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Filed pursuant to Rule 424(b)(3)
Registration No. 333-36178
Prospectus Supplement No. 159 to the Prospectus dated May 8, 2000
and the Prospectus Supplement dated May 10, 2000
[GOLDMAN SACHS LOGO]
$66,500,000
THE GOLDMAN SACHS GROUP, INC.
Medium-Term Notes, Series B
----------------------
1% Exchangeable Basket-Linked Notes
due 2007
(Linked to a Basket of Three Stocks)
----------------------
Each note being offered has the terms described beginning on page S-6, including
the following:
SUMMARY OF TERMS:
ISSUER: The Goldman Sachs Group, Inc.
BASKET: the common stocks of AMR Corporation, Countrywide Credit Industries Inc.
and Waste Management, Inc., with each stock having a relative weighting on the
trade date of 33.3333%, as described on page S-7
FACE AMOUNT: as specified in the note; $66,500,000 in the aggregate for all the
offered notes
ORIGINAL ISSUE PRICE: 100% of the face amount
TRADE DATE: December 5, 2000
ORIGINAL ISSUE DATE (SETTLEMENT DATE): December 12, 2000
STATED MATURITY DATE: December 12, 2007, unless extended for up to six business
days
INTEREST RATE (COUPON): 1% of outstanding face amount each year
- interest payment dates: each June 12 and December 12, beginning on June 12,
2001
- regular record dates: the business day before the related interest payment
date as long as the note is in global form
PRINCIPAL AMOUNT: on the stated maturity date, Goldman Sachs will pay the holder
of the note cash equal to 100% of the outstanding face amount of the note,
unless the holder exercises the exchange right, Goldman Sachs exercises the
call right or an automatic exchange occurs
EXCHANGE RIGHT: the holder may elect to exchange the outstanding face amount of
the note, in whole or in part at any time, for a cash amount equal to the
exchange value on the exchange notice date times the face amount exchanged
divided by $1,000
EXCHANGE VALUE: a cash amount equal to the product of the exchange rate times
the closing level of the basket on the exchange notice date
EXCHANGE RATE: 8.6655
CALL RIGHT: Goldman Sachs may redeem the offered notes in whole, but not in
part, after the interest payment date on December 12, 2002, at 100% of the
outstanding face amount plus accrued interest to the redemption date,
provided, however, that the holder will be entitled to the benefit, if any, of
an automatic exchange
REFERENCE BASKET LEVEL (AS DETERMINED ON THE TRADE DATE): 100
CLOSING LEVEL OF BASKET: on any business day, the sum of the products of each
basket stock's closing price on that day times that basket stock's reference
amount. The initial reference amount of each basket stock, which is subject to
adjustment for antidilution, is indicated on page S-7
LISTING: the offered notes will be listed on the American Stock Exchange on the
original issue date
NET PROCEEDS TO THE GOLDMAN SACHS GROUP, INC.: 99.6% of the face amount
CALCULATION AGENT: Goldman, Sachs & Co.
BUSINESS DAY: as described on page S-18
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See "Additional Risk Factors Specific to Your Note" beginning on page S-2 to
read about investment risks relating to the offered notes.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------
Goldman Sachs may use this prospectus supplement in the initial sale of the
offered notes. In addition, Goldman, Sachs & Co. or any other affiliate of
Goldman Sachs may use this prospectus supplement in a market-making transaction
in an offered note after its initial sale. UNLESS GOLDMAN SACHS OR ITS AGENT
INFORMS THE PURCHASER OTHERWISE IN THE CONFIRMATION OF SALE, THIS PROSPECTUS
SUPPLEMENT IS BEING USED IN A MARKET-MAKING TRANSACTION.
GOLDMAN, SACHS & CO.
----------------------
Prospectus Supplement dated December 5, 2000.
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ADDITIONAL RISK FACTORS SPECIFIC TO YOUR NOTE
An investment in your note is subject to the risks described below, as well as
the risks described under "Considerations Relating to Indexed Securities" in the
accompanying prospectus dated May 8, 2000. Your note is a riskier investment
than ordinary debt securities. Also, your note is not equivalent to investing
directly in the basket stocks, i.e., the stocks comprising the basket to which
your note is linked. You should carefully consider whether the offered notes are
suited to your particular circumstances.
THE MARKET PRICE OF YOUR NOTE MAY BE
INFLUENCED BY MANY UNPREDICTABLE FACTORS
The following factors, many of which are beyond our control, will
influence the value of your note:
- the basket level, which depends on the market value of the basket stocks;
- the volatility -- i.e., the frequency and magnitude of changes in the level of
the basket;
-- As indicated under "Basket Stocks -- Historical Trading Price Information",
the market prices of the basket stocks have fluctuated during recent
periods. It is impossible to predict whether the basket level will rise or
fall;
-- In addition, we cannot predict that future changes to the market prices of
the basket stocks will be correlated as in the past;
- the dividend rate on the basket stocks;
- economic, financial, regulatory and political events that affect stock markets
generally and the respective market segments of which the basket stocks are a
part, and which may affect the level of the basket;
- interest and yield rates in the market;
- the time remaining until your note matures; and
- our creditworthiness.
These factors will influence the price you will receive if you sell your note
prior to maturity. You cannot predict the future performance of the basket or
any basket stock based on its historical performance.
YOUR RETURN ON YOUR NOTE WILL NOT REFLECT THE RETURN ON THE BASKET STOCKS
The calculation agent will calculate the level of the basket by reference
to the prices of the basket stocks without taking account of the value of
dividends paid on those stocks. As a result, the return on your note will not
reflect the return you would realize if you actually owned the basket stocks and
received the dividends paid on those stocks.
IF THE LEVEL OF THE BASKET CHANGES,
THE MARKET VALUE OF YOUR NOTE MAY
NOT CHANGE IN THE SAME MANNER
Your note may trade quite differently from the basket. Changes in the
level of the basket may not result in a comparable change in the market value of
your note. We discuss some of the reasons for this disparity under "-- The
Market Price of Your Note May Be Influenced by Many Unpredictable Factors"
above.
YOU HAVE NO SHAREHOLDER RIGHTS
OR RIGHTS TO RECEIVE ANY STOCK
Investing in your note will not make you a holder of any of the basket
stocks. Neither you nor any other holder or owner of your note will have any
voting rights, any right to receive dividends or other distributions or any
other rights with respect to the basket stocks. Your note will be paid in cash,
and you will have no right to receive delivery of any basket stocks.
WE CAN REDEEM YOUR NOTE AT OUR OPTION
After the interest payment date on December 12, 2002, we will be permitted
to redeem your note at our option. Even if we do not exercise our option to
redeem your note,
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our ability to do so may adversely affect the value of your note.
TRADING AND OTHER TRANSACTIONS BY
GOLDMAN SACHS IN THE BASKET STOCKS
MAY IMPAIR THE VALUE OF YOUR NOTE
As we describe under "Use of Proceeds and Hedging" below, we, through
Goldman, Sachs & Co. or one or more of our other affiliates, have hedged our
obligations under the offered notes by purchasing the basket stocks, and may
adjust the hedge by, among other things, purchasing or selling any of the basket
stocks at any time and from time to time. Any of these hedging activities may
adversely affect the basket level -- directly or indirectly by affecting the
price of the basket stocks -- and, therefore, the value of your note. It is
possible that we, through our affiliates, could receive substantial returns with
respect to our hedging activities while the value of your note may decline. See
"Use of Proceeds and Hedging" for a further discussion of securities
transactions in which we or one or more of our affiliates may engage.
Goldman, Sachs & Co. and our other affiliates may also engage in trading
in one or more of the basket stocks or instruments linked to the basket stocks
for their proprietary accounts, for other accounts under their management or to
facilitate transactions, including block transactions, on behalf of customers.
Any of these activities of Goldman, Sachs & Co. or our other affiliates could
adversely affect the basket level -- directly or indirectly by affecting the
price of the basket stocks -- and, therefore, the value of your note. We may
also issue, and Goldman, Sachs & Co. and our other affiliates may also issue or
underwrite, other securities or financial or derivative instruments with returns
linked or related to changes in the value of one or more of the basket stocks.
By introducing competing products into the marketplace in this manner, we or our
affiliates could adversely affect the value of your note.
The indenture governing your note does not contain any restriction on our
ability or the ability of any of our affiliates to purchase or sell all or any
portion of the basket stocks.
OUR BUSINESS ACTIVITIES MAY CREATE CONFLICTS
OF INTEREST BETWEEN YOU AND US
As we have noted above, Goldman, Sachs & Co. and our other affiliates have
engaged in, and expect to engage in, trading activities related to the basket
stocks that are not for your account or on your behalf. These trading activities
may present a conflict between your interest in your note and the interests
Goldman, Sachs & Co. and our other affiliates will have in their proprietary
accounts, in facilitating transactions, including block trades, for their
customers and in accounts under their management. These trading activities, if
they influence the level of the basket, could be adverse to your interests as a
beneficial owner of your note.
Goldman, Sachs & Co. and our other affiliates may, at present or in the
future, engage in business with the issuers of the basket stocks, including
making loans to or equity investments in those companies or providing advisory
services to those companies. These services could include merger and acquisition
advisory services. These activities may present a conflict between the
obligations of Goldman, Sachs & Co. or another affiliate of Goldman Sachs and
your interests as a beneficial owner of a note. Moreover, one or more of our
affiliates have published and in the future expect to publish research reports
with respect to some or all of the issuers of the basket stocks. Any of these
activities by any of our affiliates may affect the level of the basket and,
therefore, the value of your note.
AS CALCULATION AGENT, GOLDMAN, SACHS & CO.
WILL HAVE THE AUTHORITY TO MAKE
DETERMINATIONS THAT COULD AFFECT THE
MARKET VALUE OF YOUR NOTE, WHEN
YOUR NOTE MATURES AND THE AMOUNT
YOU RECEIVE AT MATURITY
As calculation agent for your note, Goldman, Sachs & Co. will have
discretion in making various determinations that affect your note including
determining the closing level of the basket, which we will use to calculate how
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much cash we must pay if your note is exchanged; and determining whether to
postpone the stated maturity date, or any day on which your note is to be
redeemed or exchanged, because of a market disruption event. See "Specific Terms
of Your Note". The exercise of this discretion by Goldman, Sachs & Co. could
adversely affect the value of your note and may present Goldman, Sachs & Co.
with a conflict of interest of the kind described above under "-- Our Business
Activities May Create Conflict of Interest Between You and Us".
THERE IS NO AFFILIATION BETWEEN THE BASKET
STOCK ISSUERS AND US, AND WE ARE NOT
RESPONSIBLE FOR ANY DISCLOSURE
BY THE BASKET STOCK ISSUERS
Goldman Sachs is not affiliated with the issuers of the basket stocks. As
we have told you above, however, we or our affiliates may currently or from time
to time in the future engage in business with the basket stock issuers.
Nevertheless, neither we nor any of our affiliates assumes any responsibility
for the adequacy or accuracy of any publicly available information about the
basket stock issuers.
