<PAGE>
Pursuant to Rule 424(b)(5)
Registration No. 333-34469
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED SEPTEMBER 8, 1997
[LOGO OF THE GAP $500,000,000
APPEARS HERE]
THE GAP, INC.
6.90% NOTES DUE SEPTEMBER 15, 2007
----------------
Interest on the Notes is payable on March 15 and September 15 of each year,
commencing March 15, 1998. The Notes will be redeemable, in whole or in part,
at the option of the Company at any time at a redemption price equal to the
greater of (i) 100% of the principal amount of such Notes or (ii) the sum of
the present values of the remaining scheduled payments of principal and
interest (not including the portion of any such payments of interest accrued
as of the redemption date) discounted to the redemption date on a semiannual
basis (assuming a 360-day year consisting of twelve 30-day months) at the
Adjusted Treasury Rate (as defined herein), plus, in each case, accrued and
unpaid interest thereon to the redemption date. The Notes will not be entitled
to any sinking fund. The Notes will be represented by one or more Global Debt
Securities registered in the name of the nominee of The Depository Trust
Company ("DTC"). Beneficial interest in the Global Debt Securities will be
shown on, and transfers thereof will be effected only through, records
maintained by DTC and its participants. Except as described herein, Notes in
definitive form will not be issued. The Notes will be issued only in
denominations of $1,000 and integral multiples thereof. See "Description of
Notes."
----------------
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 SUPPLEMENT OR
THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE (1) DISCOUNT (2) COMPANY (1)(3)
------------------ ------------ --------------
<S> <C> <C> <C>
Per Note......................... 99.828% 0.650% 99.178%
Total............................ $499,140,000 $3,250,000 $495,890,000
</TABLE>
- --------
(1) Plus accrued interest from September 15, 1997.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting estimated expenses of $540,000 payable by the Company.
----------------
The Notes offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that the
Notes will be ready for delivery in book-entry form only through the
facilities of DTC in New York, New York, on or about September 17, 1997,
against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO. CITICORP SECURITIES, INC.
----------------
The date of this Prospectus Supplement is September 12, 1997.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THE NOTES, AND
THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE OFFERING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-2
<PAGE>
THE COMPANY
GENERAL
The Gap, Inc. (the "Company") is an international specialty retailer of
casual apparel, shoes and other accessories for men, women and children under
its proprietary Gap, GapKids, babyGap, Banana Republic and Old Navy brands. As
of August 2, 1997, the Company operated 1,984 stores in the United States,
Canada, the United Kingdom, France, Germany and Japan.
Over the past ten years, the Company's net sales have grown at a 20.1%
compound annual rate, from $848 million in fiscal 1986 to $5.284 billion in
fiscal 1996. During this period, net income has grown at a 20.9% compound
annual rate, from $68.1 million in fiscal 1986 to $452.9 million in fiscal
1996.
The Company designs virtually all of its products for sale under its brands
in Company-operated stores. These brands and their corresponding store formats
collectively are positioned to address a broad consumer base. The Company
operates the following store formats:
GAP. Founded in 1969, Gap stores offer extensive selections of
classically-styled, high quality, casual apparel at moderate price points.
Products range from wardrobe basics, such as denim, khakis and T-shirts, to
accessories and personal care products for men and women aged teen to
adult. At August 2, 1997, the Company operated 983 Gap stores, including
international locations.
GAPKIDS AND BABYGAP. The Company entered the children's apparel market
with the introduction of GapKids in 1986 and babyGap in 1990. These stores
offer casual basics, outerwear, shoes and other accessories in the
tradition of Gap style and quality for children aged newborn to teen. At
August 2, 1997, the Company operated a total of 536 GapKids and babyGap
stores, including international locations.
BANANA REPUBLIC. Acquired in 1983 with two stores, Banana Republic now
offers sophisticated, fashionable collections of dress-casual and tailored
clothing and accessories for men and women at upscale price points. At
August 2, 1997, the Company operated 240 Banana Republic stores, including
9 in Canada.
OLD NAVY. The Company launched Old Navy in 1993 to address the market for
value-priced family apparel. Old Navy offers broad selections of apparel,
shoes and accessories for adults, children and infants in an innovative,
exciting shopping environment. At August 2, 1997, the Company operated 225
Old Navy stores.
KEY STRATEGIC INITIATIVES
In combination with its core brand, merchandising and operating strategies,
the Company is currently implementing the following four key strategic
initiatives:
REINFORCE BRAND IDENTITIES. The Company believes that its brands are among
its most important assets and is taking action to maintain and strengthen
brand loyalty. To that end, during 1996 and the first half of 1997, the
Company increased its investment in advertising and marketing as a percentage
of sales. The Company is also exploring private label credit cards, additional
flagship stores and further television advertising to complement its in-store
customer service focus. The Company's goal is to expand the reach and
effectiveness of its advertising in order to build its market share and
strengthen its competitive position. The Company also invested in the
development of brand extensions through new product offerings, such as home
accessories and personal care items.
EXPAND DISTRIBUTION. The Company continues to invest in store expansion and
development of new distribution channels to address changing market
requirements. During fiscal 1994, 1995 and 1996, the Company added 483 stores,
net of store closings, and expanded 179 stores. The Company
S-3
<PAGE>
has also added new store formats, including Gap and GapKids combined stores,
large flagship stores, men's/women's-only stores, baby-only stores and airport
locations. The Company is exploring new channels of distribution including
development of catalog and electronic retailing capabilities.
CREATE OPERATIONAL EXCELLENCE. The Company has recently increased its
emphasis on enhancing operational efficiencies and reducing costs in order to
fund incremental growth and brand investment. Initiatives include process
reengineering, vendor partnering and capitalizing on total company size and
business scope.
EXPAND INTERNATIONALLY. The Company believes that foreign markets provide
additional growth opportunities. Gap opened its first foreign store in the
United Kingdom in 1987. Since then, the Company has added 232 stores in five
international markets. At August 2, 1997, the Company operated 113 stores in
Canada, 78 in the United Kingdom, 21 in France, 10 in Germany and 11 in Japan.
In addition, the Company is party to a wholesaling arrangement under which Gap
products are sold in duty-free stores in Hong Kong, Guam, Singapore and New
Zealand.
SOURCING
The Company sources products from over 1,200 suppliers located domestically
and overseas. Of the Company's merchandise sold worldwide during fiscal 1996,
approximately 30% was produced domestically while the remaining 70% was made
outside the United States. Approximately 10% of the Company's total
merchandise was from Hong Kong, with the remainder coming from 47 other
countries.
ADDITIONAL INFORMATION
For additional information regarding the Company, including certain risks,
see "Management's Discussion and Analysis of Financial Condition and Results
of Operations" below, and Item 1 of the Company's Annual Report on Form 10-K
for the fiscal year ended February 1, 1997.
S-4
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Company's 6.90% Notes due September
15, 2007 (the "Notes") will be used for general corporate purposes, including
store expansion, brand investment, development of additional distribution
channels and repurchases of the Company's common stock pursuant to its ongoing
share repurchase program. Pending such uses, the Company will invest the net
proceeds in investment-grade, interest-bearing securities.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of August 2, 1997, and as adjusted to give effect to the sale by
the Company of the Notes offered hereby and the application of the estimated
net proceeds therefrom, as described under "Use of Proceeds":
<TABLE>
<CAPTION>
AS OF AUGUST 2, 1997
------------------------
AS ADJUSTED
ACTUAL FOR OFFERING*
---------- -------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Short-term debt..................................... $ 90,245 $ 90,245
========== ==========
Long-term debt-
6.90% Notes due September 15, 2007................ $ -- $ 500,000
---------- ----------
Total stockholders' equity.......................... 1,559,961 1,559,961
---------- ----------
Total capitalization............................ $1,559,961 $2,059,961
========== ==========
</TABLE>
- --------
* Since the Company has no specific plans as to the timing or amount of stock
repurchases pursuant to its stock repurchase program, no amount has been
allocated to any changes in capitalization from any such stock repurchases.
