (iv) Quarterly Reports on Form 10-Q; (v) Annual Reports on
Form 10-K; (vi) proxy material; and (vii) information regarding stockholdings,
should be directed to:
Bankers Trust Company
Four Albany Street, MS5041
New York, New York 10006
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report
The Trustees
Coast Federal Litigation Contingent Payment Rights Trust:
We have audited the accompanying statement of financial condition of Coast
Federal Litigation Contingent Payment Rights Trust as of December 31, 1998 and
the related statements of operations, changes in certificateholders' equity and
cash flows for the period February 13, 1998 (commencement of operations) through
December 31, 1998. These financial statements are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Coast Federal Litigation
Contingent Payment Rights Trust as of December 31, 1998 and the results of its
operations and its cash flows for the period February 13, 1998 (commencement of
operations) through December 31, 1998 in conformity with generally accepted
accounting principles.
KPMG LLP
Los Angeles, California
March 4, 1999
10
<PAGE>
COAST FEDERAL LITIGATION CONTINGENT PAYMENT RIGHTS TRUST
Statement of Financial Condition
December 31, 1998
<TABLE>
<S> <C>
ASSETS
Cash in bank $17,126,219
Other assets 839,996
-----------
Total Assets $17,966,215
===========
LIABILITIES AND CERTIFICATEHOLDERS' EQUITY
Expense fund $19,884,294
Deferred trustee fees 700,000
Other liabilities 411,432
-----------
Total Liabilities 20,995,726
-----------
Certificateholders' Equity
Certificates, no par value, 20,703,817
authorized, issued and outstanding -
Accumulated deficit (3,029,511)
-----------
Total Certificateholders' Equity (3,029,511)
-----------
$17,966,215
===========
</TABLE>
See accompanying notes to financial statements.
COAST FEDERAL LITIGATION CONTINGENT PAYMENT RIGHTS TRUST
Statement of Operations
For the Period February 13, 1998 (Commencement of Operations)
through December 31, 1998
<TABLE>
<S> <C>
REVENUE $ -
-----------
EXPENSES
Trustee fees (1,400,000)
Legal fees (661,096)
Litigation consulting - expert witnesses (194,938)
Litigation and trust administration (227,500)
Interest expense (201,298)
Premises and equipment (113,622)
Insurance (167,752)
Other (63,305)
-----------
Total Expenses (3,029,511)
-----------
Net Loss $(3,029,511)
===========
Net Loss Per Certificate $ (0.15)
===========
</TABLE>
See accompanying notes to financial statements.
COAST FEDERAL LITIGATION CONTINGENT PAYMENT RIGHTS TRUST
Statement of Certificateholders' Equity
For the Period February 13, 1998 (Commencement of Operations)
through December 31, 1998
<TABLE>
<CAPTION>
Total
Accumulated Certificateholders'
Certificates Deficit Equity
------------ ---------- ----------------------
<S> <C> <C> <C>
Balance February 13, 1998 $ - $ - $ -
Net loss - (3,029,511) (3,029,511)
-------- ----------- -----------
Balance December 31, 1998 $ - $(3,029,511) $(3,029,511)
======== =========== ===========
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
COAST FEDERAL LITIGATION CONTINGENT PAYMENT RIGHTS TRUST
Statement of Cash Flows
For the Period February 13, 1998 (Commencement of Operations)
through December 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $(3,029,511)
-----------
Adjustments to reconcile net loss to cash used in
operating activities:
Increase in other assets (839,996)
Increase in deferred trustee fees 700,000
Increase in other liabilities 411,432
-----------
Total adjustments 271,436
-----------
Net cash used in operating activities (2,758,075)
-----------
Cash flows from financing activities:
Initial deposit into the expense fund 19,884,294
-----------
Net increase in cash 17,126,219
Cash at beginning of period -
----------
Cash at end of period $17,126,219
===========
Supplemental disclosure of cash flow information:
Cash paid during the period February 13, 1998 through
December 31, 1998 for interest $ -
===========
</TABLE>
See accompanying notes to financial statements.
