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FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-36178
PROSPECTUS SUPPLEMENT NO.162 TO THE PROSPECTUS DATED MAY 8, 2000
AND THE PROSPECTUS SUPPLEMENT DATED MAY 10, 2000.
$17,000,000
THE GOLDMAN SACHS GROUP, INC.
Medium-Term Notes, Series B
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0.25% Exchangeable Notes due 2008
(Exchangeable for Common Stock of Medtronic, Inc.)
[GOLDMAN SACHS LOGO]
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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.
INDEX STOCK AND INDEX STOCK ISSUER: common stock of Medtronic, Inc.
FACE AMOUNT: as specified in the note; $17,000,000 in the aggregate for all the
offered notes
ORIGINAL ISSUE PRICE: 100% of the face amount
TRADE DATE: January 5, 2001
ORIGINAL ISSUE DATE (SETTLEMENT DATE): January 12, 2001
STATED MATURITY DATE: January 12, 2008, unless extended for up to six business
days
INTEREST RATE (COUPON): 0.25% each year
- interest payment dates: each January 12 and July 12, beginning on July
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 note, in whole or in part
at any time, for index stock at the exchange rate, provided that Goldman Sachs
may pay the holder the cash value of that stock instead of delivering that stock
EXCHANGE RATE: 15.6884 shares of index stock for each $1,000 of outstanding face
amount exchanged, subject to antidilution adjustment
CALL RIGHT: Goldman Sachs may redeem the offered notes in whole, but not in
part, after the interest payment date on January 12, 2003, 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 PRICE OF INDEX STOCK: $53.34 per share
NET PROCEEDS TO THE GOLDMAN SACHS GROUP, INC.: 99.60% of the face amount
CALCULATION AGENT: Goldman, Sachs & Co.
BUSINESS DAY: as described on page S-19.
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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.
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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.
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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.
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Prospectus Supplement dated January 5, 2001.
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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 stock to which your note is indexed. 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 market price of the index stock;
- the volatility -- i.e., the frequency and magnitude of changes in the market
price of the index stock;
-- As indicated under "Medtronic, Inc. -- Historical Trading Price
Information", the market price of the index stock has been highly volatile
during recent periods. It is impossible to predict whether the price of the
index stock will rise or fall;
- the dividend rate on the index stock;
- economic, financial, regulatory and political events that affect stock markets
generally and the market segment of which the index stock is a part, and which
may affect the market price of the index stock;
- 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 index stock
based on its historical performance.
TRADING AND OTHER TRANSACTIONS BY
GOLDMAN SACHS IN THE INDEX STOCK 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 index stock and may adjust
the hedge by, among other things, purchasing or selling the index stock, at any
time and from time to time. Any of these hedging activities may adversely affect
the price of the index stock 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 the index stock for their proprietary accounts, for other accounts under
their management and 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 price of the index stock and,
therefore, the value of your note. 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 the index
stock. By introducing competing products into the marketplace in this manner,
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 sell, pledge or otherwise
convey all or any portion of the index stock acquired by us or them. Neither we
nor our affiliates will pledge or otherwise hold shares of the index stock for
your benefit in order to enable you to exchange
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your note for shares under any circumstances. Consequently, in the event of our
bankruptcy, insolvency or liquidation, any index stock owned by us will be
subject to the claims of our creditors generally and will not be available for
your benefit specifically.
IF THE MARKET PRICE OF THE INDEX STOCK
CHANGES, THE MARKET VALUE OF YOUR NOTE MAY NOT CHANGE IN THE SAME MANNER
Your note may trade quite differently from the index stock. Changes in the
market price of the index stock may not result in comparable changes in the
market value of your note.
YOU HAVE NO SHAREHOLDER RIGHTS
Investing in your note will not make you a holder of the index stock.
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 index stock.
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 index
stock 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 price of the index stock, 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 issuer of the index stock, including making
loans to or equity investments in that company or providing advisory services to
that company. 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
the issuer of the index stock. Any of these activities by any of our affiliates
may affect the price of the index stock 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 whether and how to make antidilution adjustments to the exchange
rate; determining the closing price of the index stock, which we will use to
calculate how much cash we must pay if your note is exchanged and we choose not
to deliver index stock; 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 -- Antidilution
Adjustments" and "-- Special Calculation Provisions" below. 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 Conflicts of
Interest Between You and Us" above.
