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FILED PURSUANT TO
RULE 424(b)(3)
REGISTRATION NO. 333-28037
PROSPECTUS
10,863,093 SHARES
GOLDEN STATE BANCORP INC.
COMMON STOCK
This Prospectus relates to shares of the common stock, par value $1.00 per
share (the "Company Common Stock"), of Golden State Bancorp Inc. (the
"Company") that may be issued from time to time upon (i) exercise of the
common stock purchase warrants described herein (the "Seven-Year Warrants")
that were originally issued by Glendale Federal Bank, Federal Savings Bank
("Glendale Federal") and (ii) conversion of the 7 3/4% Convertible
Subordinated Debentures due 2001 described herein (the "GLENFED Debentures")
that were originally issued by GLENFED, Inc., the former holding company for
Glendale Federal. The Company was incorporated under Delaware law by Glendale
Federal for the purpose of becoming the holding company of Glendale Federal
pursuant to the holding company formation transaction (the "Reorganization")
described herein. Upon completion of the Reorganization, the Seven-Year
Warrants became exercisable for, and the GLENFED Debentures became convertible
into, Company Common Stock, rather than common stock of Glendale Federal, in
accordance with their respective original terms, without adjustment.
The Seven-Year Warrants entitle the holders thereof to purchase Company
Common Stock at an exercise price of $12.00 per share, subject to possible
adjustment in certain circumstances. The Seven-Year Warrants will expire, to
the extent not theretofore exercised, on August 21, 2000, and may not be
exercised after that date.
The GLENFED Debentures are convertible into Company Common Stock at the
option of the holders thereof at a conversion price of $706.25, or 1.416
shares of Company Common Stock for each $1,000 of principal amount thereof.
Such conversion privilege may be exercised at any time prior to the March 15,
2001 stated maturity of the GLENFED Debentures.
The Company 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 Company Common Stock received
upon exercise of the Seven-Year Warrants or conversion of the GLENFED
Debentures. 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 COMPANY 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 BANK INSURANCE FUND OR THE SAVINGS
ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT AGENCY.
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The date of this Prospectus is July 24, 1997.
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AVAILABLE INFORMATION
The Company and Glendale Federal are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith file reports and other information with the
Securities and Exchange Commission (the "SEC") and the Office of Thrift
Supervision (the "OTS"), respectively. 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, Thirteenth 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 site
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
Glendale Federal 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.
Glendale Federal's Common Stock was traded on the New York Stock Exchange
(the "NYSE") and the Pacific Exchange prior to the completion of the
Reorganization described herein, and the Common Stock of the Company, as
Glendale Federal's successor pursuant to such Reorganization, is now traded on
such exchanges. Reports and other information concerning Glendale Federal and
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 Company Common Stock issuable upon exercise
of the Seven-Year Warrants and conversion of the GLENFED Debentures 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 BY REFERENCE
The Company, as the successor to Glendale Federal, hereby incorporates by
reference the following documents filed by Glendale Federal pursuant to the
Exchange Act with the OTS under OTS Docket No. 3088 (each of which documents
is filed as an exhibit to the Registration Statement):
(a) Annual Report on Form 10-K for the fiscal year ended June 30, 1996;
(b) Quarterly Reports on Form 10-Q for the fiscal quarters ended
September 30, and December 31, 1996 and March 31, 1997;
(c) Proxy Statement, dated September 20, 1996, for Annual Meeting of
Stockholders held on October 22, 1996;
(d) Proxy Statement, dated June 24, 1997, for Glendale Federal Special
Meeting of Stockholders relating to the Reorganization to be held on July
23, 1997; and
(e) Current Report on Form 8-K, dated July 8, 1997.
All documents filed by Glendale Federal pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act and Section 563d.1 of the rules and
regulations of the OTS and 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.
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
pursuant to the holding company formation transaction (the "Reorganization")
described herein. Upon completion of the Reorganization, Glendale Federal
became a wholly-owned savings bank subsidiary of the Company. The Company
conducted no business, and had no significant assets or liabilities, prior to
the completion of the Reorganization.