S-5
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below under the captions
"Operating Results" and "Balance Sheet Data" for, and as of the end of, each
of the years in the five-year period ended February 1, 1997 have been derived
from the audited consolidated financial statements of the Company. The
selected consolidated financial data presented below under the captions
"Operating Results" and "Balance Sheet Data" as of and for the 26 weeks ended
August 2, 1997 and August 3, 1996 have been derived from unaudited interim
condensed consolidated financial information of the Company. In the opinion of
management, the unaudited interim condensed consolidated financial information
has been prepared on the same basis as the audited consolidated financial
statements and includes all adjustments, consisting only of normal recurring
adjustments, necessary to fairly state the information set forth therein. The
results of operations for the 26 weeks ended August 2, 1997 are not
necessarily indicative of the results to be expected for the full fiscal year
or for any future period. This data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" set forth herein and the more detailed information and
consolidated financial statements and notes thereto incorporated by reference
herein and in the accompanying Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 26 WEEKS ENDED
--------------------------------------------------------------- ----------------------
JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 3, FEBRUARY 1,
1993 1994 1995 1996 1997 AUGUST 3, AUGUST 2,
(52 WEEKS) (52 WEEKS) (52 WEEKS) (53 WEEKS) (52 WEEKS) 1996 1997
----------- ----------- ----------- ----------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT SALES PER SQUARE FOOT)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net sales $2,960,409 $3,295,679 $3,722,940 $4,395,253 $5,284,381 $2,233,489 $2,576,407
Cost of goods sold and
occupancy expenses,
excluding depreciation
and amortization....... 1,856,102 1,996,929 2,202,133 2,645,736 3,093,709 1,325,360 1,556,991
Depreciation and
amortization(1)........ 99,451 124,860 148,863 175,719 191,457 94,119 115,221
Operating expenses...... 661,252 748,193 853,524 1,004,396 1,270,138 578,008 664,373
Net interest (income)
expense................ 3,763 809 (10,902) (15,797) (19,450) (7,574) (6,197)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings before income
taxes.................. 339,841 424,888 529,322 585,199 748,527 243,576 246,019
Income taxes............ 129,140 166,464 209,082 231,160 295,668 96,213 92,257
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings............ $ 210,701 $ 258,424 $ 320,240 $ 354,039 $ 452,859 $ 147,363 $ 153,762
========== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA:
Total assets............ $1,379,248 $1,763,117 $2,004,244 $2,343,068 $2,626,927 $2,459,300 $2,576,749
Working capital......... 355,649 494,194 555,827 728,301 554,359 662,407 418,574
Total debt (including
short-term notes
payable)............... 75,000 82,603 2,478 21,815 40,050 67,196 90,245
Stockholders' equity.... 887,839 1,126,475 1,375,232 1,640,473 1,654,470 1,651,409 1,559,961
OTHER DATA:
Comparable store sales
growth (2)............. 5% 1% 1% 0% 5% 9% 0%
Sales per square foot
(3).................... $ 489 $ 463 $ 444 $ 425 $ 441 $ 194 $ 194
Square footage of gross
store space (in
thousands)............. 6,509 7,546 9,166 11,100 12,645 11,805 13,750
Number of:
New stores............. 117 108 172 225 203 90 141
Expanded stores........ 94 130 82 55 42 21 36
Closed stores.......... 26 45 34 53 30 14 11
Stores open at period
end (4)............... 1,307 1,370 1,508 1,680 1,854 1,756 1,984
Capital expenditures
(5)..................... $ 213,659 $ 215,856 $ 236,616 $ 309,599 $ 375,838 $ 151,887 $ 222,159
</TABLE>
- -------
(1) Excludes amortization of restricted stock.
(2) Computed on a 52-week basis for fiscal year ended February 3, 1996.
(3) Based on weighted average gross square footage. Computed on a 52-week
basis for fiscal year ended February 3, 1996.
(4) Includes the conversion of Gapkids departments within Gap stores to their
own separate stores. Converted stores are not classified as new stores.
(5) Represents purchases of gross property and equipment, without construction
allowances, and acquisition of lease rights.
S-6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Prospectus Supplement, the accompanying Prospectus and the information
incorporated therein by reference contain certain forward-looking statements
which reflect the Company's current view with respect to future events and
financial performance. Wherever used, the words "expect," "plan,"
"anticipate," "believe" and similar expressions identify forward-looking
statements.
Any such forward-looking statements are subject to risks and uncertainties
that could cause the Company's actual results of operations to differ
materially from historical results or current expectations. Some of these
risks include, without limitation, ongoing competitive pressures in the
apparel industry, a continuation or exacerbation of the current over-capacity
problem affecting the industry, and/or changes in the level of consumer
spending or preferences in apparel, and other factors that may be described in
the Company's filings with the Securities and Exchange Commission. Future
economic and industry trends that could potentially impact revenue and
profitability remain difficult to predict.
The Company does not undertake to publicly update or revise its forward-
looking statements even if experience or future changes make it clear that any
projected results expressed or implied therein will not be realized.
The following discussion and analysis should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in the Company's Quarterly Report on Form 10-Q for the
quarter ended August 2, 1997 and the Company's Annual Report on Form 10-K for
the year ended February 1, 1997, each of which is incorporated by reference in
the accompanying Prospectus.
RESULTS OF OPERATIONS
FIRST HALF OF FISCAL 1997 AND 1996
NET SALES. The increase in first half of 1997 net sales over the same period
of the prior year was attributable to the increase in retail selling space,
both through the opening of new stores (net of stores closed) and the
expansion of existing stores.
COST OF GOODS SOLD AND OCCUPANCY EXPENSES. For the first half of 1997, cost
of goods sold and occupancy expenses (including depreciation and amortization)
as a percentage of net sales increased to 64.9% from 63.5% for the same period
in 1996. The 1.4 percentage point decrease in gross margin net of occupancy
expenses was attributable to a 1.6 percentage point decrease in merchandise
margins as a percentage of net sales offset by a 0.2 percentage point decrease
in occupancy expenses as a percentage of net sales. The decrease in
merchandise margins as a percentage of net sales resulted from a smaller
percentage of merchandise sold at regular prices compared to the same period
of the prior year. Margin achieved on marked-down goods was also lower in the
first half of 1997 compared to the same period of the prior year. The growth
of the Old Navy division, with lower occupancy expenses when compared to other
divisions, primarily caused the decrease in occupancy expenses as a percentage
of net sales.
The Company reviews its inventory levels in order to identify slow-moving
merchandise and broken assortments (items no longer in stock in a sufficient
range of sizes) and uses markdowns to clear merchandise. Such markdowns may
have an adverse impact on earnings depending upon the extent of the markdowns
and amount of inventory affected.
S-7
<PAGE>
OPERATING EXPENSES. For the first half of 1997, operating expenses as a
percentage of net sales were essentially flat at 25.8% when compared to the
same period in 1996. A 0.7 percentage point increase in advertising/marketing
costs offset a 0.5 percentage point decrease in incentive bonus accruals and
stock-based compensation, and a 0.3 percentage point decrease in charitable
contributions expense. Incentive bonus is accrued quarterly based on year-to-
date performance measured against established targets. The rate of accrual in
the first half of 1997 was lower than that in the same period in 1996. The
decrease in charitable contributions expense represents a beneficial
comparison between 1997 and 1996, as the Company, in 1996, made an additional
contribution to the Gap Foundation.
NET INTEREST INCOME/EXPENSE. Net interest income was approximately $6.2
million for the first half of 1997 compared to net interest income of $7.6
million for the same period in 1996. The change in 1997 from 1996 was due to a
decrease in average investments for the year-to-date period.
INCOME TAXES. The effective tax rate was 37.5% for the first half of 1997
compared to 39.5% for the first half of 1996. The decrease in the effective
tax rate was a result of the impact from tax planning initiatives to support
changing business needs.