THERE IS NO AFFILIATION BETWEEN THE INDEX STOCK ISSUER AND US, AND WE ARE NOT
RESPONSIBLE FOR THE INDEX STOCK ISSUER'S DISCLOSURE
Goldman Sachs is not affiliated with the issuer of the index stock. 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 index stock issuer. Nevertheless,
neither we nor any of our affiliates assumes any responsibility for the adequacy
or accuracy of the information about the index stock issuer contained in this
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prospectus supplement or in any of the index stock issuer's publicly available
filings. You, as an investor in your note, should make your own investigation
into the index stock issuer. See "Medtronic, Inc." below for additional
information about the index stock issuer.
The index stock issuer is not involved in this offering of your note in
any way and has no obligation of any sort with respect to your note. Thus, the
index stock issuer has 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
Your note will not be listed on any securities exchange or quotation
system, and 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
exchange rate for stock splits, reverse stock splits, stock dividends,
extraordinary dividends and other events that affect the index stock issuer's
capital structure, but only in the situations we describe in "Specific Terms of
Your Note -- Antidilution Adjustments". The calculation agent is not required to
make an adjustment for every corporate event that may affect the index stock.
For example, the calculation agent will not adjust the exchange rate for events
such as an offering of the index stock for cash by the index stock issuer, a
tender or exchange offer for the index stock at a premium to its then-current
market price by the index stock issuer or a tender or exchange offer for less
than all the outstanding index stock by a third party. Those events may
nevertheless adversely affect the market price of the index stock and,
therefore, adversely affect the value of your note. The index stock issuer or a
third party could make an offering or a tender or exchange offer, or the index
stock issuer could take any other action, that adversely affects the value of
the index stock and your note but does not result in an antidilution adjustment
for your benefit.
WE CAN REDEEM YOUR NOTE AT OUR OPTION
After the interest payment date on January 12, 2003, we will be permitted
to redeem your note at our option. Even if we do not exercise our option to
redeem your note, our ability to do so may adversely affect the value of your
note.
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 -- or, if your note is to be exchanged, any
delivery of index stock -- that we are obligated to make on the stated maturity
date until after the originally scheduled due date. 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 and we elect to pay the cash value of the
index stock we would otherwise be obligated to deliver, the amount of cash we
pay will be based on the closing price of the index stock on the
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day the exchange right is deemed to be exercised. If that price is not available
on that day because of a market disruption event or for any other reason, the
calculation agent will nevertheless determine that price based on its
assessment, made in its sole discretion, of the market value of the index stock
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 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: any 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 below under
"-- Antidilution Adjustments"
- 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 index stock, we mean the
common stock of Medtronic, Inc. and, when we refer to the index stock issuer, we
mean that company, except as noted below under "-- Antidilution Adjustments --
Reorganization Events -- Distribution Property".
Please note that the information about the original issue date, original
issue price 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.
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We describe the terms of your note in more detail below.
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 January 12, 2008 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 this applicable day is not the
determination date referred to 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
January 12, 2008 or, if January 12, 2008 is not a business day, later than the
sixth business day after January 12, 2008. 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 January 12,
2008, 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 January 12, 2008 or, if January 12, 2008 is not a business day, later than
the first business day after January 12, 2008.
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 index stock at the exchange rate. If the holder does so, we
may choose, at our sole option, either to deliver the requisite amount of index
stock to the holder or to pay cash to the holder in an amount equal to the value
of that stock. The cash value will equal the number of shares of the index stock
we would otherwise be obligated to deliver in exchange for your note, multiplied
by the closing price of the index stock on the exchange notice date. Delivery of
index stock or cash payment will be made on the exchange date and in the manner
we describe under "-- Manner of Payment and Delivery" below. We describe the
exchange notice date, the exchange date and the closing price under "-- Exercise
Requirements" and "-- Special Calculation Terms" below.