Glendale Federal is a federally chartered savings bank and is one of the
largest savings institutions in the United States, with total assets of $15.4
billion at March 31, 1997. 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. Glendale Federal is
headquartered in Glendale, California and, at the date hereof, operated 165
banking offices and 25 loan offices located throughout the State of
California.
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USE OF PROCEEDS
The net proceeds received by the Company from sales of Company Common Stock
to holders of the Seven-Year Warrants upon exercise thereof will be used by
the Company for its general corporate purposes. The Company will not receive
any proceeds upon the conversion of GLENFED Debentures.
THE REORGANIZATION
The Company became the holding company for Glendale Federal pursuant to an
Agreement and Plan of Reorganization (the "Reorganization Agreement"), dated
as of May 28, 1997, entered into among Glendale Federal, the Company and
Glendale Interim Federal Savings Bank ("Interim"). Interim was chartered as an
interim (non-operating) federal savings bank for the sole purpose of effecting
the Reorganization through the merger of Interim with and into Glendale
Federal (the "Merger"), with Glendale Federal being the surviving institution.
At the effective time of the Merger (the "Effective Time"), the following
stock exchanges and issuances took place: (i) all outstanding shares of common
stock, par value $1.00 per share, of Glendale Federal (the "Glendale Federal
Common Stock") not held by a subsidiary of Glendale Federal were exchanged on
a one-for-one basis for shares of Company Common Stock; (ii) the warrants to
purchase shares of Glendale Federal Common Stock previously issued by Glendale
Federal pursuant to the Warrant Agreement by and between Glendale Federal and
Chemical Trust Company of California, dated as of February 23, 1993 (the
"Five-Year Warrants"), became exercisable, in accordance with their terms and
without the necessity of any exchange by the holders thereof, solely to
receive the number of shares of Company Common Stock that equals the number of
shares of Glendale Federal Common Stock for which the Five-Year Warrants were
exercisable immediately prior to the Effective Time; (iii) the Seven-Year
Warrants became exercisable, in accordance with their terms and without the
necessity of any exchange by the holders thereof, solely to purchase the
number of shares of Company Common Stock that equals the number of shares of
Glendale Federal Common Stock for which the Seven-Year Warrants were
exercisable immediately prior to the Effective Time; (iv) the shares of
Noncumulative Preferred Stock, Series E, par value $1.00 per share, of
Glendale Federal (the "Glendale Federal Preferred Stock") were exchanged on a
one-for-one basis for shares of Noncumulative Convertible Preferred Stock,
Series A, par value $1.00 per share, of the Company (the "Company Preferred
Stock"), having substantially the same rights, preferences, privileges and
other terms as the Glendale Federal Preferred Stock; (v) the outstanding
shares of common stock of Interim were exchanged for shares of Glendale
Federal Common Stock and shares of a new series of Noncumulative Preferred
Stock, Series 1997-A, par value $1.00 per share, having substantially the same
rights, preferences, privileges and other terms as the Glendale Federal
Preferred Stock; and (vi) the GLENFED Debentures became convertible, in
accordance with their terms and without the necessity of any exchange by the
holders thereof, solely into Company Common Stock. Stock options granted under
Glendale Federal's existing stock option plan for employees and directors also
became exercisable solely for Company Common Stock. The shares of Company
Common Stock initially held by Glendale Federal were canceled in the Merger.
EFFECT OF REORGANIZATION ON SEVEN-YEAR WARRANTS AND GLENFED DEBENTURES
As a result of the Reorganization (i) the Seven-Year Warrants entitle the
holders thereof solely to purchase the number of shares of Company Common
Stock that equals the number of shares of Glendale Federal Common Stock for
which the Seven-Year Warrants were exercisable immediately prior to the
Effective Time, and on the same terms and conditions and at the same exercise
price, and (ii) the Company assumed all of Glendale Federal's obligations with
respect to the Seven-Year Warrants.
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New warrant certificates were not issued in exchange for the certificates
representing the Seven-Year Warrants that were outstanding immediately prior
to the Effective Time. Chase Mellon Shareholder Services, L.L.C., 400 South
Hope Street, 4th Floor, Los Angeles, California 90071, was the principal
Transfer Agent and Registrar for the Glendale Federal Common Stock and the
Warrant Agent with respect to the Seven-Year Warrants. It will act in the same
capacities for the Company Common Stock and will continue as the Warrant Agent
for the Seven-Year Warrants.