The basket stock issuers are not involved in this offering of your note in
any way and none of them have any obligation of any sort with respect to your
note. Thus, the basket stock issuers have no obligation to take your interests
into consideration for any reason, including in taking any corporate actions
that might affect the value of your note.
YOUR NOTE MAY NOT HAVE
AN ACTIVE TRADING MARKET
Although your note will be listed on the American Stock Exchange on the
original issue date, there may be little or no secondary market for your note.
Even if a secondary market for your note develops, it may not provide
significant liquidity and we expect that transaction costs in any secondary
market would be high. As a result, the difference between bid and asked prices
for your note in any secondary market could be substantial.
YOU HAVE LIMITED ANTIDILUTION PROTECTION
Goldman, Sachs & Co., as calculation agent for your note, will adjust the
applicable reference amount of each basket stock -- i.e., the amount of the
basket stock included in the basket -- for stock splits, reverse stock splits,
stock dividends, extraordinary dividends and other events that affect a basket
stock issuer's capital structure, but only in the situations we describe in
"Specific Terms of Your Note -- Antidilution Adjustments". The reference amounts
are described under "Specific Terms of Your Note -- The Basket" below. The
calculation agent is not required to make an adjustment for every corporate
event that may affect the basket stocks. For example, the calculation agent will
not adjust a reference amount for events such as an offering of a basket stock
for cash by the basket stock issuer, a tender or exchange offer for a basket
stock at a premium to its then-current market price by the basket stock issuer
or a tender or exchange offer for less than all of an outstanding basket stock
by a third party. Those events may nevertheless adversely affect the market
price of a basket stock and, therefore, adversely affect the value of your note.
A basket stock issuer or a third party could make an offering or a tender or
exchange offer, or a basket stock issuer could take other action, that adversely
affects the value of that basket stock and your note but does not result in an
antidilution adjustment for your benefit.
WE CAN POSTPONE THE STATED MATURITY
DATE, ANY EXERCISE OF THE EXCHANGE
RIGHT AND ANY CALL DATE IF A MARKET DISRUPTION EVENT OCCURS
If the calculation agent determines that, on the determination date, a
market disruption event has occurred or is continuing, the determination date
will be postponed until the first business day on which no market disruption
event occurs or is continuing. As a result, the stated maturity date for your
note will also be postponed, although not by more than six business days. Thus,
you may not receive the payment that we are obligated to make on the stated
maturity date until after the originally scheduled due date.
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In addition, if the calculation agent determines that a market disruption
event has occurred or is continuing on any day on which the holder seeks to
exercise the exchange right, the exercise will be postponed to the first
business day on which no market disruption event occurs or is continuing,
although not by more than five business days. Similarly, if we exercise our call
right and notify the holder of the date we select for redemption, we may
nevertheless postpone the call date for up to five business days because of a
market disruption event.
If your note is to be exchanged, then the amount of cash we pay will be
based on the closing level of the basket on the day the exchange right is deemed
to be exercised. If that level is not available on that day because of a market
disruption event or for any other reason, the calculation agent will
nevertheless determine that level based on its assessment, made in its sole
discretion, of the level of the basket at that time. The calculation agent may
take similar steps in connection with an automatic exchange.
CERTAIN CONSIDERATIONS FOR INSURANCE
COMPANIES AND EMPLOYEE BENEFIT PLANS
Any insurance company or fiduciary of a pension plan or other employee
benefit plan that is subject to the prohibited transaction rules of the Employee
Retirement Income Security Act of 1974, as amended, which we call "ERISA", or
the Internal Revenue Code of 1986, as amended, including an IRA or a Keogh plan
(or a governmental plan to which similar prohibitions apply), and that is
considering purchasing the offered notes with the assets of the insurance
company or the assets of such a plan should consult with its counsel regarding
whether the purchase or holding of the offered notes could become a "prohibited
transaction" under ERISA, the Internal Revenue Code or any substantially similar
prohibition in light of the representations a purchaser or holder in any of the
above categories is deemed to make by purchasing and holding the offered notes.
This is discussed in more detail under "Employee Retirement Income Security Act"
below.
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SPECIFIC TERMS OF YOUR NOTE
Please note that in this section entitled "Specific Terms of Your Note",
references to "The Goldman Sachs Group, Inc.", "we", "our" and "us" mean only
The Goldman Sachs Group, Inc. and do not include its consolidated subsidiaries,
while references to "Goldman Sachs" mean The Goldman Sachs Group, Inc. together
with its consolidated subsidiaries. References to "holders" mean those who own
notes registered in their own names, on the books that we or the trustee
maintain for this purpose, and not indirect holders who own beneficial interests
in notes registered in street name or in notes issued in book-entry form through
The Depository Trust Company. Please review the special considerations that
apply to indirect holders in the accompanying prospectus, under "Legal Ownership
and Book-Entry Issuance". Also, references to the "accompanying prospectus" mean
the accompanying Prospectus dated May 8, 2000, as supplemented by the
accompanying Prospectus Supplement dated May 10, 2000, of The Goldman Sachs
Group, Inc.
We refer to the notes offered in this prospectus supplement, including
your note, as the offered notes. The offered notes are "indexed debt securities"
and "indexed notes", as defined in the accompanying prospectus. The offered
notes are part of a series of debt securities, entitled "Medium-Term Notes,
Series B", that we may issue under the indenture from time to time. This
prospectus supplement summarizes specific financial and other terms that apply
to the offered notes, including your note; terms that apply generally to all
Series B medium-term notes are described in "Description of Notes We May Offer"
in the accompanying prospectus. The terms described here supplement those
described in the accompanying prospectus and, if the terms described here are
inconsistent with those described there, the terms described here are
controlling.
In addition to those described on the front cover page, the following
terms will apply to your note:
SPECIFIED CURRENCY:
- principal: U.S. dollars
- interest: U.S. dollars
FORM OF NOTE:
- global form only: yes, at DTC
- non-global form available: no
DENOMINATIONS: each note registered in the name of a holder must have a face
amount of $1,000 or any multiple of $1,000
DEFEASANCE APPLIES AS FOLLOWS:
- full defeasance: no
- covenant defeasance: no
OTHER TERMS:
- the default amount will be payable on any acceleration of the maturity of your
note as described below under "-- Special Calculation Provisions"
- antidilution provisions will apply to your note as described under
"-- Antidilution Adjustments" below
- a business day for your note will not be the same as a business day for our
other Series B medium-term notes, as described below under "-- Special
Calculation Provisions"
In this prospectus supplement, when we refer to the basket stocks, we mean
the common stocks of AMR Corporation, Countrywide Credit Industries Inc. and
Waste Management, Inc., and when we refer to the basket stock issuers, we mean
those companies, except as noted below under "-- Antidilution Adjustments --
Reorganization Events -- Distribution Property".
Please note that the information about the original issue date, original
issue price
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and net proceeds to The Goldman Sachs Group, Inc. on the front cover page
relates only to the initial sale of the notes. If you have purchased your note
in a market-making transaction after the initial sale, information about the
price and date of sale to you will be provided in a separate confirmation of
sale.
We describe the terms of your note in more detail below.
THE BASKET
The basket is a unit of measure comprised of the common stocks of the
three issuers listed in the following table, with the three stocks having equal
weightings based on the initial basket stock values per share indicated in the
third column below.
The reference amount for each basket stock is the number of shares of the
basket stock included in the basket so that the value of the basket stock
equaled 33.3333% of the total value of the basket on the trade date, based on
the initial basket stock values set forth in the table below. The reference
amount for each basket stock is subject to adjustment, both as to the amount and
type of property comprising the reference amount, as described under
"-- Antidilution Adjustments" below.
The closing level of the basket on any business day will equal the sum of
the products of each basket stock's closing price on that day times that basket
stock's reference amount. The closing level of the basket on the trade date was
100.6958.
As described under "-- Holder's Exchange Right" below, the amount of cash
that will be payable in exchange for each $1,000 of outstanding principal amount
of an offered note on an exchange date will be calculated by multiplying the
closing level of the basket on the exchange notice date by the exchange rate, or
8.6655. Thus, the portion of this cash amount attributable to each basket stock
will equal the value, based on the closing price on the relevant date, of a
number of shares of the basket stock equal to the corresponding reference amount
on that date times the exchange rate. These numbers of shares, based on the
initial reference amounts, are set forth in the last column of the table below.
<TABLE>
<CAPTION>
INITIAL NUMBER OF
SHARES USED TO
INITIAL BASKET INITIAL DETERMINE CASH PAYMENT
STOCK VALUE REFERENCE PER $1,000 PRINCIPAL
BASKET STOCK % OF BASKET PER SHARE AMOUNT AMOUNT OF NOTE
------------ ----------- -------------- --------- ----------------------
<S> <C> <C> <C> <C>
AMR Corporation 33.3333 36.5726 0.911429 7.897988
Countrywide Credit
Industries Inc. 33.3333 38.1983 0.872639 7.561853
Waste Management,
Inc. 33.3333 25.8945 1.287275 11.15488
</TABLE>
PAYMENT OF PRINCIPAL ON STATED MATURITY DATE
On the stated maturity date, we will pay as principal, to the holder of
your note, cash in an amount equal to 100% of the outstanding face amount of
your note, unless:
- the holder exercises the right to exchange your note as described below under
"-- Holder's Exchange Right", or
- we exercise our right to redeem your note as described below under "-- Our
Call Right", or
- your note is automatically exchanged as described below under "-- Automatic
Exchange".
If your note is exchanged in part, we will make the cash payment described above
on the portion that remains outstanding on the stated maturity date.
STATED MATURITY DATE
The stated maturity date will be December 12, 2007, unless that day is not
a business day, in which case the stated maturity date will be the next
following business day. If the fifth business day before
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this applicable day is not the determination date described below, however, then
the stated maturity date will be the fifth business day following the
determination date, provided that the stated maturity date will never be later
than the fifth business day after December 12, 2007 or, if December 12, 2007 is
not a business day, later than the sixth business day after December 12, 2007.
The calculation agent may postpone the determination date -- and therefore the
stated maturity date -- if a market disruption event occurs or is continuing on
a day that would otherwise be the determination date. We describe market
disruption events below under "-- Special Calculation Provisions".
DETERMINATION DATE
The determination date will be the fifth business day prior to December
12, 2007, unless the calculation agent determines that a market disruption event
occurs or is continuing on that fifth prior business day. In that event, the
determination date will be the first following business day on which the
calculation agent determines that a market disruption event does not occur and
is not continuing. In no event, however, will the determination date be later
than December 12, 2007 or, if December 12, 2007 is not a business day, later
than the first business day after December 12, 2007.
HOLDER'S EXCHANGE RIGHT
If the holder of your note satisfies the conditions described under
"-- Exercise Requirements" below, the holder may elect to exchange the
outstanding face amount of your note, in whole or in part at any time and from
time to time, for a cash amount equal to the exchange value on the exchange
notice date times the face amount exchanged divided by $1,000. The cash payment
will be made on the exchange date and in the manner we describe under "-- Manner
of Payment" below. We describe the exchange notice date, the exchange date and
the closing level under "-- Exercise Requirements" below.