If we choose to pay cash instead of delivering index stock, we will notify
the holder of our election no later than the business day after the exchange
notice date. THUS, IF THE HOLDER EXERCISES THE EXCHANGE RIGHT AND WE DO NOT
NOTIFY THE HOLDER ON THE BUSINESS DAY AFTER THE EXCHANGE NOTICE DATE OF OUR
INTENTION TO PAY CASH, WE WILL DELIVER SHARES OF THE INDEX STOCK ON THE EXCHANGE
DATE, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED UNDER "-- CONSEQUENCES OF A
MARKET DISRUPTION EVENT" AND "-- AUTOMATIC EXCHANGE" BELOW. If we give the
notice described above with respect to your note, we will do so by telephone or
telecopier to
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the number specified by the person who submits the notice of exchange for your
note. The notice of exchange is described 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 RATE
The exchange rate will equal 15.6884 shares of index stock for each $1,000
of the outstanding face amount of your note that the holder elects to exchange.
The exchange rate may be adjusted, with respect to both the amount and type of
consideration, as a result of dilution events, as we describe below under
"-- Antidilution Adjustments". In addition, if an exchange would otherwise
involve a fractional share of the index stock, we will pay cash instead of the
fractional share, in an amount equal to that fraction multiplied by the closing
price of the index stock on the exchange notice date.
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
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.
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Questions about the exercise requirements should be directed to the
trustee, at the number and location stated in the attached notice of
exchange.
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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 deliver the
index stock or 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
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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.
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is given effect by the depositary before the deadline for exercise. Similar
concerns apply if you hold your note in street name.
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 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 we elect to pay the cash value of
the index stock otherwise deliverable on the related exchange date but the
closing price of the index stock that must be used to determine the cash 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 price based on its assessment, made in its
sole discretion, of the market value of the index stock on that day. In
addition, if a market disruption event occurs or is continuing on the exchange
notice date or on any later day through and including the exchange date, we may
choose to pay cash instead of delivering index stock on the exchange date, even
if we have not notified the holder of our election to pay cash as described
above.
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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 January 12, 2003, 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 cash value of the index stock for which the remaining
portion of your note would be exchanged on the stated maturity date, assuming
that date had been an exchange date. To determine the cash value of that stock,
the calculation agent will multiply the number of shares of the index stock we
would otherwise have been obligated to deliver in exchange for your note, if
that date was an exchange date, by the closing price of the index stock on the
determination date, except in the limited circumstances described under
"-- Consequences of a Market Disruption Event" below.
If the cash 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, either we
will deliver to the holder the shares of index stock for which that portion is
exchangeable, as described above, or, at our option, we will pay to the holder
the cash value of that stock, based on the closing price described above. We
will be entitled to select either of these alternatives at our option and we
will notify the holder of our selection on
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the determination date. 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 an automatic exchange would otherwise involve
delivery of a fractional share of index stock, we will instead pay the cash
value of the fractional share, based on the price used to determine the cash
value of the index stock described above.
If the cash 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 cash value of the index stock for which the
remaining portion of your note would be exchanged on the call date, assuming
that date had been an exchange date. To determine the cash value of that stock,
the calculation agent will multiply the number of shares of the index stock we
would otherwise have been obligated to deliver in exchange for your note, if
that date was an exchange date, by the closing price of the index stock on the
call notice date, except in the limited circumstances described under
"-- Consequences of a Market Disruption Event" below.
If the cash 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, either we will deliver to the holder the shares of index stock for which
that portion is exchangeable, as described above, or, at our option, we will
pay to the holder the cash value of that stock, based on the closing price
described above. We will be entitled to select either of these alternatives at
our option, and we will specify our selection in the Call Notice. 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 an automatic exchange would
otherwise involve delivery of a fractional share of index stock, we will
instead pay the cash value of the fractional share, based on the price used to
determine the cash value of the index stock described above.