Effective as of the Effective Time of the Reorganization, the GLENFED
Debentures became convertible solely into Company Common Stock, at the same
conversion price at which they were convertible into Glendale Federal Common
Stock immediately prior to the Effective Time, and on the same terms and
conditions. The Company, however, did not assume any of the payment or other
obligations of the issuer of the GLENFED Debentures. New certificates were not
issued in exchange for the certificates representing the GLENFED Debentures
that were outstanding immediately prior to the Effective Time.
MARKET FOR COMPANY COMMON STOCK, SEVEN-YEAR WARRANTS
AND GLENFED DEBENTURES
Glendale Federal Common Stock was listed on the NYSE and the Pacific
Exchange. The Company Common Stock issued in exchange therefor in connection
with the Reorganization, and the shares of Company Common Stock issuable
thereafter upon exercise of the Seven-Year Warrants or conversion of the
GLENFED Debentures, is also approved for such listing by the NYSE and the
Pacific Exchange under the trading symbol of "GSB". The Seven-Year Warrants
will similarly continue to be quoted on the Nasdaq Small Capitalization Market
under the trading symbol "GSBNW".
The GLENFED Debentures are not listed or traded on any exchange or
interdealer quotation system of which the Company is aware.
DESCRIPTION OF SEVEN-YEAR WARRANTS
The Seven-Year Warrants were issued under that certain Warrant Agreement,
dated as of August 15, 1993, originally entered into between Glendale Federal
and Chemical Trust Company of California ("Chemical"), as Warrant Agent.
ChaseMellon Shareholder Services, L.L.C. has succeeded to Chemical's position
as such Warrant Agent. Each Seven-Year Warrant entitled the holder thereof to
purchase one share of Glendale Federal Common Stock for a purchase price of
$12.00 per share payable in cash (the "Exercise Price"), subject to adjustment
as described below. At the Effective Time of the Reorganization, each of the
unexercised Seven-Year Warrants then issued and outstanding became, in
accordance with the original terms of the Seven-Year Warrants, automatically
by operation of law and without necessity of any exchange by the holder
thereof, a warrant to purchase the number of shares of Company Common Stock
that equals the number of shares of Glendale Federal Common Stock for which
such Seven-Year Warrant was exercisable immediately prior to the Effective
Time, on the same terms and conditions and at the same exercise price, and the
Company assumed all of Glendale Federal's obligations with respect to such
Seven-Year Warrants.
Each Seven-Year Warrant became exercisable on August 21, 1994 and will
expire on August 21, 2000. No adjustment will be made for any cash dividends
paid on shares of Company Common Stock issuable upon exercise of the Seven-
Year Warrants. The Seven-Year Warrants may be exercised only for whole shares
of Company Common Stock.
The number of shares of Company Common Stock or other securities issuable
upon exercise of each Seven-Year Warrant and the Exercise Price are subject to
adjustment upon the issuance of a stock dividend to the holders of Company
Common Stock, or a combination, subdivision or reclassification of Company
Common Stock. The Exercise Price is subject to adjustment upon the
distribution by the Company to the holders of Company Common Stock generally
of certain rights to subscribe for Company Common Stock at less than
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current market value, but the number of shares of Company Common Stock or
other securities issuable upon exercise of each Seven-Year Warrant will not be
adjusted proportionately. No adjustment in the Exercise Price or the number of
shares of Company Common Stock issuable upon the exercise of Seven-Year
Warrants of less than 1% will be required to be made; provided, that any such
adjustment not made must be carried forward and taken into account in any
subsequent adjustment determination until cumulative adjustments reach 1%.
Notwithstanding the foregoing, in case of a consolidation, merger, sale or
conveyance of the property of the Company as an entirety or substantially as
an entirety, the holder of each outstanding Seven-Year Warrant shall continue
to have the right to exercise the Seven-Year Warrant for the kind and amount
of shares and other securities and property (including cash) receivable by a
holder of the number of shares of Company Common Stock for which such Seven-
Year Warrant was exercisable immediately prior thereto.