Partial exchanges will be permitted only if the portion of the face amount
exchanged is a multiple of $1,000 and only if the unexchanged portion is an
authorized denomination, as described under "-- Denominations" above.
If we exercise our call right, the holder will be entitled to the benefit,
if any, of an automatic exchange but otherwise will no longer be permitted to
exercise the exchange right. We describe these matters under "-- Our Call Right"
and "-- Automatic Exchange" below.
If you decide to exchange your note, you may lose the right to receive
interest on your note for the interest period in which the exchange occurs, as
described under "-- Interest Payments" below.
EXCHANGE VALUE
The exchange value will be a cash amount equal to the product of the
exchange rate of 8.6655 times the closing level of the basket on the exchange
notice date. The calculation agent will determine the closing level of the
basket on the exchange notice date described below.
EXERCISE REQUIREMENTS
To exercise the exchange right, the following requirements must be
satisfied on any day that qualifies as a business day and before the exchange
right expires:
- Both the trustee and the calculation agent must receive a properly completed
and signed notice of exchange, in the form attached to this prospectus
supplement, specifying the outstanding face amount of your note to be
exchanged. Delivery must be made by facsimile as provided in the attached
notice of exchange.
- If your note is in global form, you or the bank or broker through which you
hold your interest in the portion of your note being exchanged must enter an
order to have that interest transferred on the books of the depositary to the
account of the trustee at the depositary and the trustee must receive and
accept the transfer, all in accordance with the applicable procedures of the
depositary. If the trustee receives and accepts the transfer by 3:00 P.M., New
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York City time, on any business day, this requirement will be deemed satisfied
as of 11:00 A.M. on the same business day. To insure timely receipt and
acceptance, transfer orders should be entered with the depositary well in
advance of the 3:00 P.M. deadline.
- If your note is not in global form, the trustee must receive the certificate
representing your note.
- If your note is not in global form and the exchange date occurs after a
regular record date and before the related interest payment date, the trustee
must receive cash in an amount equal to the interest payable on the exchanged
portion of your note on the interest payment date, as provided in the fourth
rule described under "-- Interest Payments" below.
If your note is not in global form, deliveries of certificates and cash to
the trustee must be made by mail or another method acceptable to the trustee, to
the address stated in the attached form of notice of exchange or at any other
location that the trustee may provide to the holder for this purpose in the
future.
The calculation agent will, in its sole discretion, resolve any questions
that may arise as to the validity of a notice of exchange or as to whether and
when the required deliveries have been made. Once given, a notice of exchange
may not be revoked.
Questions about the exercise requirements should be directed to the
trustee, at the number and location stated in the attached notice of
exchange.
EXCHANGE NOTICE DATE. If the required deliveries described under
"-- Exercise Requirements" above occur by 11:00 A.M., New York City time, on a
business day, that day will be the exchange notice date for the exchange. If the
required deliveries occur after that time on a business day, the next business
day will be the exchange notice date for the exchange. In all cases, however,
the required deliveries must occur before the exchange right expires as
described below.
EXCHANGE DATE. If the exchange right is exercised, we will pay the cash
due on the exchange on the fifth business day after the exchange notice date. We
refer to that due date as the exchange date.
EXPIRATION OF EXCHANGE RIGHT. In all cases, the required deliveries
described under "-- Exercise Requirements" above must occur no later than 11:00
A.M., New York City time, on the business day before the determination date or
on any call notice date, whichever is earlier. Immediately after that time, the
exchange right will expire and may not be exercised, although the holder will be
entitled to receive the benefit, if any, of an automatic exchange as described
under "-- Automatic Exchange" below.
ONLY HOLDER MAY EXERCISE EXCHANGE RIGHT. If your note is issued in global
form, the depositary or its nominee is the holder of your note and therefore is
the only entity that can exercise the exchange right with respect to your note.
If you would like the holder to exercise the exchange right, you should give
proper and timely instructions to the bank or broker through which you hold your
interest in your note, requesting that it notify the depositary to exercise the
exchange right on your behalf. Different firms have different deadlines for
accepting instructions from their customers, and you should take care to act
promptly enough to ensure that your request is given effect by the depositary
before the deadline for exercise. Similar concerns apply if you hold your note
in street name.
Book-entry, street name and other indirect holders should contact their
banks and brokers for information about how to exercise the exchange right
in a timely manner.
CONSEQUENCES OF A MARKET DISRUPTION EVENT
The exchange right provisions described above are subject to the following
consequences of a market disruption event. If a market disruption event occurs
or is continuing on a day that would otherwise be
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an exchange notice date, then that exchange notice date will be postponed to the
next business day on which a market disruption event does not occur and is not
continuing. In no event, however, will any exchange notice date be postponed by
more than five business days. If the exchange notice date is postponed, the
related exchange date will also be postponed, to the fifth business day after
the exchange notice date.
If the exchange notice date is postponed to the last possible day, but a
market disruption event occurs or is continuing on that day, that day will
nevertheless be the exchange notice date. If the closing level of the basket
that must be used to determine the exchange value is not available on the
exchange notice date, either because of a market disruption event or for any
other reason, the calculation agent will nevertheless determine that closing
level based on its assessment, made in its sole discretion, of the value of the
basket stocks on that day.
OUR CALL RIGHT
We may redeem the offered notes, including your note, in whole but not in
part, at any time after the interest payment date on December 12, 2002, at our
option, for cash at 100% of the outstanding face amount plus any accrued and
unpaid interest to the call date.
If we choose to exercise our call right described above, we will notify
the holder of your note and the trustee not less than 5 nor more than 15
business days before the date we select for redemption, in the manner described
in the accompanying prospectus. The day we give the notice, which will be a
business day, will be the call notice date and the day we select for redemption,
which we will set forth in the call notice, will be the call date, at least
initially. After we give a call notice specifying the call date, we may
nevertheless postpone the call date without further notice for up to five
business days because of a market disruption event, as described under
"-- Automatic Exchange -- Consequences of a Market Disruption Event" below. We
will not give a call notice that results in a call date later than the stated
maturity date.
If we exercise our call right, the holder will be entitled to the benefit,
if any, of an automatic exchange as described under "-- Automatic Exchange"
below. If an automatic exchange occurs in that situation, we will not redeem
your note as described above.
If we give the holder a call notice and an automatic exchange does not
occur, then we will redeem the entire outstanding face amount of your note as
follows. On the call date, we will pay the redemption price in cash, together
with accrued and unpaid interest to the call date, in the manner described under
"Manner of Payment and Delivery" below.
Except as described above in this subsection or under "-- Holder's
Exchange Right", we will not be permitted to redeem your note and the holder
will not be entitled to require us to repay your note before the stated maturity
date.
AUTOMATIC EXCHANGE
An automatic exchange of your note may occur as follows on either the
stated maturity date or a call date.
ON STATED MATURITY DATE
If the holder does not exercise the exchange right for the entire
outstanding face amount of your note by 11:00 A.M., New York City time, on the
business day before the determination date and we do not exercise our call
right, the following will apply. On the determination date, the calculation
agent will determine the automatic exchange value for the outstanding face
amount of the note as if your note was voluntarily exchanged and the
determination date was the exchange notice date. To determine this automatic
exchange value, the calculation agent will multiply the closing level of the
basket on the determination date by the exchange rate and by the outstanding
face amount and will divide the resulting product by $1,000, except in the
limited circumstances described under
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"-- Consequences of a Market Disruption Event" below.
If the automatic exchange value described above exceeds the sum of:
- the face amount of your note then outstanding, plus
- the amount of the regular interest installment that would become due on the
outstanding face amount of your note on the stated maturity date if your note
were not exchanged or redeemed,
then, regardless of the holder's wishes and without any notice being given or
other action being taken by the holder, the remaining portion of your note will
automatically be exchanged as follows. On the stated maturity date, we will pay
to the holder the automatic exchange value, based on the closing level of the
basket described above. The holder will not be entitled to receive the regular
interest installment that would become due on your note on the stated maturity
date in the absence of an automatic exchange. We discuss this matter under
"-- Interest Payments" below.
If the automatic exchange value described above does not exceed the sum of
the outstanding face amount and the regular interest installment described
above, then we will pay the principal amount, together with accrued interest, on
the stated maturity date. We describe this payment under "-- Payment of
Principal on Stated Maturity Date" above.
ON CALL DATE
If we exercise our call right, the holder will receive the benefit, if
any, of an automatic exchange as follows. Prior to the call date, the
calculation agent will determine the automatic exchange value of your note as if
your note was to be voluntarily exchanged and the call notice date was the
exchange notice date. To determine this automatic exchange value, the
calculation agent will multiply the closing level of the basket on the call
notice date by the exchange rate and by the outstanding face amount and will
divide the resulting product by $1,000, except in the limited circumstances
described under "-- Consequences of a Market Disruption Event" below.
If the automatic exchange value described above exceeds the sum of:
- the redemption price that would be payable to the holder on the call date,
plus
- the amount of interest that would accrue on the outstanding face amount of
your note from and after the last interest payment date before the call date
to the call date,
then, regardless of the holder's wishes and without any notice being given or
other action being taken by the holder, the remaining portion of your note will
automatically be exchanged as follows. On the call date, we will pay to the
holder the automatic exchange value based on the closing level of the basket
described above. The holder will not be entitled to receive any interest that
accrues on your note from and after the last interest payment date to the call
date. We discuss this matter under "-- Interest Payments" below.
If the automatic exchange value referred to above does not exceed the sum
of the redemption price and accrued interest described above, then we will
redeem your note in accordance with our call right. We describe this right under
"-- Our Call Right" above.
CONSEQUENCES OF A MARKET DISRUPTION EVENT
As described above, the calculation agent will use the closing level of
the basket on a particular day -- which we call a pricing date -- to determine
the amount of cash that would be payable in an automatic exchange on the stated
maturity date or a call date. This procedure will be subject to the following
two rules, however:
- If a market disruption event occurs or is continuing on a day that would
otherwise be a pricing date, then the calculation agent will instead use the
closing level of the basket on the first business day after that day on which
no market disruption event occurs or is continuing. That first business day,
however, may not be later than the determination date, in the case of an
automatic exchange on the stated maturity
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date, or later than the fifth business day after the call notice date, in the
case of an automatic exchange on the call date. We refer to that first
business day as a deferred pricing date and to the latest business day on
which a deferred pricing date can occur as the latest possible pricing date.
- If a market disruption event occurs or is continuing on a day that would
otherwise be a pricing date and on each subsequent business day through and
including the latest possible pricing date, the calculation agent will
nevertheless determine the closing price of the basket stocks, and the closing
level of the basket and the deferred pricing date will occur, on the latest
possible pricing date. If the closing level of the basket is not available on
that date, either because of a market disruption event or for any other
reason, the calculation agent will determine the closing level of the basket
based on its assessment, made in its sole discretion, of the value of the
basket stocks on the latest possible pricing date. The calculation agent will
use the closing level of the basket on the latest possible pricing date,
however determined, instead of the closing level of the basket described
earlier.