If the cash 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 price of
the index stock 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 price 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 date, or later than the fifth business day
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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 index stock, and the deferred
pricing date will occur, on the latest possible pricing date. If the closing
price 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 price based on its assessment, made in its sole discretion, of the
market value of the index stock on the latest possible pricing date. The
calculation agent will use the closing price on the latest possible pricing
date, however determined, instead of the closing price 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 price 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.
In addition, if a market disruption event occurs or is continuing on a
determination date or on any later day through and including the stated maturity
date, we may choose to pay cash instead of delivering index stock on the stated
maturity date, even if we have notified the holder of our election to deliver
index stock as described under "Automatic Exchange" above.
Similarly, if a market disruption event occurs or is continuing on the
call notice date or on any later day through and including the call date, we may
choose to pay cash instead of delivering index stock on the call date, even if
we have notified the holder of our election to deliver index stock as described
under "Automatic Exchange" above.
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 January 12, 2008, however, the interest
payment date scheduled for January 12, 2008 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.
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- 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.
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 January 12, 2003.
ANTIDILUTION ADJUSTMENTS
The calculation agent will adjust the exchange rate as described below,
but only if an event described under one of the six subsections beginning with
"-- Stock Splits" below occurs and only if the relevant event occurs during the
period described under the applicable subsection.
The adjustments described below do not cover all events that could affect
the exchange rate. 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, the calculation agent
will adjust the exchange rate for each event, sequentially, in the order in
which the events occur, and on a cumulative basis. Thus, having adjusted the
exchange rate for the first event, the calculation agent will adjust the
exchange rate for the second event, applying the required adjustment to the
exchange rate as already adjusted for the first event, and so on for each event.
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 index
stock is used to determine the amount of cash payable in that exchange.
The calculation agent will adjust the exchange rate 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 the exchange rate unless the adjustment would result in a change
of at least 0.1% in the exchange rate that would apply without the adjustment.
The exchange rate 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
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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 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 the index stock is subject to a stock split, then the calculation agent
will adjust the exchange rate to equal the sum of the prior exchange
rate -- i.e., the exchange rate 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 index stock times (2) the prior exchange rate. The exchange rate will not
be adjusted, however, unless the first day on which the index 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 the index stock is subject to a reverse stock split, then the
calculation agent will adjust the exchange rate to equal the product of the
prior exchange rate and the quotient of (1) the number of outstanding shares of
the index stock outstanding immediately after the reverse stock split becomes
effective divided by (2) the number of shares of the index stock outstanding
immediately before the reverse stock split becomes effective. The exchange rate
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 the index stock is subject to a stock dividend, then the calculation
agent will adjust the exchange rate to equal the sum of the prior exchange rate
plus the product of (1) the number of shares issued in the stock dividend with
respect to one share of the index stock times (2) the prior exchange rate. The
exchange rate 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 is the first
day on which the index stock trades without the right to receive that dividend
or other distribution.
OTHER DIVIDENDS AND DISTRIBUTIONS
The exchange rate will not be adjusted to reflect dividends or other
distributions paid with respect to the index stock, other than:
- stock dividends described above,
- issuances of transferable rights and warrants as described in "-- Transferable
Rights and Warrants" below,
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- distributions that are spin-off events described in "-- Reorganization Events"
below, and
- extraordinary dividends described below.
A dividend or other distribution with respect to the index 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 index
stock by an amount equal to at least 10% of the closing price of the index stock
on the first business day before the ex-dividend date.
If an extraordinary dividend occurs, the calculation agent will adjust the
exchange rate to equal the product of (1) the prior exchange rate times (2) a
fraction, the numerator of which is the closing price of the index 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 exchange rate 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 the index 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 index
stock minus the amount per share of the immediately preceding dividend, if
any, that was not an extraordinary dividend for the index 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 the index 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 exchange rate 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 the index stock issuer issues transferable rights or warrants to all
holders of the index stock to subscribe for or purchase index stock at an
exercise price per share that is less than the closing price of the index stock
on the business day before the ex-dividend date for the issuance, then the
exchange rate will be adjusted by multiplying the prior exchange rate by the
following fraction:
- the numerator will be the number of shares of the index stock outstanding at
the close of business on the day before that ex-dividend date plus the number
of additional shares of the index stock offered for subscription or purchase
under those transferable rights or warrants and
- the denominator will be the number of shares of the index stock outstanding at
the close of business on the day before that ex-dividend date plus the number
of additional shares of the index stock that the aggregate offering price of
the total number of shares of the index stock so offered for subscription or
purchase would purchase at the closing price of the index 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.