FISCAL 1996, 1995 AND 1994
NET SALES. The total net sales growth for 1996, 1995 and 1994 was
attributable to the opening of new stores (net of stores closed), the
expansion of existing stores, and in 1996, an increase in comparable store
sales. During 1995, an additional week of operations compared to 1994
contributed 1% to sales growth.
Net sales per average square foot were $441 in 1996, $425 in 1995, and $444
in 1994. The increase in net sales per average square foot in 1996 compared to
1995 was primarily attributable to increases in comparable store sales aided
by the smaller size of new stores. The decline in net sales per average square
foot in 1995 compared to 1994 was primarily attributable to continued store
growth in the Old Navy division, with lower-priced merchandise and
significantly larger stores, and to increases in the average size of new
stores in other divisions in connection with the Company's store expansion
program. During 1995, the Company increased the average size of its new stores
and expanded existing stores as a long-term investment.
COST OF GOODS SOLD AND OCCUPANCY EXPENSES. Cost of goods sold and occupancy
expenses (including depreciation and amortization) as a percentage of net
sales were 62.2% in 1996, 64.2% in 1995 and 63.2% in 1994.
The 2.0 percentage point increase in gross margin net of occupancy expenses
in 1996 from 1995 was attributable to a 1.2 percentage point increase in
merchandise margin as a percentage of net sales combined with a 0.8 percentage
point decrease in occupancy expenses as a percentage of net sales. The
increase in merchandise margin in 1996 from 1995 was driven by increases in
initial merchandise margin and in the percentage of merchandise sold at
regular price.
The 1.0 percentage point decrease in gross margin net of occupancy expenses
in 1995 from 1994 was attributable to a 1.2 percentage point decrease in
merchandise margin as a percentage of net sales offset by a 0.2 percentage
point decrease in occupancy expenses as a percentage of net sales. The
decrease in merchandise margin in 1995 from 1994 was driven by a decline in
initial merchandise margin in the first three quarters partially offset by
better regular-priced selling in the second half.
The decrease in occupancy expenses as a percentage of net sales between 1996
and 1995 was primarily attributable to the effect of the growth of the Old
Navy division, which carries lower occupancy expenses as a percentage of net
sales when compared to other divisions, and leverage achieved through
comparable store sales growth.
S-8
<PAGE>
The decrease in occupancy expenses as a percentage of net sales between 1995
and 1994 was attributable to leverage obtained from the 53rd week of sales.
Without this extra week, occupancy expenses as a percentage of net sales would
have been essentially flat.
OPERATING EXPENSES. Operating expenses as a percentage of net sales were
24.0% for 1996 and 22.9% for 1995 and 1994.
During 1996, the 1.1 percentage point increase was primarily attributable to
a planned 0.3 percentage point increase in advertising/marketing costs to
support the Company's brands and a 0.5 percentage point increase in incentive
bonus expense. The Company awarded bonuses for 1996 due to strong earnings
performance measured against annual targets.
During 1995, a 0.3 percentage point increase in advertising costs as a
percentage of net sales was offset by a 0.4 percentage point decrease in bonus
expense as a percentage of net sales. Advertising costs increased to support
the Company's brands and included marketing expense related to the opening of
stores in Germany and Japan, and opening of the Old Navy store in Manhattan.
Due to the Company's performance relative to financial targets, less bonus
expense was recognized in 1995 as compared to 1994.
NET INTEREST INCOME. Net interest income was $19.5, $15.8, and $10.9 million
for 1996, 1995 and 1994, respectively. The change in 1996 from 1995 was
primarily attributable to an increase in gross average investments. The change
in 1995 from 1994 was attributable to an increase in income from higher
average interest rates.
INCOME TAXES. The effective tax rate was 39.5% in 1996, 1995 and 1994.
LIQUIDITY AND CAPITAL RESOURCES
The following sets forth certain measures of the Company's liquidity.
<TABLE>
<CAPTION>
26 WEEKS ENDED
-------------------
AUGUST 3, AUGUST 2,
1996 1997
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash provided by operating activities.................... $250,007 $ 48,767
Working capital.......................................... $662,407 $418,574
Current ratio............................................ 2.0:1 1.5:1
</TABLE>
For the 26 weeks ended August 2, 1997, the decrease in cash flows provided
by operating activities was primarily attributable to an increased investment
in inventory and the timing of certain payables and accrued expenses,
including income taxes.
The Company funds inventory expenditures during normal and peak periods
through a combination of cash flows provided by operations and normal trade
credit arrangements. The Company's business follows a seasonal pattern,
peaking over a total of about 10 to 12 weeks during the late summer and
holiday periods.
The Company has committed credit facilities totaling $950 million,
consisting of an $800 million, 364-day revolving credit facility, and a $150
million, 5-year revolving credit facility through June 30, 2002. These
facilities provide for the issuance of up to $450 million in letters of
credit. The Company has additional uncommitted credit of $300 million for the
issuance of letters of credit. At August 2, 1997, the Company had outstanding
letters of credit of approximately $593 million.
S-9
<PAGE>
For the 26 weeks ended August 2, 1997, capital expenditures net of
construction allowances and dispositions, totaled approximately $209 million.
These expenditures included the addition of 141 new stores, the expansion of
36 stores and the remodeling of certain stores, resulting in a net increase in
store space of approximately 1.1 million square feet or 9% since February 1,
1997.
For 1997, the Company expects capital expenditures to total at least $450
million, net of construction allowances, representing the addition of at least
275 new stores, the expansion of at least 75 stores, and the remodeling of
certain stores. Planned expenditures also include amounts for corporate
offices, distribution centers, and equipment. The Company expects to fund such
capital expenditures through a combination of cash flow from operations and
other sources of financing, including the net proceeds from the sale of the
Notes offered hereby. Square footage growth is expected to be approximately
18% before store closings. New stores are generally expected to be leased.
The Company is nearing completion on corporate offices in San Bruno,
California. The cost of completion is included above in the capital
expenditures projected for 1997. The Company continues to explore alternatives
for additional corporate offices in San Francisco and San Bruno, California.
In October 1996, the Board of Directors approved a program under which the
Company may repurchase up to 30 million shares of its outstanding common stock
in the open market over a three-year period. During the second quarter, the
Company acquired 3.5 million shares for approximately $131 million. To date
under this program, 12.0 million shares have been repurchased for
approximately $392 million.
During the second quarter the Company entered into various put option
contracts to repurchase up to 2,000,000 shares of Company stock. The contracts
have exercise prices ranging from $36.77 to $42.67, with expiration dates
ranging from September 1997 through November 1997.
The Company enters into foreign exchange contracts to reduce exposure to
foreign currency exchange risk. These contracts are primarily designated and
effective as hedges of commitments to purchase merchandise. During the second
quarter, the Company entered into interest rate swaps in order to reduce
interest rate risk on a substantial portion of its intended issuance of the
Notes offered hereby.
S-10
<PAGE>
DESCRIPTION OF NOTES
The following information concerning the Notes offered hereby supplements
and should be read in conjunction with the statements in the accompanying
Prospectus under the caption "Description of Debt Securities." Capitalized
terms not otherwise defined herein shall have the meanings given to them in
the accompanying Prospectus.
GENERAL
The Notes will be issued as a series of Debt Securities under the Indenture
dated as of September 1, 1997 (the "Indenture"), between the Company and
Harris Trust Company of California, as Trustee, which is more fully described
in the accompanying Prospectus.
The Notes will be issued as unsecured obligations of the Company in an
aggregate principal amount of $500,000,000 and will mature on September 15,
2007.
The Notes will bear interest from September 15, 1997, payable semi-annually
in arrears on each March 15 and September 15, commencing March 15, 1998, at
the rate set forth on the cover page of this Prospectus Supplement, to the
persons in whose names the Notes are registered on the preceding March 1 and
September 1, respectively.