In determining the amount of cash that would be payable in an automatic
exchange on a call date, the calculation agent may use the closing level of the
basket on a deferred pricing date, as described in the two rules above. If that
happens, the call date will be the later of the original call date and the fifth
business day after the deferred pricing date. Consequently, if we exercise our
call right and give the holder a call notice specifying the call date, we may
nevertheless postpone the call date up to five business days after the specified
date because of a market disruption event. We may do so without further notice
to the holder or any other person and whether your note is redeemed or an
automatic exchange occurs on the call date. We will not exercise our call right,
however, in a manner that would result in the call date being later than the
stated maturity date.
INTEREST PAYMENTS
Interest will accrue on the outstanding face amount of your note and will
be calculated and paid as described in the accompanying prospectus with regard
to fixed rate notes, except that the interest payment and regular record dates
will be those specified on the front cover of this prospectus supplement. If the
stated maturity date does not occur on December 12, 2007, however, the interest
payment date scheduled for December 12, 2007 will instead occur on the stated
maturity date.
CONSEQUENCES OF A VOLUNTARY EXCHANGE
If the holder exercises the exchange right, the following four rules will
apply to the exchanged portion of your note:
- IF THE EXCHANGE DATE OCCURS ON AN INTEREST PAYMENT DATE, interest will accrue
on the exchanged portion to, but excluding, that interest payment date. We
will pay the accrued interest on that interest payment date to whoever is the
holder on the related regular record date.
- IF THE EXCHANGE DATE OCCURS AFTER AN INTEREST PAYMENT DATE BUT ON OR BEFORE
THE NEXT REGULAR RECORD DATE, interest will accrue and be paid on the
exchanged portion only to, and excluding, that prior interest payment date and
not for the later period that precedes the exchange date.
- IF THE EXCHANGE DATE OCCURS ON OR BEFORE THE FIRST REGULAR RECORD DATE,
interest will not accrue or be paid on the exchanged portion of your note.
- IF THE EXCHANGE DATE OCCURS AFTER A REGULAR RECORD DATE BUT BEFORE THE RELATED
INTEREST PAYMENT DATE, interest will accrue on the exchanged portion to, but
excluding, that interest payment date. We will pay this accrued interest on
that interest payment date, to whoever is the holder on the related regular
record date. On the exchange notice date, however, the holder exercising the
exchange right will be required to pay us the amount of interest that will
become payable on the exchanged portion of your note on that interest payment
date.
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As long as your note is in global form, the regular record date will be
the business day before the related interest payment date, so that no exchange
date can occur between those two dates. Consequently, the fourth rule above will
have no practical effect on your note unless and until your note ceases to be in
global form. We describe the situations in which we may terminate a global note
in the accompanying prospectus under "Legal Ownership and Book-Entry
Issuance -- What Is a Global Note?".
Because of the rules described above, if you decide to exchange your note,
you may lose the right to receive interest on your note for the interest period
in which the exchange occurs.
CONSEQUENCES OF AN AUTOMATIC EXCHANGE
The four rules described in the prior subsection do not apply if an
automatic exchange occurs. IF AN AUTOMATIC EXCHANGE OCCURS, EITHER ON THE STATED
MATURITY DATE OR EARLIER BECAUSE WE EXERCISE OUR CALL RIGHT, WE WILL NOT PAY ANY
INTEREST THAT ACCRUES ON THE EXCHANGED PORTION OF YOUR NOTE FROM AND AFTER THE
LAST INTEREST PAYMENT DATE PRIOR TO THE AUTOMATIC EXCHANGE -- I.E., FROM AND
AFTER THE LAST INTEREST PAYMENT DATE PRIOR TO THE STATED MATURITY DATE OR THE
CALL DATE, AS THE CASE MAY BE. As described above under "-- Our Call Right", we
will not be entitled to redeem your note until after the interest payment date
on December 12, 2002.
ANTIDILUTION ADJUSTMENTS
As previously described, the amount of cash payable in respect of each
$1,000 outstanding principal amount of an offered note in a voluntary or
automatic exchange will be based on the value of the reference amount for each
basket stock. Initially, the reference amount for each basket stock will be the
amount specified under "-- The Basket" above. However, the calculation agent
will adjust the reference amount for each basket stock if any of the six
dilution events described below occurs with respect to the basket stock.
For example, if an adjustment is required because of a two-for-one stock
split or a one-for-two reverse stock split, then the reference amount for that
basket stock might be adjusted to be double or half the initial amount specified
above, as the case may be.
Similarly, if an adjustment is required with respect to a basket stock
because of a reorganization event in which property other than the basket
stock -- e.g., cash and securities of another issuer -- is distributed in
respect of the basket stock, then the calculation agent will adjust both the
type and amount of property constituting the relevant reference amount. In this
example, the new reference amount will consist of both the amount of cash and
the amount of securities distributed in the reorganization event in respect of
the old reference amount.
The calculation agent will adjust the reference amount for each basket
stock as described below, but only if an event described under one of the six
subsections beginning with "-- Stock Splits" below occurs with respect to that
basket stock and only if the relevant event occurs during the period described
under the applicable subsection. The reference amount for each basket stock will
be subject to the adjustments described below, independently and separately,
with respect to the dilution events that affect the stock.
The adjustments described below do not cover all events that could affect
a basket stock. We describe the risks relating to dilution under "Additional
Risk Factors Specific to Your Note -- You Have Limited Antidilution Protection"
above.
HOW ADJUSTMENTS WILL BE MADE
If more than one event requiring adjustment occurs with respect to a
reference amount for a basket stock, the calculation agent will adjust that
reference amount for each event, sequentially, in the order in which the events
occur, and on a cumulative basis. Thus, having adjusted the reference amount for
the first event, the calculation agent will adjust the reference amount for the
second event, applying the required adjustment to the reference amount as
already adjusted for the first event, and so on for each event.
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With respect to any portion of your note to be exchanged, including any
portion subject to an automatic exchange, the calculation agent will make the
required determinations and adjustments no later than the related exchange
notice date. For this purpose, the exchange notice date for an automatic
exchange will be the business day for which the closing price or other market
value of the relevant basket stock is used to determine the amount of cash
payable in that exchange. If any event requiring adjustment occurs during a
pricing period for an automatic exchange, so that one or more but not all the
closing prices used to calculate the average closing price are affected by the
event, the calculation agent will make any additional adjustments it considers
necessary to give appropriate effect to this fact.
The calculation agent will adjust a reference amount for each
reorganization event described in "-- Reorganization Events" below. For any
other dilution event described below, however, the calculation agent will not
have to adjust a reference amount unless the adjustment would result in a change
of at least 0.1% in the reference amount that would apply without the
adjustment. The applicable reference amount resulting from any adjustment will
be rounded up or down, as appropriate, to the nearest ten-thousandth, with five
hundred-thousandths being rounded upward -- e.g., 0.12344 will be rounded down
to 0.1234 and 0.12345 will be rounded up to 0.1235.
If an event requiring antidilution adjustment occurs, the calculation
agent will make the adjustment with a view to offsetting, to the extent
practical, any change in the economic position of the holder and The Goldman
Sachs Group, Inc., relative to your note, that results solely from that event.
The calculation agent may, in its sole discretion, modify the antidilution
adjustments described below as necessary to ensure an equitable result.
The calculation agent will make all determinations with respect to
antidilution adjustments, including any determination as to whether an event
requiring adjustment has occurred, as to the nature of the adjustment required
and how it will be made or as to the value of any property distributed in a
reorganization event, and will do so in its sole discretion. In the absence of
manifest error, those determinations will be conclusive for all purposes and
will be binding on you and us, without any liability on the part of the
calculation agent. The calculation agent will provide information about the
adjustments it makes upon written request by the holder.
STOCK SPLITS
A stock split is an increase in the number of a corporation's outstanding
shares of stock without any change in its stockholders' equity. Each outstanding
share will be worth less as a result of a stock split.
If a basket stock is subject to a stock split, then the calculation agent
will adjust the applicable reference amount to equal the sumof the prior
reference amount -- i.e., the reference amount before that adjustment -- plus
the product of (1) the number of new shares issued in the stock split with
respect to one share of the basket stock times (2) the prior reference amount.
The reference amount will not be adjusted, however, unless the first day on
which the basket stock trades without the right to receive the stock split
occurs after the date of this prospectus supplement and on or before the
relevant exchange notice date.
REVERSE STOCK SPLITS
A reverse stock split is a decrease in the number of a corporation's
outstanding shares of stock without any change in its stockholders' equity. Each
outstanding share will be worth more as a result of a reverse stock split.
If a basket stock is subject to a reverse stock split, then the
calculation agent will adjust the applicable reference amount to equal the
product of the prior reference amount and the quotient of (1) the number of
outstanding shares of the basket stock outstanding immediately after the reverse
stock split becomes effective divided by (2) the number of shares of the basket
stock outstanding immediately before the reverse stock split becomes effective.
The reference
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amount will not be adjusted, however, unless the reverse stock split becomes
effective after the date of this prospectus supplement and on or before the
relevant exchange notice date.
STOCK DIVIDENDS
In a stock dividend, a corporation issues additional shares of its stock
to all holders of its outstanding stock in proportion to the shares they own.
Each outstanding share will be worth less as a result of a stock dividend.
If a basket stock is subject to a stock dividend, then the calculation
agent will adjust the applicable reference amount to equal the sum of the prior
reference amount plus the product of (1) the number of shares issued in the
stock dividend with respect to one share of the basket stock times (2) the prior
reference amount. The reference amount will not be adjusted, however, unless the
ex-dividend date occurs after the date of this prospectus supplement and on or
before the relevant exchange notice date.
The ex-dividend date for any dividend or other distribution with respect
to a basket stock is the first day on which the basket stock trades without the
right to receive that dividend or other distribution.
OTHER DIVIDENDS AND DISTRIBUTIONS
A reference amount will not be adjusted to reflect dividends or other
distributions paid with respect to a basket stock, other than:
- stock dividends described above,
- issuances of transferable rights and warrants as described in "-- Transferable
Rights and Warrants" below,
- distributions that are spin-off events described in "-- Reorganization Events"
below, and
- extraordinary dividends described below.
A dividend or other distribution with respect to a basket stock will be
deemed to be an extraordinary dividend if its per-share value exceeds that of
the immediately preceding non-extraordinary dividend, if any, for the basket
stock by an amount equal to at least 10% of the closing price of the basket
stock on the first business day before the ex-dividend date.
If an extraordinary dividend occurs with respect to a basket stock, the
calculation agent will adjust the applicable reference amount to equal the
product of (1) the prior reference amount times (2) a fraction, the numerator of
which is the closing price of the basket stock on the business day before the
ex-dividend date and the denominator of which is the amount by which that
closing price exceeds the extraordinary dividend amount. The reference amount
will not be adjusted, however, unless the ex-dividend date occurs after the date
of this prospectus supplement and on or before the relevant exchange notice
date.