COAST FEDERAL LITIGATION CONTINGENT PAYMENT RIGHTS TRUST
Notes to Financial Statements
December 31, 1998
(A) Summary of Significant Accounting Policies
Principles of Presentation
The Coast Federal Litigation Contingent Payment Rights Trust (the "CPR Trust")
is a statutory business trust created under Delaware law on January 8, 1998. The
CPR Trust was created by Coast in connection with its merger, effected on
February 13, 1998 (the "Merger"), with and into H. F. Ahmanson & Co.
("Ahmanson"), for the purpose of holding the Commitment Agreement entered into
by Ahmanson and the CPR Trust, dated as of February 13, 1998 (the "Commitment").
The Commitment represents Ahmanson's obligation to pay to the CPR Trust an
amount equal to any net after-tax proceeds, as more particularly defined in the
CPR Trust Agreement referred to below (the "Commitment Amount"), that may be
received by Coast's wholly-owned subsidiary, Coast Federal Bank, FSB ("Coast
Federal") (or its successor), from Coast Federal's regulatory capital litigation
claims against the United States government in the case entitled Coast Federal
Bank, FSB v. United States, No. 92-466C (Cl. Ct. filed July 9, 1992) (the
"Litigation"). Subsequent to the Merger, Ahmanson merged Coast Federal with and
into Ahmanson's wholly-owned subsidiary, Home Savings of America, FSB ("Home
Savings"), with Home Savings being the successor institution.
Ahmanson merged into Washington Mutual, Inc. ("WAMU") on October 3, 1998 and
Home Savings was thereafter merged into WAMU's wholly-owned subsidiary
Washington Mutual Bank, F.A.
The governing instrument of the CPR Trust is the Amended and Restated
Declaration of Trust, dated as of February 13, 1998 (the "CPR Trust Agreement"),
entered into among Coast, the Litigation Trustees, Bankers Trust Company (the
"Institutional Trustee") and Bankers Trust (Delaware) (the "Delaware Trustee").
Pursuant to the CPR Trust Agreement, the four senior executives of Coast with
knowledge of the facts underlying the Litigation were appointed as "Litigation
Trustees" of the CPR Trust, and were given full authority to make all decisions
on behalf of Coast Federal (and its successors) with respect to the prosecution
and resolution of the Litigation.
The assets of the CPR Trust consist solely of the Commitment and the right to
draw on amounts in the Expense Fund for purposes of funding expenses of the CPR
Trust, including expenses of the Litigation, fees and expenses of the Litigation
Trustees and all administrative expenses. Under the CPR Trust Agreement,
Ahmanson agreed to provide the sum of $19,884,294 (which is equal to $20 million
less expenses related to the Litigation incurred by Coast Federal between
September 1, 1997 and February 13, 1998) (the "Expense Fund") to fund the
Litigation and other expenses of the CPR Trust, which amount is to be reimbursed
to Ahmanson from any proceeds of the Litigation, including any amounts received
in settlement of the Litigation, prior to the payment of any amounts to holders
of the CPR Certificates. The Expense Fund is on deposit in a non-interest
bearing demand deposit account established by Ahmanson in the name of the CPR
Trust at Home Savings.
12
<PAGE>
COAST FEDERAL LITIGATION CONTINGENT PAYMENT RIGHTS TRUST
Notes to Financial Statements (Continued)
December 31, 1998
Within 60 days of the receipt of any Commitment Amount, the CPR Trust is
required under the CPR Agreement to pay such amounts (other than $10 million or
such greater amount as the Litigation Trustees reasonably determine may be
reasonably likely to be required to pay additional expenses or to satisfy the
CPR Trust's indemnification obligations (the "Retained Amount")) less the amount
of any accrued but unpaid expenses payable by the CPR Trust but not covered by
the Expense Fund, to the holders of the CPR Certificates as of a record date to
be set by the Litigation Trustees. The Retained Amount will be retained for a
period of two years, or such longer period as the Litigation Trustees reasonably
determine may be required.
Cash
For purposes of reporting cash flows, cash includes the Expense Fund described
above.