The principal of and interest and premium (if any) on the Notes will be
payable, the transfer of Notes will be registrable and the Notes may be
presented for exchange, at the office of the Trustee, Harris Trust Company of
California, located at 601 South Figueroa Street, Suite 4900, Los Angeles,
California 90017, attention: Corporate Trust Department. So long as the Notes
are represented by Global Debt Securities, the interest payable on the Notes
will be paid to Cede & Co., the nominee of DTC, or its registered assigns as
the registered owner of the Global Debt Securities, by wire transfer of
immediately available funds on each of the applicable interest payment dates,
not later than 2:30 p.m. Eastern Standard Time. If the Notes are no longer
represented by Global Debt Securities, payment of interest may, at the option
of the Company, be made by check mailed to the address of the Person entitled
thereto. No service charge will be made for any transfer or exchange of Notes,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.
The Notes will be subject to defeasance and covenant defeasance as described
in the accompanying Prospectus under the caption "Description of Debt
Securities--Defeasance of Offered Debt Securities or Certain Covenants in
Certain Circumstances."
No sinking fund is provided for the Notes.
OPTIONAL REDEMPTION
The Notes will be redeemable, in whole or in part, at the option of the
Company at any time at a redemption price equal to the greater of (i) 100% of
the principal amount of such Notes or (ii) the sum of the present values of
the remaining scheduled payments of principal and interest thereon (not
including the portion of any such payments of interest accrued as of the
redemption date) discounted to the redemption date on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Adjusted
Treasury Rate (determined on the third Business Day preceding such redemption
date), plus, in each case, accrued and unpaid interest thereon to the
redemption date.
"Adjusted Treasury Rate" means (i) the arithmetic mean of the yields under
the heading "Week Ending" published in the Statistical Release most recently
published prior to the date of determination under the caption "Treasury
Constant Maturities" for the maturity (rounded to the nearest month)
corresponding to the remaining life to maturity, as of the redemption date, of
the principal being
S-11
<PAGE>
redeemed plus (ii) 0.10%. If no maturity set forth under such heading exactly
corresponds to the maturity of such principal, yields for the two published
maturities most closely corresponding to the maturity of such principal shall
be calculated pursuant to the immediately preceding sentence, and the Adjusted
Treasury Rate shall be interpolated or extrapolated from such yields on a
straight-line basis, rounding in each of the relevant periods to the nearest
month.
"Statistical Release" means the statistical release designated "H.15(519)"
or any successor publication which is published weekly by the Federal Reserve
System and which establishes yields on actively-traded United States
government securities adjusted to constant maturities, or, if such statistical
release is not published at the time of any determination under the terms of
the Notes, then such other reasonably comparable index which shall be
designated by the Company.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of the Notes to be redeemed.
Unless the Company defaults in payment of the redemption price, on and after
the redemption date, interest will cease to accrue on the Notes or portions
thereof called for redemption.
BOOK-ENTRY, DELIVERY AND FORM
The Notes will be represented by Global Debt Securities that will be
deposited with, or on behalf of, DTC, as Depositary, and registered in the
name of Cede & Co., the nominee of DTC.
DTC has advised the Company and the Underwriters as follows: DTC is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities of its participating organizations
("participants") and to facilitate the clearance and settlement of securities
transactions, such as transfers and pledges, among its participants in such
securities through electronic computerized book-entry changes in accounts of
the participants, thereby eliminating the need for physical movement of
securities certificates. Participants include securities brokers and dealers
(including the Underwriters), banks, trust companies, clearing corporations
and certain other organizations, some of whom (and/or their representatives)
own DTC. Access to DTC's book-entry system is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a participant, either directly or indirectly.
Persons who are not participants may beneficially own securities held by DTC
only through participants.
Unless and until they are exchanged in whole or in part for certificated
notes, in definitive form, the Global Debt Securities may not be transferred
except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another nominee of DTC or by DTC or any such nominee to a successor depository
or a nominee of such successor depository.
A further description of DTC's procedures with respect to the Notes is set
forth in the accompanying Prospectus under the heading "Description of Debt
Securities--Global Debt Securities."
S-12
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
and the Pricing Agreement, the Company has agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Goldman,
Sachs & Co. and Citicorp Securities, Inc. are acting as representatives, has
severally agreed to purchase, the principal amount of the Notes set forth
opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
UNDERWRITER OF NOTES
----------- ------------
<S> <C>
Goldman, Sachs & Co............................................ $225,500,000
Citicorp Securities, Inc....................................... 90,000,000
William Blair & Company, L.L.C. ............................... 30,750,000
Credit Suisse First Boston Corporation......................... 30,750,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated............. 30,750,000
Montgomery Securities.......................................... 30,750,000
J.P. Morgan Securities Inc. ................................... 30,750,000
Morgan Stanley & Co. Incorporated.............................. 30,750,000
------------
Total...................................................... $500,000,000
============
</TABLE>
Under the terms and conditions of the Underwriting Agreement and the Pricing
Agreement, the Underwriters are committed to take and pay for all of the
Notes, if any are taken.
The Underwriters propose to offer the Notes in part directly to the public
at the initial public offering price set forth on the cover page of this
Prospectus Supplement and in part to certain securities dealers at such price
less a concession of 0.40% of the principal amount of the Notes. The
Underwriters may allow, and such dealers may reallow, a concession not to
exceed 0.25% of the principal amount of the Notes to certain brokers and
dealers. After the Notes are released for sale to the public, the offering
price and other selling terms may from time to time be varied by the
representatives.
The Notes are a new issue of securities with no established trading market.
The Company has been advised by the representatives of the Underwriters that
the representatives intend to make a market in the Notes but are not obligated
to do so and may discontinue market making at any time without notice. No
assurance can be given as to the liquidity of the trading market for the
Notes.
In connection with the offering, the Underwriters may purchase and sell the
Notes in the open market. These transactions may include over-allotment and
stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Notes; and syndicate short positions involve the
sale by the Underwriters of a greater number of Notes than they are required
to purchase from the Company in the offering. The Underwriters also may impose
a penalty bid, whereby selling concessions allowed to syndicate members or
other broker-dealers in respect of the Notes sold in the offering for their
account may be reclaimed by the syndicate if such Notes are repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Notes, which
may be higher than the price that might otherwise prevail in the open market;
and these activities, if commenced, may be discontinued at any time. These
transactions may be effected in the over-the-counter market or otherwise.
In the ordinary course of business, Goldman, Sachs & Co. and certain
syndicate members have in the past performed, and may in the future perform,
investment banking services for the Company for which they have received, and
may in the future receive, fees or other compensation. Citicorp Securities,
Inc. and its affiliates have engaged and may engage in the future in
transactions with, and perform services for, including commercial banking and
investment banking transactions, the Company and its affiliates in the
ordinary course of business.
S-13
<PAGE>
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
VALIDITY OF THE NOTES
The validity of the Notes offered hereby and certain other legal matters
will be passed upon for the Company by Orrick, Herrington & Sutcliffe LLP, San
Francisco, California. The validity of the Notes offered hereby will be passed
upon for the Underwriters by Sullivan & Cromwell, Los Angeles, California.
S-14
<PAGE>
LOGO $500,000,000
[LOGO OF THE GAP
APPEARS HERE] THE GAP, INC.
DEBT SECURITIES
----------------
The Gap, Inc. (the "Company") from time to time may offer its debt
securities consisting of debentures, notes and/or other unsecured evidences of
indebtedness (the "Debt Securities") in one or more series and in amounts, at
prices and on terms to be determined at the time of the offering. The
principal amount of the Debt Securities offered hereby will not exceed
$500,000,000.
The terms of the Debt Securities, including, where applicable, the specific
designation, aggregate principal amount, denominations, which may include
securities denominated in U.S. dollars, in any other currency or in composite
currencies such as the European Currency Unit, date or dates on which
principal is payable, interest rate or rates (which may be fixed or variable)
and time of payment of interest, if any, terms for redemption at the option of
the Company, terms for any repayment of principal amount at the option of the
holder (which option may be conditional), terms for any sinking fund payments,
the initial public offering price, purchase price and net proceeds to the
Company are set forth in the accompanying Prospectus Supplement. This
Prospectus may not be used to consummate the sale of Debt Securities unless
accompanied by a Prospectus Supplement.