The Warrant Agreement for the Seven-Year Warrants may be amended or
supplemented without the consent of the registered holders of the Seven-Year
Warrants to effect changes that are not inconsistent with the provisions of
the Seven-Year Warrants and that do not adversely affect the interests of the
holders of the Seven-Year Warrants. The Warrant Agreement for the Seven-Year
Warrants may also be amended with the consent of the holders of more than 50%
in number of the Seven-Year Warrants then outstanding; provided, that no such
amendment may modify the terms on which the Seven-Year Warrants are
exercisable or change the percentage of holders of Seven-Year Warrants who
must consent to such amendments.
No holder of Seven-Year Warrants is entitled to vote or receive dividends or
to be deemed for any purpose to be a holder of Company Common Stock or any
other securities of the Company that may at any time be issuable upon the
exercise of the Seven-Year Warrants until the Seven-Year Warrants are properly
exercised as provided in the Warrant Agreement.
DESCRIPTION OF GLENFED DEBENTURES
The GLENFED Debentures are subordinated, unsecured obligations of Glendale
Investment Corporation, a wholly-owned subsidiary of Glendale Federal, that
are currently outstanding in the aggregate principal amount of $10.5 million,
bear interest at 7.75% per annum, mature on March 15, 2001 and are redeemable
at the option of Glendale Investment Corporation at 100% of their principal
amount. The GLENFED Debentures were originally issued by GLENFED Inc., the
former holding company for Glendale Federal, pursuant to an Indenture, dated
as of March 15, 1986, entered into between GLENFED Inc. and Manufacturers
Hanover Trust Company, as Trustee. Chase Manhattan Bank has succeeded to the
position of Manufacturers Hanover Trust Company as such Trustee. The GLENFED
Debentures became obligations solely of Glendale Investment Corporation as a
result of the merger of GLENFED Inc. with and into Glendale Investment
Corporation in connection with the recapitalization of Glendale Federal
completed in August 1993.
Immediately prior to the Effective Time of the Reorganization described
herein, the GLENFED Debentures were convertible into shares of Glendale
Federal Common Stock at the conversion price of $706.25 per share, or 1.416
shares of Glendale Federal Common Stock for each $1,000 of principal amount
thereof. Upon completion of the Reorganization the GLENFED Debentures became
convertible solely into shares of Company Common Stock at such conversion
price and number of shares per $1,000 principal amount thereof. The conversion
price of the GLENFED Debentures will, in accordance with their original terms,
remain subject to adjustment in certain events relating to the Company.
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DESCRIPTION OF COMPANY COMMON STOCK
Each share of Company Common Stock has the same relative rights as, and is
identical in all respects with, each other share of Company Common Stock. Each
share of Company Common Stock entitles the holder thereof to one vote on all
matters upon which stockholders have the right to vote, except that
stockholders of the Company are entitled, upon compliance with applicable
requirements, to cumulate their votes in the election of directors. Subject to
the rights of the holders of the Company Preferred Stock, or any other
preferred stock that may hereafter be issued by the Company, the holders of
Company Common Stock are entitled to dividends when, as and if declared by the
Company's Board of Directors out of funds legally available therefor.
Holders of shares of Company Common Stock are not entitled to preemptive
rights with respect to any shares which may be issued. The Company Common
Stock is not subject to call or redemption and, upon receipt by the Company of
the full purchase price therefor, each share of Company Common Stock will be
fully paid and non-assessable.