The extraordinary dividend amount with respect to an extraordinary
dividend for a basket stock equals:
- for an extraordinary dividend that is paid in lieu of a regular quarterly
dividend, the amount of the extraordinary dividend per share of the basket
stock minus the amount per share of the immediately preceding dividend, if
any, that was not an extraordinary dividend for the basket stock, or
- for an extraordinary dividend that is not paid in lieu of a regular quarterly
dividend, the amount per share of the extraordinary dividend.
To the extent an extraordinary dividend is not paid in cash, the value of
the non-cash component will be determined by the calculation agent. A
distribution on a basket stock that is a stock dividend, an issuance of
transferable rights or warrants or a spin-off event and also an extraordinary
dividend will result in an adjustment to the applicable reference amount only as
described in "-- Stock Dividends" above, "-- Transferable Rights and Warrants"
below or "-- Reorganization Events" below, as the case may be, and not as
described here.
TRANSFERABLE RIGHTS AND WARRANTS
If a basket stock issuer issues transferable rights or warrants to all
holders
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of that basket stock to subscribe for or purchase the basket stock at an
exercise price per share that is less than the closing price of the basket stock
on the business day before the ex-dividend date for the issuance, then the
applicable reference amount will be adjusted by multiplying the prior reference
amount by the following fraction:
- the numerator will be the number of shares of the basket stock outstanding at
the close of business on the day before that ex-dividend date plus the number
of additional shares of the basket stock offered for subscription or purchase
under those transferable rights or warrants and
- the denominator will be the number of shares of the basket stock outstanding
at the close of business on the day before that ex-dividend date plus the
number of additional shares of the basket stock that the aggregate offering
price of the total number of shares of the basket stock so offered for
subscription or purchase would purchase at the closing price of the basket
stock on the business day before that ex-dividend date, with that number of
additional shares being determined by multiplying the total number of shares
so offered by the exercise price of those transferable rights or warrants and
dividing the resulting product by the closing price on the business day before
that ex-dividend date.
A reference amount will not be adjusted, however, unless the ex-dividend date
described above occurs after the date of this prospectus supplement and on or
before the relevant exchange notice date.
REORGANIZATION EVENTS
Each of the following is a reorganization event with respect to a basket
stock:
- the basket stock is reclassified or changed,
- the basket stock issuer has been subject to a merger, consolidation or other
combination and either is not the surviving entity or is the surviving entity
but all the outstanding basket stock is exchanged for or converted into other
property,
- a statutory share exchange involving the outstanding basket stock and the
securities of another entity occurs, other than as part of an event described
above,
- the basket stock issuer sells or otherwise transfers its property and assets
as an entirety or substantially as an entirety to another entity,
- the basket stock issuer effects a spin-off -- that is, issues to all holders
of the basket stock equity securities of another issuer, other than as part of
an event described above,
- the basket stock issuer is liquidated, dissolved or wound up or is subject to
a proceeding under any applicable bankruptcy, insolvency or other similar law,
or
- another entity completes a tender or exchange offer for all the outstanding
basket stock of the basket stock issuer.
ADJUSTMENTS FOR REORGANIZATION EVENTS. If a reorganization event occurs
with respect to a basket stock, then the calculation agent will adjust the
applicable reference amount so as to consist of the amount and type of
property -- whether it be cash, securities or other property -- distributed in
the event in respect of the prior reference amount. If more than one type of
property is distributed, the reference amount will be adjusted so as to consist
of each type of property distributed in respect of the prior reference amount,
in a proportionate amount so that the value of each type of property comprising
the new reference amount as a percentage of the total value of the new reference
amount equals the value of that type of property as a percentage of the total
value of all property distributed in the reorganization event in respect of the
prior reference amount. We refer to the property distributed in a reorganization
event as distribution property, a term we describe in more detail below.
For the purpose of making an adjustment required by a reorganization
event, the calculation agent will determine the value of each type of
distribution property, in its sole discretion. For any distribution property
consisting of a security, the
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calculation agent will use the closing price for the security on the relevant
exchange notice date. The calculation agent may value other types of property in
any manner it determines, in its sole discretion, to be appropriate. If a holder
of the applicable basket stock may elect to receive different types or
combinations of types of distribution property in the reorganization event, the
distribution property will consist of the types and amounts of each type
distributed to a holder that makes no election, as determined by the calculation
agent in its sole discretion.
If a reorganization event occurs and the calculation agent adjusts a
reference amount to consist of the distribution property distributed in the
event as described above, the calculation agent will make further antidilution
adjustments for later events that affect the distribution property, or any
component of the distribution property, comprising the new reference amount. The
calculation agent will do so to the same extent that it would make adjustments
if the applicable basket stock were outstanding and were affected by the same
kinds of events. If a subsequent reorganization event affects only a particular
component of the reference amount, the required adjustment will be made with
respect to that component, as if it alone were the reference amount.
For example, if a basket stock issuer merges into another company and each
share of the basket stock is converted into the right to receive two common
shares of the surviving company and a specified amount of cash, the applicable
reference amount will be adjusted to consist of two common shares and the
specified amount of cash. The calculation agent will adjust the common share
component of the new reference amount to reflect any later stock split or other
event, including any later reorganization event, that affects the common shares
of the surviving company, to the extent described in this subsection entitled
"-- Antidilution Adjustments" as if the common shares were the basket stock. In
that event, the cash component will not be adjusted but will continue to be a
component of the reference amount. Consequently, if the holder exercises the
exchange right or an automatic exchange occurs, the holder will be entitled to
receive, for each $1,000 of the outstanding face amount of your note being
exchanged, an exchange value that is computed by including the value of all
components of the reference amount in effect with respect to the basket stock on
the relevant exchange notice date, with each component having been adjusted on a
sequential and cumulative basis for all relevant events requiring adjustment on
or before the relevant exchange notice date.
The calculation agent will not make any adjustment for a reorganization
event, however, unless the event becomes effective -- or, if the event is a
spin-off, unless the ex-dividend date for the spin-off occurs -- after the date
of this prospectus supplement and on or before the relevant exchange notice
date.
DISTRIBUTION PROPERTY. When we refer to distribution property, we mean
the cash, securities and other property distributed in a reorganization event in
respect of the initial reference amount for the relevant basket stock as
specified in the table under "-- The Basket" above -- or in respect of whatever
the reference amount for that stock may then be if any antidilution adjustment
has been made in respect of a prior event. In the case of a spin-off, the
distribution property also includes the applicable reference amount of the
basket stock in respect of which the distribution is made.
If a reorganization event occurs, the distribution property distributed in
the event will be substituted for the applicable basket stock as described
above. Consequently, in this prospectus supplement, when we refer to a basket
stock, we mean any distribution property that is distributed in a reorganization
event and comprises the adjusted reference amount. Similarly, when we refer to a
basket stock issuer, we mean any successor entity in a reorganization event.
DEFAULT AMOUNT ON ACCELERATION
If an event of default occurs and the maturity of your note is
accelerated, we will pay the default amount in respect of the principal of your
note at the maturity. We
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describe the default amount below under "-- Special Calculation Provisions".
For the purpose of determining whether the holders of our Series B
medium-term notes, which include the offered notes, are entitled to take any
action under the indenture, we will treat the outstanding face amount of each
offered note as the outstanding principal amount of your note. Although the
terms of the offered notes differ from those of the other Series B medium-term
notes, holders of specified percentages in principal amount of all Series B
medium-term notes, together in some cases with other series of our debt
securities, will be able to take action affecting all the Series B medium-term
notes, including the offered notes. This action may involve changing some of the
terms that apply to the Series B medium-term notes, accelerating the maturity of
the Series B medium-term notes after a default or waiving some of our
obligations under the indenture. We discuss these matters in the accompanying
prospectus under "Description of Debt Securities We May Offer -- Default,
Remedies and Waiver of Default" and "-- Modification of the Indentures and
Waiver of Covenants".
MANNER OF PAYMENT
Any payment on your note at maturity or any exchange date or on any call
date will be made to an account designated by the holder of your note and
approved by us, or at the office of the trustee in New York City, but only when
the note is surrendered to the trustee at that office. We may pay interest due
on any interest payment date by check mailed to the person who is the holder on
the regular record date. We also may make any payment or delivery in accordance
with the applicable procedures of the depositary.
MODIFIED BUSINESS DAY
As described in the accompanying prospectus, any payment on your note that
would otherwise be due on a day that is not a business day may instead be paid
on the next day that is a business day, with the same effect as if paid on the
original due date. For your note, however, the term business day has a different
meaning than it does for other Series B medium-term notes. We discuss this term
under "-- Special Calculation Provisions" below.
ROLE OF CALCULATION AGENT
The calculation agent in its sole discretion will make all determinations
regarding the closing level of the basket and the closing prices of the basket
stocks, antidilution adjustments, market disruption events, automatic exchange,
business days, the default amount and the amount payable in respect of your
note. Absent manifest error, all determinations of the calculation agent will be
final and binding on you and us, without any liability on the part of the
calculation agent.
Please note that Goldman, Sachs & Co. is serving as the calculation agent
as of the original issue date of your note. We may change the calculation agent
after the original issue date without notice.
SPECIAL CALCULATION PROVISIONS
BUSINESS DAY
When we refer to a business day with respect to your note, we mean a day
that is a business day of the kind described in the accompanying prospectus and
is also a day on which the principal securities market (or, if different, each
of the respective principal securities markets) for the basket stocks is open
for trading.
CLOSING PRICE
The closing price for any security on any day will equal the closing sale
price or last reported sale price, regular way, for the security, on a per-share
or other unit basis:
- on the principal national securities exchange on which that security is listed
for trading on that day, or
- if that security is not listed on any national securities exchange, on the
Nasdaq National Market System on that day, or
- if that security is not quoted on the Nasdaq National Market System on that
day, on any other U.S. national market system that is
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the primary market for the trading of that security.
If that security is not listed or traded as described above, then the closing
price for that security on any day will be the average, as determined by the
calculation agent, of the bid prices for the security obtained from as many
dealers in that security selected by the calculation agent as will make those
bid prices available to the calculation agent. The number of dealers need not
exceed three and may include the calculation agent or any of its or our
affiliates.
DEFAULT AMOUNT
The default amount for your note on any day will be an amount, in the
specified currency for the principal of your note, equal to the cost of having a
qualified financial institution, of the kind and selected as described below,
expressly assume all our payment and other obligations with respect to your note
as of that day and as if no default or acceleration had occurred, or to
undertake other obligations providing substantially equivalent economic value to
you with respect to your note. That cost will equal:
- the lowest amount that a qualified financial institution would charge to
effect this assumption or undertaking, plus
- the reasonable expenses, including reasonable attorneys' fees, incurred by the
holder of your note in preparing any documentation necessary for this
assumption or undertaking.
During the default quotation period for your note, which we describe below, the
holder and/or we may request a qualified financial institution to provide a
quotation of the amount it would charge to effect this assumption or
undertaking. If either party obtains a quotation, it must notify the other party
in writing of the quotation. The amount referred to in the first bullet point
above will equal the lowest -- or, if there is only one, the only -- quotation
obtained, and as to which notice is so given, during the default quotation
period. With respect to any quotation, however, the party not obtaining the
quotation may object, on reasonable and significant grounds, to the assumption
or undertaking by the qualified financial institution providing the quotation
and notify the other party in writing of those grounds within two business days
after the last day of the default quotation period, in which case that quotation
will be disregarded in determining the default amount.