The Company may sell Debt Securities to or through one or more underwriters
for public offering and sale by them or may sell Debt Securities to investors
directly or through agents. The accompanying Prospectus Supplement sets forth
the names of any underwriters or agents involved in the sale of the Debt
Securities in respect of which this Prospectus is being delivered, the
principal amounts, if any, to be purchased by such underwriters and the
compensation, if any, of such underwriters or agents. See "Plan of
Distribution."
----------------
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.
----------------
The date of this Prospectus is September 8, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith file reports, proxy material and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
material and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C., as well as 500 West Madison Street, Suite 1400,
Chicago, Illinois, and 7 World Trade Center, Suite 1300, New York, New York,
and copies can be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission maintains a World Wide Web site that contains reports,
proxy and information statements and other information that are filed through
the Commission's Electronic Data Gathering, Analysis and Retrieval System.
This Web site can be accessed at http://www.sec.gov. Reports, proxy material
and other information concerning the Company can also be inspected at the
offices of the New York and Pacific Stock Exchanges.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(the "Registration Statement") filed by the Company with the Commission under
the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus
and any Prospectus Supplement do not contain all of the information set forth
in such Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Reference is made
to such Registration Statement and to the exhibits relating thereto for
further information with respect to the Company and the Debt Securities. Any
statements contained herein concerning the provisions of any document filed as
an exhibit to the Registration Statement or otherwise filed with the
Commission or incorporated by reference herein are not necessarily complete,
and, in each instance, reference is made to the copy of such document so filed
for a more complete description of the matter involved. Each such statement is
qualified in its entirety by such reference.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, which have been filed with the Commission pursuant
to the Exchange Act, are incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
February 1, 1997; and
(b) The Company's Quarterly Reports on Form 10-Q for the fiscal quarters ended
May 3, 1997 and August 2, 1997.
All other documents filed by the Company pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to
the termination of the offering of the Debt Securities shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained herein or in any
Prospectus Supplement or in a document incorporated or deemed to be
incorporated by reference herein or therein shall be deemed to be modified or
superseded for purposes of this Prospectus and any Prospectus Supplement to
the extent that a statement contained herein or in any other subsequently
filed document which is incorporated or deemed to be incorporated by reference
herein or in any Prospectus Supplement 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 or any
Prospectus Supplement.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the written or oral
request of such person, a copy of any or all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference,
other than exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests for such copies should
be directed to the Company at One Harrison Street, San Francisco, CA 94105,
Attn: Investor Relations; telephone: 1-800-GAP-NEWS.
2
<PAGE>
THE COMPANY
The Company is an international specialty retailer of casual apparel, shoes
and other accessories for men, women and children under its proprietary Gap,
GapKids, babyGap, Banana Republic and Old Navy brands. As of August 2, 1997,
the Company operated 1,984 stores in the United States, Canada, the United
Kingdom, France, Germany and Japan.
Over the past ten years, the Company's net sales have grown at a 20.1%
compound annual rate, from $848 million in fiscal 1986 to $5.284 billion in
fiscal 1996. During this period, net income has grown at a 20.9% compound
annual rate, from $68.1 million in fiscal 1986 to $452.9 million in fiscal
1996.
The Company designs virtually all of its products for sale under its brands
in Company-operated stores. These brands and their corresponding store formats
collectively are positioned to address a broad consumer base. The Company
operates the following store formats:
GAP. Founded in 1969, Gap stores offer extensive selections of
classically-styled, high quality, casual apparel at moderate price points.
Products range from wardrobe basics, such as denim, khakis and T-shirts, to
accessories and personal care products for men and women aged teen to
adult. At August 2, 1997, the Company operated 983 Gap stores, including
international locations.
GAPKIDS AND BABYGAP. The Company entered the children's apparel market
with the introduction of GapKids in 1986 and babyGap in 1990. These stores
offer casual basics, outerwear, shoes and other accessories in the
tradition of Gap style and quality for children aged newborn to teen. At
August 2, 1997, the Company operated a total of 536 GapKids and babyGap
stores, including international locations.
BANANA REPUBLIC. Acquired in 1983 with two stores, Banana Republic now
offers sophisticated, fashionable collections of dress-casual and tailored
clothing and accessories for men and women at upscale price points. At
August 2, 1997, the Company operated 240 Banana Republic stores, including
9 in Canada.
OLD NAVY. The Company launched Old Navy in 1993 to address the market for
value-priced family apparel. Old Navy offers broad selections of apparel,
shoes and accessories for adults, children and infants in an innovative,
exciting shopping environment. At August 2, 1997, the Company operated 225
Old Navy stores.
The Company's executive offices are located at One Harrison Street, San
Francisco, California 94105, and its telephone number is (415) 952-4400.
USE OF PROCEEDS
The net proceeds from the sale of the Debt Securities offered hereby will be
used by the Company as set forth in a Prospectus Supplement relating to such
Debt Securities.
3
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the Company for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 26 WEEKS ENDED
---------------------------------------------------------------------------------
JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 3, FEBRUARY 1, AUGUST 3, AUGUST 2,
1993 1994 1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
3.69 3.81 4.07 3.92 4.18 3.24 2.96
</TABLE>
For purposes of computing the ratios of earnings to fixed charges, earnings
consist of income before taxes plus fixed charges (less capitalized interest),
and fixed charges consist of interest expense, capitalized interest and the
portion of rental expense under operating leases representative of an interest
factor.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities are to be issued under an Indenture (as amended or
supplemented from time to time, the "Indenture") between the Company and
Harris Trust Company of California, as Trustee (the "Trustee"), a copy of
which is filed as an exhibit to the Registration Statement. The statements
herein relating to the Debt Securities and the following summaries of certain
provisions of the Indenture do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all the provisions of the
Indenture, including the definitions therein of certain terms, and the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). Wherever
particular sections or defined terms of the Indenture are referred to in this
Prospectus or in a Prospectus Supplement, such sections or defined terms are
incorporated herein or therein by reference.
The following sets forth certain general terms and provisions of the Debt
Securities offered hereby. The particular terms of the Debt Securities offered
by any Prospectus Supplement (the "Offered Debt Securities") and the extent,
if any, to which such general terms and provisions may not apply to the Debt
Securities so offered will be described in the Prospectus Supplement relating
to such Offered Debt Securities (the "Applicable Prospectus Supplement").
GENERAL
The Indenture does not limit the amount of Debt Securities that may be
issued thereunder and Debt Securities may be issued thereunder from time to
time in one or more series. The Debt Securities will be unsecured and
unsubordinated obligations of the Company and will rank equally and ratably
with other unsecured and unsubordinated obligations of the Company.
Unless otherwise indicated in the Applicable Prospectus Supplement,
principal of, premium, if any, and interest on the Debt Securities will be
payable, and the transfer of Debt Securities will be registrable, at the
office or agency to be maintained by the Company in The City of New York and
at any other office or agency maintained by the Company for such purpose.