Fair Value of Financial Instruments
Substantially all of the CPR Trust's financial instruments are carried at fair
value or amounts approximating fair value. Assets, including cash, are carried
at fair value or contracted amounts, which approximate fair value due to the
relatively short term to maturity. Similarly, liabilities, including accounts
payable, are carried at amounts approximating fair value.
Use of Estimates
The Litigation Trustees have made a number of estimates and assumptions relating
to the reporting of assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported amounts of expenses in order to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(B) Other Assets
Other assets, as reported in the accompanying Statement of Financial Condition,
consists primarily of a prepaid insurance premium covering the operations of the
CPR Trust for the life of the CPR Trust. The initial premium totaled
$1,002,596, and is being expensed over five years.
COAST FEDERAL LITIGATION CONTINGENT PAYMENT RIGHTS TRUST
Notes to Financial Statements (Continued)
December 31, 1998
(C) Expense Fund
The initial deposit into the Expense Fund was determined as follows:
Initial provision by Ahmanson $20,000,000
Pre-acquisition expenditures(1) paid by Coast Federal (76,759)
Pre-acquisition expenditures(1) paid by CPR Trust (38,947)
-----------
Initial deposit into the Expense Fund $19,884,294
===========
(1) Pre-acquisition expenditures include Litigation expenses which
were incurred prior to the Merger, whether paid by Coast Federal
or the CPR Trust.
The CPR Trust Agreement provides that interest on disbursements from the Expense
Fund be paid by the CPR Trust out of the Commitment Amount, and that such
interest shall be equal to the Reference Rate, as defined in the CPR Trust
Agreement, plus 250 basis points, compounded quarterly.
(D) Other Liabilities
Other liabilities, as reported in the accompanying Statement of Financial
Condition, consisted of the following as of December 31, 1998:
Accrued interest on deferred Trustee Fees(1) $ 36,024
Accrued interest on Expense Fund disbursements(2) 165,275
Accrued expenses(3) 210,133
----------
$ 411,432
==========
(1) See Note F of Notes to Financial Statements.
(2) See Note C of Notes to Financial Statements.
(3) Includes accrued legal, Trustee and trust administration fees.
(E) Certificateholders' Equity
Certificateholders' equity consists solely of the accumulated deficit generated
from the operations of the CPR Trust. The CPR Trust Certificates have no stated
or par value for financial statement purposes.
13
<PAGE>
COAST FEDERAL LITIGATION CONTINGENT PAYMENT RIGHTS TRUST
Notes to Financial Statements (Continued)
December 31, 1998
(F) Trustee Fees
The CPR Trust Agreement provides that as compensation the CPR Trust will pay
each Litigation Trustee, during the term of his service as a Litigation Trustee,
fees of $400,000 per year for five years (except that if the Litigation is
sooner terminated, the remainder of such fees (but in no event with respect to a
period longer than the remainder of such year plus two additional years) will be
accelerated upon final resolution of the Litigation and receipt by Ahmanson of
the Litigation Proceeds), plus reimbursement of all reasonable out-of-
pocket expenses. If the services of the Litigation Trustees continue to be
necessary after the initial five-year period or such receipt of Litigation
Proceeds, the Litigation Trustees shall be entitled to a fee of $200 per hour
until termination of the CPR Trust. Pursuant to the CPR Trust Agreement, each
Litigation Trustee may, but is not obligated to, defer all or part of his
compensation until 30 days after the earliest to occur of (i) the date on which
he elected to defer such compensation, (ii) the date he ceases to be a
Litigation Trustee, and (iii) the date of the receipt of the Commitment Amount
in full by the CPR Trust. Any Litigation Trustee electing to so defer will
receive the compensation he would have received plus an amount, calculated on a
monthly basis during the period of deferral (and included in the amount
deferred), equal to the product of the monthly balance of the amount deferred
and an annual rate equal to the Reference Rate, as defined in the CPR Trust
Agreement, plus 250 basis points. For the year ending December 31, 1998, each
Litigation Trustee has elected to defer one-half of his 1998 compensation.
(G) Contingent Liabilities
The CPR Trust has no legal actions pending against it.