DEFAULT QUOTATION PERIOD. The default quotation period is the period
beginning on the day the default amount first becomes due and ending on the
third business day after that day,
unless:
- no quotation of the kind referred to above is obtained or
- every quotation of that kind obtained is objected to within five business days
after the due day as described above.
If either of these two events occurs, the default quotation period will continue
until the third business day after the first business day on which prompt notice
of a quotation is given as described above. If that quotation is objected to as
described above within five business days after that first business day,
however, the default quotation period will continue as described in the prior
sentence and this sentence.
In any event, if the default quotation period and the subsequent two
business day objection period have not ended before the determination date, then
the default amount will equal the principal amount of your note.
QUALIFIED FINANCIAL INSTITUTIONS. For the purpose of determining the
default amount at any time, a qualified financial institution must be a
financial institution organized under the laws of any jurisdiction in the United
States of America, Europe or Japan, which at that time has outstanding debt
obligations with a stated maturity of one year or less from the date of issue
and rated either:
- A-1 or higher by Standard & Poor's Ratings Group or any successor, or any
other comparable rating then used by that rating agency, or
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<PAGE> 20
- P-1 or higher by Moody's Investors Service, Inc. or any successor, or any
other comparable rating then used by that rating agency.
MARKET DISRUPTION EVENT
Any of the following will be a market disruption event:
- a suspension, absence or material limitation of trading in any of the basket
stocks on its primary market, in each case for more than two hours of trading
or during the one-half hour before the close of trading in that market, as
determined by the calculation agent in its sole discretion, or
- a suspension, absence or material limitation of trading in option contracts,
if available, relating to any of the basket stocks in the primary market for
those contracts, in each case for more than two hours of trading or during the
one-half hour before the close of trading in that market, as determined by the
calculation agent in its sole discretion, or
- any of the basket stocks does not trade on what was the primary market for
that basket stock, as determined by the calculation agent in its sole
discretion,
and, in any of these events, the calculation agent determines in its sole
discretion that the event materially interferes with the ability of The Goldman
Sachs Group, Inc. or any of its affiliates to unwind all or a material portion
of a hedge with respect to the offered notes that we or our affiliates have
effected or may effect as described below under "Use of Proceeds and Hedging".
The following events will not be market disruption events:
- a limitation on the hours or numbers of days of trading, but only if the
limitation results from an announced change in the regular business hours of
the relevant market, and
- a decision to permanently discontinue trading in the option contracts relating
to any basket stock.
For this purpose, an "absence of trading" in the primary securities market
on which a basket stock, or on which option contracts relating to a basket
stock, are traded will not include any time when that market is itself closed
for trading under ordinary circumstances. In contrast, a suspension or
limitation of trading in a basket stock or in option contracts relating to a
basket stock, if available, in the primary market for that stock or those
contracts, by reason of:
- a price change exceeding limits set by that market, or
- an imbalance of orders relating to that stock or those contracts, or
- a disparity in bid and ask quotes relating to that stock or those contracts,
will constitute a suspension or material limitation of trading in that stock or
those contracts in that primary market.
As is the case throughout this prospectus supplement, references to any
basket stock in this description of market disruption events include securities
that are part of any adjusted reference amount for that basket stock, as
determined by the calculation agent in its sole discretion.
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<PAGE> 21
HYPOTHETICAL RETURNS ON YOUR NOTE
In the table below, we compare the total return on owning the basket
stocks (having the same relative weightings as they do in the basket) to the
total return on owning your note, in each case during the period from the trade
date to the stated maturity date. The information in the table is based on
hypothetical market values for the basket stocks and your note at the end of
this period, and on the assumptions set forth in the box below. In the
paragraphs following the table, we explain how we have calculated these
hypothetical returns.
<TABLE>
<S> <C>
ASSUMPTIONS
Original issue price,
expressed as a percentage
of the face amount 100%
Exchange rate 8.6655
Reference basket level (as
determined on the trade
date) 100
Premium (as a percentage of
the reference basket
level) 15.40%
Annual dividend yield 0.36%
No dilution event or other
change in or affecting
any of the basket stocks
Automatic exchange in full
on the stated maturity
date -- i.e., no prior
redemption or voluntary
exchange
No market disruption event
occurs
</TABLE>
We calculate the total return on your note based on an exchange rate of
8.6655 for each $1,000 of the outstanding face amount of your note. This
exchange rate was determined by dividing $1,000 by the product of the reference
basket level times an amount equal to one plus a premium of 15.40%. Because the
exchange rate has been determined in this manner, the closing level of the
basket must increase by the determination date to an amount equal to the
reference basket level times an amount equal to one plus the premium in order
for the cash value that would be deliverable in exchange for any portion of your
note on the stated maturity date to equal the face amount of the exchanged
portion. There is no assurance that the closing basket level will increase to
that extent by the determination date.
The basket stocks are traded on the New York Stock Exchange. For
information about the market price of the basket stocks in recent periods, see
"Basket Stocks -- Historical Trading Price Information" below.
As stated above, the following table assumes that dividends will be paid
on the basket stocks. We do not know, however, whether or to what extent the
issuers of the basket stocks will pay dividends in the future. These are matters
that will be determined by the issuers of the basket stocks and not by us.
Consequently, the amount of dividends actually paid on the basket stocks by
their issuers, and, therefore, the rate of return on the basket stocks, during
the life of the offered notes may differ substantially from the information
reflected in the table below.
The following table is provided for purposes of illustration only. It
should not be taken as an indication or prediction of future investment results
and is intended merely to illustrate the impact that various hypothetical market
values at the end of the indicated period could have on the rates of return on
the basket and your note, assuming all other variables remained constant.
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<PAGE> 22
<TABLE>
<CAPTION>
Basket Your Note
--------------------------------------------------- ------------------------------
Hypothetical
Closing Basket
Level on Stated Hypothetical
Hypothetical Maturity Date as % Market Value on
Closing Basket of Reference Hypothetical Stated Maturity Hypothetical
Level on Stated Basket Level on Pretax Total Date as % of Pretax Total
Maturity Date Trade Date Return Face Amount Return
--------------- ------------------ ------------ --------------- ------------
<S> <C> <C> <C> <C>
50.00 50% -47.5% 100.0% 7.00%
60.00 60% -37.5% 100.0% 7.00%
70.00 70% -27.5% 100.0% 7.00%
80.00 80% -17.5% 100.0% 7.00%
90.00 90% -7.5% 100.0% 7.00%
100.00 100% 2.5% 100.0% 7.00%
110.00 110% 12.5% 100.0% 7.00%
120.00 120% 22.5% 104.0% 10.49%
130.00 130% 32.5% 112.7% 19.15%
140.00 140% 42.5% 121.3% 27.82%
150.00 150% 52.5% 130.0% 36.48%
160.00 160% 62.5% 138.6% 45.15%
170.00 170% 72.5% 147.3% 53.81%
180.00 180% 82.5% 156.0% 62.48%
190.00 190% 92.5% 164.6% 71.14%
200.00 200% 102.5% 173.3% 79.81%
</TABLE>
---------------
The hypothetical total return on the basket represents the difference
between (i) the hypothetical closing level of the basket on the stated maturity
date plus the dividends that would be paid at the assumed dividend yield rate
during the period from the trade date to the stated maturity date, without
reinvestment of those dividends, and (ii) the reference basket level. This
difference is expressed as a percentage of the reference basket level.
The hypothetical total return on your note represents the difference
between (i) the hypothetical market value of your note on the stated maturity
date plus the amount of interest that would be payable on your note during the
period from the trade date to the stated maturity date, without reinvestment of
that interest, and (ii) the hypothetical market value of your note on the trade
date. This difference is expressed as a percentage of the hypothetical market
value on the trade date. For this purpose, we have assumed that the market value
of your note on the trade date equals the outstanding face amount but that the
market value on the stated maturity date will equal the greater of the
outstanding face amount and the automatic exchange value that we would be
obligated to pay on that date in an automatic exchange. There will be no
automatic exchange on the stated maturity date, however, unless the automatic
exchange value to be paid on that date exceeds the sum of the outstanding face
amount plus the amount of the regular interest installment payable on your note
on that date. Moreover, if an automatic exchange occurs, the holder will not be
entitled to receive that final regular interest installment. Therefore, we have
assumed that unless the automatic exchange value exceeds that sum, the market
value of your note on the stated maturity date will equal the outstanding face
amount. We have also assumed that the closing level of the basket will be the
same
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<PAGE> 23
on the determination date and the stated maturity date.
We cannot predict the level of the basket or the market value of your
note, nor can we predict the relationship between the two. Moreover, the
assumptions we have made in connection with the illustration set forth
above may not reflect actual events. Consequently, the total return that
an investor in a note would actually achieve, as well as how that return
would compare to the total return that an investor in the basket stocks
would actually achieve, may be very different from the information
reflected in the table above.
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<PAGE> 24
USE OF PROCEEDS AND HEDGING
We will use the net proceeds we receive from the sale of the offered notes
for the purposes we describe in the accompanying prospectus under "Use of
Proceeds". We or our affiliates may also use those proceeds in transactions
intended to hedge our obligations under the offered notes as described below.
In anticipation of the sale of the offered notes, we and/or our affiliates
have entered into hedging transactions involving purchases of the basket stocks
or listed and over-the-counter options or other instruments based on the basket
stocks prior to and/or on the trade date. From time to time, we and/or our
affiliates may enter into additional hedging transactions or unwind those we
have entered into. In this regard, we and/or our affiliates may:
- acquire or dispose of the basket stocks or other securities of the basket
stock issuers,
- take short positions in the basket stocks or other securities of the basket
stock issuers -- i.e., we and/or our affiliates may sell securities of the
kind that we do not own or that we borrow for delivery to purchaser,
- take or dispose of positions in listed or over-the-counter options or other
instruments based on the basket stocks, and/or
- take or dispose of positions in listed or over-the-counter options or other
instruments based on indices designed to track the performance of the New York
Stock Exchange or other components of the U.S. equity market.
We and/or our affiliates may acquire a long or short position in
securities similar to the offered notes from time to time and may, in our or
their sole discretion, hold or resell those securities.
We and/or our affiliates may close out our or their hedge on or before the
determination date. That step may involve sales or purchases of the basket
stocks, listed or over-the-counter options on the basket stocks or listed or
over-the-counter options or other instruments based on indices designed to track
the performance of the New York Stock Exchange or other components of the U.S.
equity market.
The hedging activity discussed above may adversely affect the market value
of your note from time to time. See "Additional Risk Factors Specific to
Your Note -- Trading and Other Transactions by Goldman Sachs in the Basket
Stocks May Impair the Value of Your Note" and "-- Our Business Activities
May Create Conflicts of Interest Between You and Us" for a discussion of
these adverse effects.