(Sections 301, 305 and 1002) The Debt Securities will be issued only in fully
registered form without coupons and, unless otherwise indicated in the
Applicable Prospectus Supplement, in denominations of $1,000 or integral
multiples thereof. (Section 302) No service charge will be made for any
registration of transfer or exchange of the Debt Securities, but the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection therewith. (Section 305)
4
<PAGE>
The Applicable Prospectus Supplement will describe the terms of the Offered
Debt Securities, including: (1) the title of the Offered Debt Securities; (2)
any limit on the aggregate principal amount of the Offered Debt Securities;
(3) the person or entity to whom any interest on the Offered Debt Securities
shall be payable, if other than the person or entity in whose name that
Security (or one or more Predecessor Securities) is registered at the close of
business on the Regular Record Date for such interest; (4) the date or dates
on which the principal of and premium, if any, on the Offered Debt Securities
is payable or the method of determination thereof; (5) the rate or rates at
which the Offered Debt Securities shall bear interest, if any, or the method
of calculating such rate or rates of interest, the date or dates from which
any such interest shall accrue or the method by which such date or dates shall
be determined, the Interest Payment Dates on which any such interest shall be
payable and the Regular Record Date for interest payable on any Interest
Payment Date; (6) the place or places where the principal of, premium, if any,
and interest on the Offered Debt Securities shall be payable; (7) the period
or periods within which, the price or prices at which, the currency or
currencies (including currency units) in which and the other terms and
conditions upon which the Offered Debt Securities may be redeemed, in whole or
in part, at the option of the Company; (8) the obligation, if any, of the
Company to redeem or purchase the Offered Debt Securities pursuant to any
sinking fund or analogous provisions or at the option of a holder thereof and
the period or periods within which, the price or prices at which and the other
terms and conditions upon which the Offered Debt Securities shall be redeemed
or purchased, in whole or in part, pursuant to such obligation; (9) if other
than denominations of $1,000 and any integral multiple thereof, the
denominations in which the Offered Debt Securities shall be issuable; (10) the
currency, currencies or currency units in which payment of the principal of
and any premium and interest on any Offered Debt Securities shall be payable
if other than the currency of the United States of America and the manner of
determining the equivalent thereof in the currency of the United States of
America; (11) if the amount of payments of principal of or any premium or
interest on any Offered Debt Securities may be determined with reference to an
index, formula or other method, the index, formula or other method by which
such amounts shall be determined; (12) if the principal of or any premium or
interest on any Offered Debt Securities is to be payable, at the election of
the Company or a holder thereof, in one or more currencies or currency units
other than that or those in which the Debt Securities are stated to be
payable, the currency, currencies or currency units in which payment of the
principal of and any premium and interest on the Offered Debt Securities as to
which such election is made shall be payable, and the periods within which and
the other terms and conditions upon which such election is to be made; (13) if
other than the principal amount thereof, the portion of the principal amount
of the Offered Debt Securities which shall be payable upon declaration of
acceleration of the maturity thereof or the method by which such portion may
be determined; (14) the applicability of the provisions described under "--
Defeasance of Offered Debt Securities or Certain Covenants in Certain
Circumstances"; (15) if the Offered Debt Securities will be issuable only in
the form of one or more Global Debt Securities as described under " --Global
Debt Securities", the Depositary or its nominee with respect to the Offered
Debt Securities and the circumstances under which the Global Debt Security may
be registered for transfer or exchange or authenticated and delivered in the
name of a person or entity other than the Depositary or its nominee; and (16)
any other terms of the Offered Debt Securities. (Section 301)
Debt Securities may be issued under the Indenture as Original Issue Discount
Debt Securities to be offered and sold at a substantial discount below their
stated principal amount. Special Federal income tax, accounting and other
considerations applicable thereto will be described in the Prospectus
Supplement relating thereto. "Original Issue Discount Debt Security" means any
Debt Security which provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration of the
maturity thereof upon the occurrence and continuance of an Event of Default.
(Section 101)
5
<PAGE>
If the purchase price of any of the Debt Securities is payable in one or
more foreign currencies or currency units, if any Debt Securities are
denominated in one or more foreign currencies or currency units or if the
principal of, premium, if any, or interest, if any, on any Debt Securities is
payable in one or more foreign currencies or currency units, the restrictions,
elections, material U.S. Federal income tax considerations and other
information with respect to such issue of Debt Securities and such foreign
currency or currency units will be set forth in the Applicable Prospectus
Supplement.
If any index is used to determine the amount of payments of principal of,
premium, if any, or interest, if any, on any series of Debt Securities,
material U.S. Federal income tax, accounting and other considerations
applicable thereto will be described in the Applicable Prospectus Supplement.
GLOBAL DEBT SECURITIES
The following description of Global Debt Securities will apply to any series
of Debt Securities except as otherwise provided in the Applicable Prospectus
Supplement.
The Debt Securities of a series may be issued in the form of one or more
Global Debt Securities that will be deposited with or on behalf of a
Depositary, which will be a clearing agent registered under the Exchange Act.
Global Debt Securities will be registered in the name of the Depositary or a
nominee of the Depositary, will be deposited with such Depositary or nominee
or a custodian therefor and will bear a legend regarding the restrictions on
exchanges and registration of transfer thereof and any such other matters as
may be provided for pursuant to the Indenture. Unless and until it is
exchanged in whole or in part for Debt Securities in definitive certificated
form, a Global Debt Security may not be transferred or exchanged except as a
whole by the Depositary for such Global Debt Security to a nominee of such
Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by such Depositary or any such nominee to a
successor Depositary for such series or a nominee of such successor
Depositary, or except in the circumstances described in the Applicable
Prospectus Supplement. (Section 305)
Upon the issuance of any Global Debt Security, and the deposit of such
Global Debt Security with or on behalf of the Depositary for such Global Debt
Security, the Depositary will credit on its book-entry registration and
transfer system the respective principal amounts of the Debt Securities
represented by such Global Debt Security to the accounts of institutions
("participants") that have accounts with the Depositary. The accounts to be
credited will be designated by the underwriters or agents engaging in the
distribution of such Debt Securities or by the Company, if such Debt
Securities are offered and sold directly by the Company. Ownership of
beneficial interests in a Global Debt Security will be limited to participants
or persons that may hold interests through participants. Ownership of
beneficial interests in a Global Debt Security will be shown on, and the
transfer of that ownership will be effected only through, records maintained
by the Depositary for such Global Debt Security or by its nominee. Ownership
of beneficial interests in such Global Debt Security by persons who hold
through participants will be shown on, and the transfer of such beneficial
interests within such participants will be effected only through, records
maintained by such participants. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such laws may impair the ability to transfer beneficial
interests in such a Global Debt Security.
So long as the Depositary for a Global Debt Security, or its nominee, is the
owner of such Global Debt Security, such Depositary or such nominee, as the
case may be, will be considered the sole owner or holder of the Debt Security
represented by such Global Debt Security for all purposes under the Indenture.
Accordingly, each person owning a beneficial interest in such Global Debt
Security must rely on the procedures of the Depositary and, if such person is
not a participant, on the procedures of the participant through which such
person owns its interest, to exercise any rights of a holder under such
Indenture. The Company understands that under existing industry practices, if
it requests any action of holders or if an owner of a beneficial interest in a
Global Debt Security desires to give or take
6
<PAGE>
any instruction or action which a holder is entitled to give or take under the
Indenture, the Depositary would authorize the participants holding the
relevant beneficial interests to give or take such instruction or action, and
such participants would authorize beneficial owners owning through such
participants to give or take such instruction or action or would otherwise act
upon the instructions of beneficial owners holding through them.
Unless otherwise specified in the Applicable Prospectus Supplement, payments
with respect to principal, premium, if any, and interest, if any, on the Debt
Securities represented by a Global Debt Security registered in the name of the
Depositary or its nominee will be made to such Depositary or its nominee, as
the case may be, as the registered owner of such Global Debt Security. The
Company expects that the Depositary for any Debt Securities represented by a
Global Debt Security, upon receipt of any payment of principal or interest in
respect of such Global Debt Security, will credit immediately participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the Global Debt Security as shown on the records of the
Depositary. The Company also expects that payments by participants to owners
of beneficial interests in such Global Debt Security held through such
participants will be governed by standing instructions and customary
practices, as is now the case with securities in bearer form held for the
accounts of customers or registered in "street name", and will be the
responsibility of such participants. None of the Company, the Trustee or any
agent of the Company or the Trustee shall have any responsibility or liability
for any aspect of the records relating to, or payments made on account of,
beneficial interests in any Global Debt Security, or for maintaining,
supervising or reviewing any records relating to such beneficial interests.
A Global Debt Security shall be exchangeable for Debt Securities in
certificated registered form, of like tenor and of an equal aggregate
principal amount, only if (a) the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary for such Global Debt Security or
if at any time the Depositary ceases to be a clearing agency registered under
the Exchange Act, (b) the Company in its sole discretion determines that such
Global Debt Security shall be exchangeable for Debt Securities in certificated
registered form or (c) there shall have occurred and be continuing an Event of
Default with respect to the Debt Securities. Any Global Debt Security that is
exchangeable pursuant to the preceding sentence shall be exchangeable for Debt
Securities registered in the name or names of such person or persons as the
Depositary shall instruct the Trustee. It is expected that such instructions
may be based upon directions received by the Depositary from its participants
with respect to ownership of beneficial interests in such Global Debt
Security.