The exchange rate 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.
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REORGANIZATION EVENTS
Each of the following is a reorganization event:
- the index stock is reclassified or changed,
- the index 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 index stock is exchanged for or converted into other
property,
- a statutory share exchange involving the outstanding index stock and the
securities of another entity occurs, other than as part of an event described
above,
- the index stock issuer sells or otherwise transfers its property and assets as
an entirety or substantially as an entirety to another entity,
- the index stock issuer effects a spin-off -- that is, issues to all holders of
the index stock equity securities of another issuer, other than as part of an
event described above,
- the index 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
index stock.
ADJUSTMENTS FOR REORGANIZATION EVENTS. If a reorganization event occurs,
then the calculation agent will adjust the exchange rate by adjusting the
reference amount. This term refers to the amount and type of property
deliverable on an exchange date in exchange for each $1,000 of outstanding face
amount of your note. Initially the reference amount will be the amount of index
stock specified under "exchange rate" on the front cover of this prospectus
supplement. However, if the exchange rate is adjusted because of a dilution
event, then the reference amount will be adjusted in a corresponding manner. For
example, if an exchange rate adjustment is required because of a stock split,
reverse stock split, stock dividend, extraordinary dividend or issuance of
rights or warrants, then the reference amount might be adjusted to be, for
example, double or half the amount of index stock specified on the front cover,
depending on the event requiring adjustment.
Similarly, if adjustment is required because of a reorganization event in
which cash and securities are distributed, for example, the reference amount
will be adjusted to be the amount of cash and the amount of securities
distributed in the event in respect of the amount of index stock specified on
the front cover, if there has been no prior adjustment of the exchange rate. If
there has been a prior adjustment, the reference amount will be adjusted to be
the amount of cash and the amount of securities distributed in the event in
respect of, for example, double or half the specified amount of index stock or
whatever else the reference amount might be when the distribution occurs.
If a reorganization event occurs, the reference amount will be adjusted 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 calculation agent will use the closing price for
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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 index 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 the
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 index 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 the index stock issuer merges into another company and
each share of the index stock is converted into the right to receive two common
shares of the surviving company and a specified amount of cash, the 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 index 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, all
components of the reference amount in effect 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, unless we elect to pay cash in the exchange.
If the exchange right is exercised or an automatic exchange occurs and we
elect to pay cash in the exchange, we will do so based on the closing price of
the index stock on the exchange notice date as long as the reference amount
consists only of index stock. If a reorganization event occurs and the reference
amount consists of property other than index stock, then the amount of cash we
pay -- for each $1,000 of the outstanding face amount of your note being
exchanged -- will equal the total value of the adjusted reference amount, as in
effect on the exchange notice date. The calculation agent will determine the
value of each component of the adjusted reference amount in the manner described
above.
In this prospectus supplement, whenever we say that the calculation agent
will adjust the exchange rate in respect of a dilution event, we mean that the
calculation agent will adjust the reference amount in the manner described in
this subsection if the dilution event is a reorganization event. 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 or assets distributed in a
reorganization event in respect of an amount of outstanding index stock equal to
the amount specified on the front cover under "exchange rate" -- or in respect
of whatever the reference amount may then be if any antidilution adjustment has
been made in respect of a prior event. In the
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case of a spin-off, the distribution property also includes the specified amount
of index stock -- or other applicable reference amount -- 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 index stock as described above.
Consequently, in this prospectus supplement, when we refer to the index stock,
we mean any distribution property that is distributed in a reorganization event
and comprises the adjusted reference amount. Similarly, when we refer to the
index 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 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 that 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 AND DELIVERY
Any payment or delivery on your note at maturity, on 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 your 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. We may make any
delivery of index stock or distribution property ourselves or cause our agent to
do so on our behalf.