In the event of any liquidation or dissolution of the Company, the holders
of the Company Common Stock would be entitled to receive all assets of the
Company remaining available for distribution, after payment or provision for
payment of all debts and liabilities of the Company, except to the extent that
the holders of the Company Preferred Stock, or any other preferred stock that
may hereafter be issued by the Company, then have a priority over the holders
of Company Common Stock in the event of liquidation or dissolution.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following general summary of the material United States federal income
tax consequences of the Reorganization to holders of the Seven-Year Warrants
and the GLENFED Debentures, and of certain additional tax consequence
resulting from the sale, disposition, exercise or expiration of the Seven-Year
Warrants and from the conversion of GLENFED Debentures, is based on the
Internal Revenue Code of 1986, as amended to the date hereof (the "Code"),
administrative pronouncements, judicial decisions and Treasury regulations,
all of which are subject to change, possibly with retroactive effect, which
changes could affect the tax consequences described herein. The summary is
based on the opinion of Mayer, Brown & Platt, counsel to the Company. The
summary only applies to persons who hold Seven-Year Warrants and GLENFED
Debentures as capital assets and does not address tax considerations which may
affect the treatment of certain special status taxpayers such as financial
institutions, broker-dealers, insurance companies, tax-exempt organizations,
investment companies or foreign taxpayers. In addition, this summary does not
address all of the consequences of ownership of the Company Common Stock, the
Seven-Year Warrants or the GLENFED Debentures. Holders should be aware that
the views expressed herein are not binding on the Internal Revenue Service
("IRS") and there can be no assurance that the IRS will not assert contrary
positions. No rulings have been sought from the IRS with respect to the
Reorganization or other matters addressed herein and it is not currently
expected that such rulings will be sought.
THE REORGANIZATION
Effect on Certain Holders of Seven-Year Warrants. Upon completion of the
Reorganization, the holders of the Seven-Year Warrants became entitled,
pursuant to the original terms of the Seven-Year Warrants, to receive Company
Common Stock rather than Glendale Federal Common Stock upon any exercise of
such Warrants. For federal income tax purposes, with respect to holders of
Seven-Year Warrants who acquired their Seven-Year Warrants prior to the
Reorganization, this alteration of rights (an "Alteration") will be deemed to
constitute a current taxable exchange of "old" Seven-Year Warrants for "new"
Seven-Year Warrants if such Alteration constitutes a modification of terms
which results in "new" Seven-Year Warrants that differ materially, either in
kind or extent, from the "old" Seven-Year Warrants.
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The law is unclear as to whether an Alteration with respect to the Seven-
Year Warrants would be treated as a taxable exchange and there is no direct
authority addressing the issue. The principles of Treasury regulations which
address the circumstances in which an alteration of the terms of a debt
instrument constitutes a taxable exchange may provide some guidance as to
whether the Alteration constitutes a taxable exchange. Although those
regulations could imply that the Alteration would be treated as a taxable
exchange, the regulations specifically, by their terms, do not apply to non-
debt instruments such as the Seven-Year Warrants. Prior precedents involving
executory rights, which may be more relevant than the principles of these debt
modification regulations, suggest that the fruition of executory rights
present in the original terms of instruments like the Seven-Year Warrants may
not cause a taxable exchange. Such argument appears most compelling where, as
in the present case, the right is nonelective as to the holder of the
instrument, arises automatically on account of the occurrence of an
independently significant event outside the control of the holder and results
in holders having immediately after the event substantially the same economic
rights (i.e., rights to become equity owners of essentially the same economic
value). However, the promulgation of the aforementioned Treasury regulations
regarding the modification of debt instruments raises doubt regarding the
extent to which these precedents continue to constitute authority for the view
that the Alteration does not constitute a taxable exchange. Holders of Seven-
Year Warrants should be aware that the IRS could on that basis (as well as on
the basis of other precedents) assert, and a court could sustain the
assertion, that the Alteration constitutes a taxable exchange. Mayer, Brown &
Platt has advised the Company that they are not able to render an opinion on
the issue.
If a taxable exchange of Seven-Year Warrants were deemed to occur, a holder
of a Seven-Year Warrant who acquired such Seven-Year Warrant prior to the
Effective Time would be required to recognize capital gain or loss at the
Effective Time equal to the difference between the fair market value of the
"new" Seven-Year Warrant and the holder's adjusted tax basis in the
corresponding "old" Seven-Year Warrant. If a holder of a Seven-Year Warrant
were required to treat the Alteration as a taxable exchange, the holder would
treat the "new" Seven-Year Warrant as having a tax basis equal to the fair
market value of such "new" Seven-Year Warrant and as having a holding period
beginning at the Effective Time. If the Alteration were not treated as a
taxable exchange, a holder of a Seven-Year Warrant would incur no federal
income tax consequences as a result of the Alteration and would have the same
adjusted tax basis and holding period in such Seven-Year Warrant following the
Alteration as it had immediately before the Alteration.