EVENTS OF DEFAULT
Any one of the following events will constitute an Event of Default under
the Indenture with respect to Debt Securities of any series: (a) failure to
pay any interest on any Debt Security of that series when due, continued for
30 days; (b) failure to pay principal of or any premium on any Debt Security
of that series when due; (c) failure to deposit any sinking fund payment, when
due, in respect of any Debt Security of that series; (d) failure to perform,
or breach of, any covenant or warranty of the Company in the Indenture with
respect to Debt Securities of that series continued for 60 days after written
notice as provided in the Indenture; (e) a default under any indebtedness for
money borrowed by the Company or any Subsidiary if (A) such default either (1)
results from the failure to pay the principal of any such indebtedness at its
stated maturity or (2) relates to an obligation other than the obligation to
pay the principal of such indebtedness at its stated maturity and results in
such indebtedness becoming or being declared due and payable prior to the date
on which it would otherwise become due and payable, (B) the principal amount
of such indebtedness, together with the principal amount of any other such
indebtedness in default for failure to pay principal at stated maturity or the
maturity of which has been so accelerated, aggregates $25,000,000 or more at
any one time outstanding and (C) such indebtedness is not discharged, or such
acceleration is not rescinded or annulled, within 10
7
<PAGE>
business days after written notice as provided in the Indenture; (f) certain
events of bankruptcy, insolvency or reorganization of the Company; or (g) any
other Event of Default provided with respect to Debt Securities of that
series. (Section 501)
If an Event of Default (other than an Event of Default described in clause
(f) of the preceding paragraph) with respect to the Debt Securities of any
series at the time Outstanding shall occur and be continuing, either the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Outstanding Debt Securities of that series may accelerate the maturity of all
Debt Securities of that series; provided, however, that after such
acceleration, but before a judgment or decree based on acceleration, the
Holders of a majority in aggregate principal amount of the Outstanding Debt
Securities of that series may, under certain circumstances, rescind and annul
such acceleration if all Events of Default, other than the non-payment of
accelerated principal, have been cured or waived as provided in the Indenture.
If an Event of Default described in clause (f) of the immediately preceding
paragraph occurs, the Outstanding Debt Securities will ipso facto become
immediately due and payable without any declaration or other act on the part
of the Trustee or any Holder. (Section 502)
Reference is made to the Applicable Prospectus Supplement relating to any
series of Offered Debt Securities that are Original Issue Discount Debt
Securities for the particular provisions relating to acceleration of the
Stated Maturity of a portion of the principal amount of such series of
Original Issue Discount Debt Securities upon the occurrence of an Event of
Default and the continuation thereof.
The Indenture provides that, subject to the duty of the Trustee during
default to act with the required standard of care, the Trustee will be under
no obligation to exercise any of its rights or powers under the Indenture at
the request or direction of any of the holders of Debt Securities, unless such
holders shall have offered to the Trustee reasonable indemnity. (Section 603)
Subject to such provisions for the indemnification of the Trustee and to
certain other conditions, the holders of a majority in aggregate principal
amount of the Outstanding Debt Securities of any series will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee, with respect to the Debt Securities of that series. (Section 512)
No holder of Debt Securities of any series will have any right to institute
any proceeding with respect to the Indenture or for any remedy thereunder,
unless such holder shall have previously given to the Trustee written notice
of a continuing Event of Default and unless the holders of at least 25% in
principal amount of the Outstanding Debt Securities of that series shall have
made written request, and offered reasonable indemnity, to the Trustee to
institute such proceeding as trustee, and the Trustee shall not have received
from the holders of a majority in aggregate principal amount of the
Outstanding Debt Securities of that series a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
(Section 507) However, such limitations do not apply to a suit instituted by a
holder of Debt Securities for enforcement of payment of the principal of and
premium, if any, or interest on such Debt Securities on or after the
respective due dates expressed in such Debt Securities. (Section 508)
The Company is required to furnish to the Trustee annually a statement as to
the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance. (Section 1004)
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company and
the Trustee without the consent of the holders of any of the Debt Securities
in order (i) to evidence the succession of another entity to the Company and
the assumption of the covenants and obligations of the Company under the Debt
Securities and the Indenture by such successor to the Company; (ii) to add to
the
8
<PAGE>
covenants of the Company for the benefit of the holders of all or any series
of Debt Securities or to surrender any right or power conferred on the Company
by the Indenture; (iii) to add additional Events of Default with respect to
any series of Debt Securities; (iv) to add to or change any provisions to such
extent as may be necessary to permit or facilitate the issuance of Debt
Securities in bearer form or to facilitate the issuance of Global Debt
Securities; (v) to add to, change or eliminate any provision affecting only
Debt Securities not yet issued; (vi) to secure the Debt Securities; (vii) to
establish the form or terms of Debt Securities of any series; (viii) to
evidence and provide for successor Trustees or to add or change any provisions
to such extent as may be necessary to provide for or facilitate the
appointment of a separate Trustee or Trustees for specific series of Debt
Securities; (ix) to permit payment in respect of Debt Securities in bearer
form in the United States to the extent allowed by law; (x) to cure any
ambiguity, to correct or supplement any mistaken or inconsistent provisions or
to make any other provisions with respect to matters or questions arising
under the Indenture, provided that any such action (other than in respect of a
mistaken provision) does not adversely affect in any material respect the
interests of any holder of Debt Securities of any series then outstanding.
(Section 901)
Modifications and amendments of the Indenture also may be made by the
Company and the Trustee with the consent of the holders of not less than a
majority in aggregate principal amount of the Outstanding Debt Securities of
each series issued under the Indenture and affected by the modification or
amendments; provided, however, that no such modification or amendment may,
without the consent of the holders of all Debt Securities affected thereby,
(i) change the Stated Maturity of the principal amount of, or any installment
of principal of or interest on, any Debt Security; (ii) reduce the principal
amount of, or the premium, if any, or (except as otherwise provided in the
Applicable Prospectus Supplement) interest on any Debt Security (including in
the case of an Original Issue Discount Debt Security the amount payable upon
acceleration of the maturity thereof ); (iii) change the place or currency of
payment of principal of, premium, if any, or interest on any Debt Security;
(iv) impair the right to institute suit for the enforcement of any payment on
any Debt Security on or after the Stated Maturity thereof (or in the case of
redemption, on or after the Redemption Date); or (v) reduce the percentage in
principal amount of Outstanding Debt Securities of any series, the consent of
whose holders is required for modification or amendment of the Indenture or
for waiver of compliance with certain provisions of the Indenture or for
waiver of certain defaults. (Section 902)
The holders of at least a majority in aggregate principal amount of the
Outstanding Debt Securities of any series may, on behalf of all holders of
Debt Securities of that series, waive compliance by the Company with certain
restrictive provisions of the Indenture. (Section 1008) The holders of not
less than a majority in aggregate principal amount of the Outstanding Debt
Securities of any series may, on behalf of all holders of Debt Securities of
that series, waive any past default under the Indenture, except a default in
the payment of principal, premium or interest or in respect of a covenant or
provision of the Indenture that cannot be modified or amended without the
consent of the holder of each Outstanding Debt Security of such series
affected thereby. (Section 513)
NO PROTECTION IN THE EVENT OF A CHANGE OF CONTROL
Unless otherwise set forth in the Applicable Prospectus Supplement, the Debt
Securities will not contain any provisions which may afford holders of the
Debt Securities protection in the event of a change in control of the Company
or in the event of a highly leveraged transaction (whether or not such
transaction results in a change in control of the Company).