(H) Leases
The CPR Trust has entered into an operating lease agreement for office space
expiring in February 2003. Future minimum lease payments for the operating
lease at December 31, 1998, were as follows:
<TABLE>
<CAPTION>
Year ended December 31:
<S> <C>
1999 $ 51,600
2000 51,600
2001 51,600
2002 51,600
2003 8,600
--------
$215,000
========
</TABLE>
The CPR Trust incurred lease expenses of $45,580 for the period February
13,1998, through December 31, 1998.
(I) Selected Quarterly Financial Data (Unaudited)
The following is a summary of unaudited quarterly statements of operations for
the period February 13, 1998 (commencement of operations) through December 31,
1998:
<TABLE>
<CAPTION>
February 13 Quarter Ended February 13
through -------------------------------------------------------- through
March 31 June 30 September 30 December 31 December 31
----------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Net loss $ (312,617) $ (790,410) $ (904,411) $ (1,022,072) $ (3,029,511)
Net loss per certificate (0.02) (0.04) (0.05) (0.05) (0.15)
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
14
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Litigation Trustees is set forth under Part II,
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations Management of the Litigation."
ITEM 11. EXECUTIVE COMPENSATION
Information concerning compensation of the Litigation Trustees is set forth
under Part II, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations Management of the Litigation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to the CPR Trust Agreement, each of the Litigation Trustees is
obligated, as a condition of his continuation as a Litigation Trustee, to retain
not less than 50% of the CPR Certificates held by him as of the date of the
Merger, February 13, 1998, until the Litigation Proceeds are received by
Ahmanson or its successor. Transfers by a Litigation Trustee to his family
members or to any trust created for the benefit of his family shall be included
in such 50% calculation for so long as these transferees retain the CPR
Certificates. As of February 13, 1998 and December 31, 1998, Mr. Martin held
135,375 CPR Certificates, Mr. Hunt held 76,353 CPR Certificates, Mr. Raiden held
42,772 CPR Certificates, and Mr. Barritt held 17,561 CPR Certificates. None of
the Litigation Trustees have effected any transactions in the CPR Certificates
since February 13, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report:
1. Index to Financial Statements:
None.
2. Index to Financial Statements Schedules:
None.
3. Exhibits
15
<PAGE>
4.1 Form of Amended and Restated Declaration of Trust of Coast Federal
Litigation Contingent Payment Rights Trust dated February 13,
1998(incorporated by reference to Exhibit 4.1 to the registrant's
Current Report on Form 8-K dated February 19, 1998).
10.1 Form of Commitment entered into between the registrant and H.F.
Ahmanson & Company (incorporated by reference to Exhibit 10.1 to the
registrant's Registration Statement on Form S-4).
10.2 Contingent Fee Agreement with Cooper, Carvin & Rosenthal,LLP dated
February 13, 1998 (incorporated by reference to Exhibit 10.1 to the
registrant's Quarterly Report on Form 10-Q for the period ending March
31, 1998).
27. Financial Data Schedule
Exhibits, except as otherwise indicated above, are filed herewith.
(b) Form 8-K
The Company did not file any Current Report on Form 8-K during the
quarter ended December 31, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 30th day of March
1999.
COAST LITIGATION CONTINGENT PAYMENT RIGHTS TRUST
By:/s/ Ray Martin
--------------
Ray Martin
Litigation Trustee
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on the 30th day of March 1999.
/s/ Ray Martin
- --------------
Ray Martin
Litigation Trustee
/s/ Robert L. Hunt II
- ---------------------
Robert L. Hunt II
Litigation Trustee
/s/ Norman H. Raiden
- --------------------
Norman H. Raiden
Litigation Trustee
/s/ James F. Barritt
- --------------------
James F. Barritt
Litigation Trustee
16
<PAGE>
EXHIBITS ATTACHED WITH THIS FORM 10-K
Exhibit
No. Description
- --------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 17,126,219
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,966,215
<CURRENT-LIABILITIES> 946,157
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (3,029,511)
<TOTAL-LIABILITY-AND-EQUITY> 17,966,215
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,828,213
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 201,298
<INCOME-PRETAX> (3,029,511)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,029,511)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,029,511)
<EPS-PRIMARY> (0.146)
<EPS-DILUTED> (0.146)
</TABLE>