S-24
<PAGE> 25
THE BASKET STOCKS
According to publicly available documents, AMR Corporation operates an
airline that provides scheduled passenger, freight and mail service throughout
North America, the Caribbean, Latin America, Europe and the Pacific. It also
provides connecting service throughout the United States, Canada and the
Caribbean. In addition, AMR Corporation provides aviation services, call center
management services and investment advisory services.
According to publicly available documents, Countrywide Credit Industries
Inc. originates, purchases, sells and services mortgage loans. It also offers
products and services complementary to its mortgage banking business. Its
subsidiaries include full-service and title insurance agencies, a securities
broker-dealer, a loan servicing brokerage firm and a mutual fund manager and
service provider.
According to publicly available documents, Waste Management, Inc. provides
waste management services including collection, transfer, recycling and resource
recovery services, disposal services and hazardous waste management, and it
operates waste-to-energy facilities. It serves municipal, commercial, industrial
and residential customers throughout the U.S., Puerto Rico, Canada, Mexico,
Europe, the Pacific Rim and South America.
WHERE INFORMATION ABOUT THE BASKET STOCK
ISSUERS CAN BE OBTAINED
Each of the basket stocks is registered under the Securities Exchange Act
of 1934. Companies with securities registered under the Exchange Act are
required to file financial and other information specified by the SEC
periodically. Information filed with the SEC can be inspected and copied at the
public reference facilities maintained by the SEC at:
- Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
- Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661,
and
- Seven World Trade Center, 13th Floor, New York, New York 10048.
Copies of this material can also be obtained from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, information filed by each basket stock issuer
with the SEC electronically can be reviewed through a web site maintained by the
SEC. The address of the SEC's web site is http://www.sec.gov. Information filed
with the SEC by each basket stock issuer under the Exchange Act can be located
by reference to its SEC file number: 001-08400 (AMR Corporation), 001-12331-01
(Countrywide Credit Industries Inc.) or 001-12154 (Waste Management, Inc.).
Information about each basket stock issuer may also be obtained from other
sources such as press releases, newspaper articles and other publicly
disseminated documents.
We do not make any representation or warranty as to the accuracy or
completeness of any materials referred to above, including any filings made by a
basket stock issuer with the SEC.
WE OBTAINED THE INFORMATION ABOUT THE
BASKET STOCK ISSUERS IN THIS PROSPECTUS
SUPPLEMENT FROM THE BASKET STOCK
ISSUERS' PUBLIC FILINGS
This prospectus supplement relates only to your note and does not relate
to the basket stocks or other securities of the basket stock issuers. We have
derived all information about the basket stock issuers in this prospectus
supplement from the publicly available documents referred to in the preceding
subsection. We have not participated in the preparation of any of those
documents or made any "due diligence" investigation or any other inquiry with
respect to any basket stock issuer in connection with the offering of your note.
We do not make any representation that the publicly available documents or any
other publicly available information about any basket stock issuer is accurate
or complete. Furthermore, we do not know whether all
S-25
<PAGE> 26
events occurring before the date of this prospectus supplement -- including
events that would affect the accuracy or completeness of the publicly available
documents referred to above, the trading price of the basket stocks and,
therefore, the exchange value -- have been publicly disclosed. Subsequent
disclosure of any events of this kind or the disclosure of or failure to
disclose material future events concerning any basket stock issuer could affect
the value you will receive at maturity and, therefore, the market value of your
note.
Neither we nor any of our affiliates make any representation to you as to
the performance of the basket or basket stocks.
We or any of our affiliates may currently or from time to time engage in
business with the basket stock issuers, including making loans to or equity
investments in the basket stock issuers or providing advisory services to the
basket stock issuers, including merger and acquisition advisory services. In the
course of that business, we or any of our affiliates may acquire non-public
information about the basket stock issuers and, in addition, one or more of our
affiliates may publish research reports about the basket stock issuers. As an
investor in a note, you should undertake such independent investigation of the
basket stock issuers as in your judgment is appropriate to make an informed
decision with respect to an investment in a note.
HISTORICAL TRADING PRICE INFORMATION
The basket stocks are traded on the New York Stock Exchange, under the
symbols "AMR", "CCR" and "WMI", respectively. The following tables set forth the
quarterly high, low and closing prices for each basket stock on the New York
Stock Exchange for the four calendar quarters in each of 1998 and 1999 and for
the four calendar quarters in 2000, through December 5, 2000. We obtained the
trading price information set forth below from Bloomberg Financial Services,
without independent verification.
You should not take the historical prices of the basket stocks as an
indication of future performance. We cannot give you any assurance that the
prices of the basket stocks will increase sufficiently for you to receive an
amount in excess of the face amount of your note at maturity.
S-26
<PAGE> 27
AMR CORPORATION
<TABLE>
<CAPTION>
HIGH LOW CLOSE
------- ------- -------
<S> <C> <C> <C>
1998
Quarter ended March 31.................................... 32.7578 27.6563 32.0156
Quarter ended June 30..................................... 37.2305 30.8438 37.2305
Quarter ended September 30................................ 39.9141 22.3594 24.7930
Quarter ended December 31................................. 31.2188 21.0742 26.5508
1999
Quarter ended March 31.................................... 31.9453 23.7852 26.1875
Quarter ended June 30..................................... 33.2344 27.0820 30.5195
Quarter ended September 30................................ 32.5352 23.6172 24.3711
Quarter ended December 31................................. 30.6328 23.9531 29.9609
2000
Quarter ended March 31.................................... 32.4375 22.2773 31.8750
Quarter ended June 30..................................... 37.8750 26.4375 26.4375
Quarter ended September 30................................ 34.6875 26.1250 32.6875
Quarter ending December 31 (through December 5, 2000)..... 36.7500 27.9375 36.7500
Closing Price on December 5, 2000......................... 36.7500
</TABLE>
COUNTRYWIDE CREDIT INDUSTRIES INC.
<TABLE>
<CAPTION>
HIGH LOW CLOSE
------- ------- -------
<S> <C> <C> <C>
1998
Quarter ended March 31.................................... 53.5000 42.1250 53.1875
Quarter ended June 30..................................... 53.6875 45.3750 50.7500
Quarter ended September 30................................ 56.1875 36.0000 41.6250
Quarter ended December 31................................. 50.3750 30.8125 50.1875
1999
Quarter ended March 31.................................... 49.5000 36.9375 37.5000
Quarter ended June 30..................................... 47.6875 37.7500 42.7500
Quarter ended September 30................................ 44.1250 30.0000 32.2500
Quarter ended December 31................................. 34.1250 24.8750 25.2500
2000
Quarter ended March 31.................................... 29.3125 23.1250 27.2500
Quarter ended June 30..................................... 34.2500 25.1250 30.3125
Quarter ended September 30................................ 40.9375 31.0625 37.7500
Quarter ending December 31 (through December 5, 2000)..... 38.7500 32.7500 38.5625
Closing Price on December 5, 2000......................... 38.5625
</TABLE>
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<PAGE> 28
WASTE MANAGEMENT, INC.
<TABLE>
<CAPTION>
HIGH LOW CLOSE
------- ------- -------
<S> <C> <C> <C>
1998
Quarter ended March 31.................................... 46.7500 34.7500 44.5625
Quarter ended June 30..................................... 49.9375 44.6875 49.7500
Quarter ended September 30................................ 57.7500 44.1250 48.0625
Quarter ended December 31................................. 48.6250 38.6250 46.6250
1999
Quarter ended March 31.................................... 53.5000 42.1250 44.7500
Quarter ended June 30..................................... 59.1875 45.5000 53.7500
Quarter ended September 30................................ 55.2500 18.3750 19.2500
Quarter ended December 31................................. 19.3750 14.3750 17.1875
2000
Quarter ended March 31.................................... 18.1250 13.2500 13.6875
Quarter ended June 30..................................... 20.3750 13.5000 19.0000
Quarter ended September 30................................ 21.4375 17.4375 17.4375
Quarter ending December 31 (through December 5, 2000)..... 26.5000 17.7500 26.0625
Closing Price on December 5, 2000......................... 26.0625
</TABLE>
S-28
<PAGE> 29
SUPPLEMENTAL DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES
The following section supplements the discussion of U.S. federal income
taxation in the accompanying prospectus with respect to United States
holders. The following section is the opinion of Sullivan & Cromwell,
counsel to The Goldman Sachs Group, Inc. Please consult your own tax
advisor concerning the U.S. federal income tax and any other applicable
tax consequences of owning your note in your particular circumstances.
Your note will be treated as a single debt instrument subject to special
rules governing contingent payment obligations for United States federal income
tax purposes. Under those rules, the amount of interest you are required to take
into account for each accrual period will be determined by constructing a
projected payment schedule for your note and applying rules similar to those for
accruing original issue discount on a hypothetical noncontingent debt instrument
with that projected payment schedule. This method is applied by first
determining the yield at which we would issue a noncontingent fixed rate debt
instrument with terms and conditions similar to your note (the "comparable
yield") and then determining as of the issue date a payment schedule that would
produce the comparable yield. These rules will generally have the effect of
requiring you to include interest in income in respect of your note prior to
your receipt of cash attributable to such income.
It is not entirely clear how the rules governing contingent payment
obligations provide for determining the maturity date for debt instruments (such
as your note) that provide for a call right or exchange right for purposes of
computing the comparable yield and projected payment schedule. It would be
reasonable, however, to compute the comparable yield and projected payment
schedule for your note (and we intend to make the computation in such a manner)
based upon an assumption that your note will remain outstanding until the stated
maturity date and the projected contingent payment will be made at such time.
The comparable yield and projected payment schedule may be obtained from
us by contacting the Goldman Sachs Treasury Administration Department, Debt
Administration Group, at 212-902-1000. You are required to use the comparable
yield and projected payment schedule determined by us in determining your
interest accruals in respect of your note unless you timely disclose and justify
on your federal income tax return the use of a different comparable yield and
projected payment schedule.
The comparable yield and projected payment schedule is not provided to you
for any purpose other than the determination of your interest accruals in
respect of your note, and we make no representation regarding the amount
of contingent payments with respect to your note.
If you purchase your note for an amount that differs from the note's
adjusted issue price at the time of the purchase, you must determine the extent
to which the difference between the price you paid for your note and its
adjusted issue price is attributable to a change in expectations as to the
projected payment schedule, a change in interest rates, or both, and reasonably
allocate the difference accordingly. If the notes are listed on the American
Stock Exchange, you may (but are not required to) allocate the difference
pro-rata to interest accruals over the remaining term of the debt instrument to
the extent that your yield on the note, determined after taking into account
amounts allocated to interest, is not less than the applicable U.S. federal rate
for the note. The applicable U.S. federal rate will be the U.S. federal
short-term rate, if your note is expected to mature within three years of the
date you purchase your note, or the U.S. federal mid-term rate, if your note is
expected to mature more than three years from the date you purchase your note.