COVENANTS
Unless otherwise set forth in the Applicable Prospectus Supplement, and
except as set forth below, the Debt Securities will not contain any
restrictive covenants, including covenants restricting the Company or any of
its Subsidiaries from incurring, issuing, assuming or guaranteeing any
indebtedness or encumbering any property of the Company or any Subsidiary, or
restricting the Company or any Subsidiary from transferring assets or entering
into any sale and leaseback transaction.
9
<PAGE>
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may not consolidate with or merge with or into any other entity
or transfer or lease its assets substantially as an entirety to any entity,
unless (i) either the Company is the continuing corporation, or any successor
or purchaser is a corporation, partnership or trust organized under the laws
of the United States of America, any State thereof or the District of
Columbia, and any such successor or purchaser expressly assumes the Company's
obligations on the Debt Securities under a supplemental indenture, (ii)
immediately after giving effect to the transaction, no Event of Default, and
no event which, after notice or lapse of time or both, would become an Event
of Default, shall have occurred and be continuing, and (iii) if a supplemental
indenture is to be executed in connection with such consolidation, merger,
transfer or lease, the Company has delivered to the Trustee an officers'
certificate and an opinion of counsel stating compliance with these
provisions. (Section 801)
DEFEASANCE OF OFFERED DEBT SECURITIES OR CERTAIN COVENANTS IN CERTAIN
CIRCUMSTANCES
DEFEASANCE AND DISCHARGE
The Indenture provides that the terms of any series of Debt Securities may
provide that the Company, at the Company's option, will be discharged from any
and all obligations in respect of the Debt Securities of such series (except
for certain obligations to register the transfer or exchange of Debt
Securities of such series, to replace stolen, lost or mutilated Debt
Securities of such series, to maintain paying agencies and to hold moneys for
payment in trust) upon the deposit with the Trustee, in trust, of money and/or
U.S. Government Obligations which, through the payment of interest and
principal thereof in accordance with their terms, will provide money in an
amount sufficient to pay any installment of principal (and premium, if any)
and interest on, and any mandatory sinking fund payments in respect of, the
Debt Securities of such series on the Stated Maturity of such payments in
accordance with the terms of the Indenture and such Debt Securities. Such
discharge may only occur if, among other things, the Company has delivered to
the Trustee an opinion of counsel to the effect that the Company has received
from, or there has been published by, the United States Internal Revenue
Service a ruling, or there has been a change in tax law, in either case to the
effect that such discharge will not be deemed, or result in, a taxable event
with respect to holders of the Debt Securities of such series. (Sections 1302
and 1304)
DEFEASANCE OF CERTAIN COVENANTS
The Indenture provides that the terms of any series of Debt Securities may
provide the Company with the option to omit to comply with the restrictive
covenant described in this Prospectus under "Consolidation, Merger and Sale of
Assets" and any other covenants made applicable to any series of Debt
Securities as described in the Applicable Prospectus Supplement. The Company,
in order to exercise such option, will be required to deposit with the Trustee
money and/or U.S. Government Obligations which, through the payment of
interest and principal thereof in accordance with their terms, will provide
money in an amount sufficient to pay principal (and premium, if any) and
interest on, and any mandatory sinking fund payments in respect of, the Debt
Securities of such series on the Stated Maturity of such payments in
accordance with the terms of the Indenture and such Debt Securities. The
Company will also be required to deliver to the Trustee an opinion of counsel
to the effect that the deposit and related covenant defeasance will not cause
the holders of the Debt Securities of such series to recognize income, gain or
loss for federal income tax purposes. (Sections 1303 and 1304)
In the event the Company exercises this option and the Debt Securities of
such series are declared due and payable because of the occurrence of any
Event of Default, the amount of money and U.S. Government Obligations on
deposit with the Trustee will be sufficient to pay amounts due on the Debt
Securities of such series at the time of their Stated Maturity but may not be
sufficient to pay amounts due on the Debt Securities of such series at the
time of the acceleration resulting from such Event of Default. However, the
Company shall remain liable for such payments.
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<PAGE>
The Applicable Prospectus Supplement will state if any defeasance provisions
will apply to the Offered Debt Securities.
CONCERNING THE TRUSTEE
Harris Trust Company of California, a California trust company, is the
Trustee under the Indenture. The Trustee may resign at any time or may be
removed by the holders of at least a majority in aggregate principal amount of
the Outstanding Debt Securities. If the Trustee resigns, is removed or becomes
incapable of acting as Trustee or if a vacancy occurs in the office of the
Trustee for any cause, a successor Trustee shall be appointed in accordance
with the provisions of the Indenture.
PLAN OF DISTRIBUTION
The Company may sell Debt Securities to or through one or more underwriters
or dealers and also may sell Debt Securities to other investors directly or
through agents.
The distribution of the Debt Securities may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, or
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Debt Securities, underwriters may receive
compensation from the Company or from purchasers of Debt Securities for whom
they may act as agents in the form of discounts, concessions or commissions.
Underwriters may sell Debt Securities to or through dealers, and such dealers
may receive compensation in the form of discounts, concessions or commissions
from the underwriters and/or commissions from the purchasers for whom they may
act as agents. Underwriters, dealers and agents that participate in the
distribution of Debt Securities may be deemed to be underwriters, and any
discounts or commissions received by them from the Company and any profit on
the resale of Debt Securities by them may be deemed to be underwriting
discounts and commissions, under the Securities Act. Any such underwriter or
agent will be identified, and any such compensation received from the Company
will be described, in the Prospectus Supplement.
Under agreements which may be entered into by the Company, underwriters and
agents who participate in the distribution of Debt Securities may be entitled
to indemnification by the Company against certain liabilities, including
liabilities under the Securities Act.
VALIDITY OF THE DEBT SECURITIES
The validity of the Debt Securities will be passed upon by Orrick,
Herrington & Sutcliffe LLP, San Francisco, California, and, unless otherwise
indicated in a Prospectus Supplement relating to Offered Debt Securities, by
Sullivan & Cromwell, Los Angeles, California, counsel for the underwriters or
agents.
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<PAGE>
EXPERTS
The consolidated financial statements of the Company as of February 1, 1997
and February 4, 1996 and for each of the three fiscal years in the period
ended February 1, 1997, incorporated in this Prospectus by reference from the
Company's Annual Report on Form 10-K for the year ended February 1, 1997, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
With respect to the unaudited interim financial information for the periods
ended May 3, 1997 and May 4, 1996 and August 2, 1997 and August 3, 1996 which
is incorporated herein by reference, Deloitte & Touche LLP have applied
limited procedures in accordance with professional standards for a review of
such information. However, as stated in their reports included in the
Company's Quarterly Reports on Form 10-Q for the quarters ended May 3, 1997
and August 2, 1997 and incorporated by reference herein, they did not audit
and they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their reports on such information
should be restricted in light of the limited nature of the review procedures
applied. Deloitte & Touche LLP are not subject to the liability provisions of
Section 11 of the Securities Act of 1933 for their reports on the unaudited
interim financial information because those reports are not "reports" or a
"part" of the registration statement prepared or certified by an accountant
within the meaning of Sections 7 and 11 of the Act.
12
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS
PROSPECTUS SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION
IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Company............................................................... S-3
Use of Proceeds........................................................... S-5
Capitalization............................................................ S-5
Selected Consolidated Financial Data...................................... S-6
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... S-7
Description of Notes...................................................... S-11
Underwriting.............................................................. S-13
Validity of the Notes..................................................... S-14
PROSPECTUS
Available Information..................................................... 2
Documents Incorporated by Reference....................................... 2
The Company............................................................... 3
Use of Proceeds........................................................... 3
Ratio of Earnings to Fixed Charges........................................ 4
Description of Debt Securities............................................ 4
Plan of Distribution...................................................... 11
Validity of the Debt Securities........................................... 11
Experts................................................................... 12
</TABLE>
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$500,000,000
THE GAP, INC.
6.90% NOTES
DUE SEPTEMBER 15, 2007
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[LOGO OF THE GAP, INC. APPEARS HERE]
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GOLDMAN, SACHS & CO.
CITICORP SECURITIES, INC.
REPRESENTATIVES OF THE UNDERWRITERS
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