Holders of Seven-Year Warrants should note that the uncertainties discussed
above as to whether the Alteration constitutes a taxable exchange do not apply
to those holders who exercised their Seven-Year Warrants and received Glendale
Federal Common Stock prior to the Reorganization and then, pursuant to the
Reorganization, received Company Common Stock. In such case, the exercise of a
Seven-Year Warrant and the exchange in the Reorganization of the Glendale
Federal Common Stock received upon such exercise for Company Common Stock
would each constitute a tax-free transaction for federal income tax purposes.
Effect on Certain Holders of GLENFED Debentures. Pursuant to the provisions
of Treasury regulations (referred to above) addressing the circumstances in
which an alteration of the terms of a debt instrument constitutes a taxable
exchange, a holder of GLENFED Debentures should not incur any federal income
tax consequences as a result of the Reorganization, and accordingly should
have the same adjusted tax basis and holding period in such holder's GLENFED
Debentures following the Reorganization as the holder had immediately before
the Reorganization.
CERTAIN CONSEQUENCES UNRELATED TO THE REORGANIZATION OF SALE, DISPOSITION,
EXERCISE OR EXPIRATION OF SEVEN-YEAR WARRANTS
In general, upon a sale or other disposition of a Seven-Year Warrant, a
holder would recognize gain or loss measured by the difference between the
amount realized on the sale or other disposition and the holder's tax basis in
the Seven-Year Warrant. In general, such gain or loss would be capital gain or
loss if the Company Common Stock into which the Seven-Year Warrant is
exercisable would be a capital asset in the hands of the holder and would be a
long-term capital gain or loss if the holder's holding period in the Seven-
Year Warrant were greater than one year at the time of the sale or other
disposition.
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A holder would not recognize gain or loss on the exercise of a Seven-Year
Warrant. A holder's tax basis in the Company Common Stock received on the
exercise of a Seven-Year Warrant would be equal to the sum of (i) the holder's
tax basis in the Seven-Year Warrant exercised and (ii) the exercise price
paid. The holding period of the Company Common Stock received on the exercise
of a Seven-Year Warrant would begin on the date of exercise.
If a holder's Seven-Year Warrant expires without being exercised, the holder
would recognize a loss equal to its tax basis in the expired Seven-Year
Warrant. In general, such loss would be a long-term capital loss if the
Company Common Stock issuable on exercise of the Seven-Year Warrant would be a
capital asset in the hands of the holder and the holder's holding period for
such expired Seven-Year Warrant were greater than one year at the time of the
expiration.
CERTAIN CONSEQUENCES UNRELATED TO THE REORGANIZATION OF CONVERSION OF GLENFED
DEBENTURES INTO COMPANY COMMON STOCK
Upon the conversion of GLENFED Debentures into Company Common Stock, the
holder of such GLENFED Debentures would recognize gain or loss measured by the
difference between the fair market value of the Company Common Stock received
on conversion (less the amount, if any, that is properly treated as a payment
of interest) and the holder's tax basis in such GLENFED Debentures. Such gain
or loss would constitute capital gain or loss and would be long-term capital
gain or loss if the holder's holding period in the GLENFED Debentures is
greater than one year at the time of the conversion. Any amount received on
the conversion that is properly treated as interest would be taxable as
ordinary interest income in accordance with the holder's method of accounting.
Upon any such conversion, the holder would have a tax basis in the Company
Common Stock received equal to such fair market value at the time of the
conversion, and the holding period in such Company Common Stock would begin at
the time of the conversion.
EACH HOLDER SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISORS TO DETERMINE THE
SPECIFIC TAX CONSEQUENCES OF THE REORGANIZATION AND THE OWNERSHIP OF SEVEN-
YEAR WARRANTS AND/OR GLENFED DEBENTURES TO SUCH HOLDER.
LEGAL OPINIONS
The legality of the Company Common Stock issuable upon exercise of the
Seven-Year Warrants or conversion of the GLENFED Debentures has been passed
upon for the Company by Mayer, Brown & Platt, Los Angeles, California.
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