These rates are determined monthly by the U.S. Secretary of
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<PAGE> 30
the Treasury and are intended to approximate the average yield on short- and
mid-term U.S. government obligations, respectively. The adjusted issue price of
your note will equal your note's original issue price plus any interest deemed
to be accrued on your note (under the rules governing contingent payment
obligations) as of the time you purchase your note, decreased by the amount of
interest payments previously made with respect to your note.
If the adjusted issue price of your note is greater than the price you
paid for your note, you must make positive adjustments increasing the amount of
interest that you would otherwise accrue and include in income each year, and
the amount of ordinary income (or decreasing the amount of ordinary loss)
recognized upon redemption or maturity by the amounts allocated to each of
interest and projected payment schedule; if the adjusted issue price of your
note is less than the price you paid for your note, you must make negative
adjustments, decreasing the amount of interest that you must include in income
each year, and the amount of ordinary income (or increasing the amount of
ordinary loss) recognized upon redemption or maturity by the amounts allocated
to each of interest and projected payment schedule. Adjustments allocated to the
interest amount are not made until the date the daily portion of interest
accrues.
Because any Form 1099-OID that you receive will not reflect the effects of
positive or negative adjustments resulting from your purchase of a note in the
secondary market, you are urged to consult with your tax advisor as to whether
and how adjustments should be made to the amounts reported on any Form 1099-OID.
You will recognize gain or loss upon the sale, exchange, redemption or
maturity of your note in an amount equal to the difference, if any, between the
amount of cash you receive at such time and your adjusted basis in your note. In
general, your adjusted basis in your note will equal the amount you paid for
your note, increased by the amount of interest you previously accrued with
respect to your note (in accordance with the comparable yield and the projected
payment schedule for your note), decreased by the amount of interest payments
you received with respect to your note and increased or decreased by the amount
of any positive or negative adjustment, respectively, that you are required to
make if you purchase your note in the secondary market.
Any gain you recognize upon the sale, exchange, redemption or maturity of
your note will be ordinary interest income. Any loss you recognize at such time
will be ordinary loss to the extent of interest you included as income in the
current or previous taxable years in respect of your note, and thereafter,
capital loss.
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<PAGE> 31
EMPLOYEE RETIREMENT INCOME SECURITY ACT
This section is only relevant to you if you are an insurance company or
the fiduciary of a pension plan or an employee benefit plan (including a
governmental plan, an IRA or a Keogh Plan) proposing to invest in the offered
notes.
The Employee Retirement Income Security Act of 1974, as amended, which we
call "ERISA" and the Internal Revenue Code of 1986, as amended, prohibit certain
transactions involving the assets of an employee benefit plan and certain
persons who are "parties in interest" (within the meaning of ERISA) or
"disqualified persons" (within the meaning of the Internal Revenue Code) with
respect to the plan; governmental plans may be subject to similar prohibitions.
Therefore, a plan fiduciary considering purchasing notes should consider whether
the purchase or holding of such instruments might constitute a "prohibited
transaction".
The Goldman Sachs Group, Inc. and certain of its affiliates each may be
considered a "party in interest" or a "disqualified person" with respect to many
employee benefit plans by reason of, for example, The Goldman Sachs Group, Inc.
(or its affiliate) providing services to such plans. Prohibited transactions
within the meaning of ERISA or the Internal Revenue Code may arise, for example,
if notes are acquired by or with the assets of a pension or other employee
benefit plan that is subject to the fiduciary responsibility provisions of ERISA
or Section 4975 of the Internal Revenue Code (including individual retirement
accounts and other plans described in Section 4975(e)(1) of the Internal Revenue
Code), which we call a "Plan", and with respect to which The Goldman Sachs
Group, Inc. or any of its affiliates is a "party in interest" or a "disqualified
person", unless those notes are acquired under an exemption for transactions
effected on behalf of that Plan by a "qualified professional asset manager" or
an "in-house asset manager", for transactions involving insurance company
general accounts or under another available exemption. The person making the
decision on behalf of a Plan or a governmental plan shall be deemed, on behalf
of itself and the Plan, by purchasing and holding the offered notes, to
represent that such purchase and holding of the offered notes will not result in
a non-exempt prohibited transaction under ERISA or the Internal Revenue Code
(or, with respect to a governmental plan, under any similar applicable law or
regulation).
If you are an insurance company or the fiduciary of a pension plan or an
employee benefit plan, and propose to invest in the offered notes, you
should consult your legal counsel.
S-31
<PAGE> 32
SUPPLEMENTAL PLAN OF DISTRIBUTION
The Goldman Sachs Group, Inc. has agreed to sell to Goldman, Sachs & Co.,
and Goldman, Sachs & Co. has agreed to purchase from The Goldman Sachs Group,
Inc., the aggregate face amount of the offered notes specified on the front
cover of this prospectus supplement. Goldman, Sachs & Co. intends to resell the
offered notes at the applicable original issue price. In the future, Goldman,
Sachs & Co. or other affiliates of The Goldman Sachs Group, Inc. may repurchase
and resell the offered notes in market-making transactions, with resales being
made at prices related to prevailing market prices at the time of resale or at
negotiated prices. For more information about the plan of distribution and
possible market-making activities, see "Plan of Distribution" in the
accompanying prospectus.
NOTICE TO INVESTORS IN SINGAPORE
Notes may not be offered or sold, nor may any document or other material
in connection with the notes be issued, circulated or distributed, either
directly or indirectly, to persons in Singapore other than (i) under
circumstances in which the offer or sale does not constitute an offer or sale of
the notes to the public in Singapore or (ii) to persons whose ordinary business
it is to buy or sell shares or debentures, whether as principal or agent.
S-32
<PAGE> 33
NOTICE OF EXCHANGE
Dated:
The Bank of New York
101 Barclay Street, 21W
Corporate Trust Administration
New York, New York 10286
Attn: Tom Tabor (212-815-5381)
Hector Herrera (212-815-4293)
Fax: (212-815-4803)
with a copy to:
Goldman, Sachs & Co.
85 Broad Street
Options and Derivatives Operations
New York, New York 10004
Attn: Sharon Seibold (212-902-7921)
Stephen Barnitz (212-357-4217)
Fax: (212-902-7993)
Re: 1% Exchangeable Basket-Linked Notes due 2007, issued by The Goldman
Sachs Group, Inc. (Linked to a Basket of Three Stocks)
Dear Sirs:
The undersigned is, or is acting on behalf of, the beneficial owner of a
portion of one of the notes specified above, which portion has an outstanding
face amount equal to or greater than the amount set forth at the end of this
notice of exchange. The undersigned hereby irrevocably elects to exercise the
exchange right described in the prospectus supplement dated December 5, 2000 to
the prospectus dated May 8, 2000, as supplemented by the prospectus supplement
dated May 10, 2000 with respect to the outstanding face amount of the note set
forth at the end of this notice of exchange. The exercise is to be effective on
the business day on which the trustee has received this notice of exchange,
together with all other items required to be delivered on exercise, and the
calculation agent has received a copy of this notice of exchange, unless all
required items have not been received by 11:00 A.M., New York City time, on that
business day, in which case the exercise will be effective as of the next
business day. We understand, however, that the effective date in all cases must
be no later than the earlier of (i) the business day before the determination
date and (ii) any call notice date. The effective date will be the exchange
notice date.
If the note to be exchanged is in global form, the undersigned is
delivering this notice of exchange to the trustee and to the calculation agent,
in each case by facsimile transmission to the relevant number stated above, or
such other number as the trustee or calculation agent may have designated for
this purpose to the holder. In addition, the beneficial interest in the face
amount indicated below is being transferred on the books of the depositary to an
account of the trustee at the depositary.
If the note to be exchanged is not in global form, the undersigned or the
beneficial owner is the holder of the note and is delivering this notice of
exchange to the trustee and to the calculation agent by facsimile transmission
as described above. In addition, the certificate representing the note and any
payment required in respect of accrued interest are being delivered to the
trustee.
S-33
<PAGE> 34
If the undersigned is not the beneficial owner of the note to be exchanged,
the undersigned hereby represents that it has been duly authorized by the
beneficial owner to act on behalf of the beneficial owner.
Terms used and not defined in this notice have the meanings given to them
in the prospectus supplement specified above. The exchange of the note will be
governed by the terms of the note.
The calculation agent should internally acknowledge receipt of the copy of
this notice of exchange, in the place provided below, on the business day of
receipt, noting the date and time of receipt. The consideration to be delivered
or paid in the requested exchange should be made on the fifth business day after
the exchange notice date in accordance with the terms of the note.
Face amount of note to be exchanged:
$
--------------------------------------
(must be a multiple of $1,000)
Very truly yours,
--------------------------------------
(Name of beneficial owner or person
authorized to act on its behalf)
--------------------------------------
(Title)
--------------------------------------
(Telephone No.)
--------------------------------------
(Fax No.)
FOR INTERNAL USE ONLY:
Receipt of the above notice of
exchange is hereby acknowledged:
GOLDMAN, SACHS & CO., as calculation
agent
By:
--------------------------------------
(Title)
Date and time of receipt:
--------------------------------------
(Date)
--------------------------------------
(Time)
S-34
<PAGE> 35
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No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell or a solicitation of an offer to buy the securities it describes, but only
under circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of its date.
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TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Additional Risk Factors Specific to Your
Note......................................... S-2
Specific Terms of Your Note.................... S-6
Hypothetical Returns on Your Note.............. S-21
Use of Proceeds and Hedging.................... S-24
The Basket Stocks.............................. S-25
Supplemental Discussion of Federal Income Tax
Consequences................................. S-29
Employee Retirement Income Security Act........ S-31
Supplemental Plan of Distribution.............. S-32
Notice of Exchange............................. S-33
Prospectus Supplement Dated May 10, 2000
Use of Proceeds................................ S-2
Description of Notes We May Offer.............. S-3
United States Taxation......................... S-20
Employee Retirement Income Security Act........ S-20
Supplement Plan of Distribution................ S-20
Validity of the Notes.......................... S-22
Prospectus
Available Information.......................... ii
Prospectus Summary............................. 1
Ratio of Earnings to Fixed Charges............. 4
Description of Debt Securities We May Offer.... 5
Description of Warrants We May Offer........... 27
Description of Purchase Contracts We May
Offer........................................ 33
Description of Units We May Offer.............. 38
Description of Preferred Stock We May Offer.... 43
Legal Ownership and Book-entry Issuance........ 50
Considerations Relating to Securities Issued In
Bearer Form.................................. 56
Considerations Relating to Indexed
Securities................................... 60
Considerations Relating to Securities
Denominated or Payable in or Linked to a
Non-U.S. Dollar Currency..................... 62
United States Taxation......................... 65
Plan of Distribution........................... 83
Employee Retirement Income Security Act........ 86
Validity of the Securities..................... 86
Experts........................................ 86
Cautionary Statement Pursuant to the Private
Securities Litigation Reform Act of 1995..... 87
</TABLE>
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$66,500,000
THE GOLDMAN SACHS
GROUP, INC.
1% Exchangeable Basket-Linked Notes due 2007
(Linked to a Basket of Three Stocks)
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[GOLDMAN SACHS LOGO]
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GOLDMAN, SACHS & CO.
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