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. The same will apply to any delivery of the index stock that
would otherwise be due on a day that is not a business day. 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 will make all determinations regarding the exchange
rate, anti-dilution adjustments, market disruption events, automatic exchange,
the closing price or other value of the index stock, the default amount and the
amount of the index stock, cash or distribution property to be delivered in
exchange for 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 the firm named as the calculation agent in this
prospectus supplement is the firm serving in that role as of the original issue
date of your note. We
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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 but
that is not a day on which the principal securities market for the index stock
is authorized by law or executive order to close.
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 in the Nasdaq National Market System on that
day, on any other U.S. national market system that is 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
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<PAGE> 20
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
- 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 the index stock on
its primary market 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 of trading or material limitation of trading in option
contracts relating to the index stock, if available, in the primary market for
those contracts 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
- the index stock does not trade on what was the primary market for the index
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"
below.
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 the index stock.
For this purpose, an "absence of trading" in the primary securities market
on which option contracts related to the index 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 option
contracts related to the index stock, if available, in the primary market for
those contracts, by reason of:
- a price change exceeding limits set by that market, or
- an imbalance of orders relating to those contracts, or
- a disparity in bid and ask quotes relating to those contracts
will constitute a suspension or material limitation of trading in option
contracts related to the index stock in the primary market for those contracts.
In this subsection about market disruption events, references to the index
stock include securities that are part of any adjusted reference amount, 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 index stock
to the total return on owning your note, in each case during the seven-year
period from the trade date to the stated maturity date. The information in the
table is based on hypothetical market values for the index stock and your note
at the end of this seven-year 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.
ASSUMPTIONS
<TABLE>
<S> <C>
Original issue price,
expressed as a percentage of
the face amount 100%
Exchange rate 15.6884
shares
Reference price of index stock $53.34
Premium (as a percentage of
the reference price of index
stock) 19.5%
Index stock dividend yield 0.37%
Automatic exchange in full on
the stated maturity date --
i.e., no prior redemption or
voluntary exchange
No antidilution adjustments to
exchange rate
No market disruption event
occurs
</TABLE>
We calculate the total return on your note based on the exchange rate of
15.6884 shares of the index stock 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 price of the index stock times one plus a premium of
19.5%. Because the exchange rate has been determined in this manner, the closing
price of the index stock must increase by the stated maturity date to an amount
equal to the reference price times one plus the premium in order for the cash
value of the index stock 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 price will increase to
that extent by the stated maturity date.
The index stock is traded on the New York Stock Exchange. For information
about the market price of the index stock in recent periods, see "Medtronic,
Inc. -- Historical Trading Price Information" below.
As stated above, the following table assumes that dividends will be paid
on the index stock. We do not know, however, whether or to what extent the
issuer of the index stock will pay dividends in the future. These are matters
that will be determined by the issuer of the index stock and not by us.
Consequently, the amount of dividends actually paid on the index stock by its
issuer, and, therefore, the rate of return on the index stock, 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
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<PAGE> 22
the index stock and your note, assuming all
other variables remained constant.
<TABLE>
<CAPTION>
INDEX STOCK
-------------------------------------------------- YOUR NOTE
HYPOTHETICAL ------------------------------
CLOSING PRICE ON HYPOTHETICAL
HYPOTHETICAL STATED MATURITY MARKET VALUE ON
CLOSING PRICE ON DATE AS % OF HYPOTHETICAL STATED MATURITY HYPOTHETICAL
STATED MATURITY ASSUMED TOTAL DATE AS % OF TOTAL
DATE REFERENCE PRICE RETURN FACE AMOUNT RETURN
---------------- ---------------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
$ 26.67 50% -47.4% 100.0% 1.75%
32.00 60% -37.4% 100.0% 1.75%
37.34 70% -27.4% 100.0% 1.75%
42.67 80% -17.4% 100.0% 1.75%
48.01 90% -7.4% 100.0% 1.75%
53.34 100% 2.6% 100.0% 1.75%
58.67 110% 12.6% 100.0% 1.75%
64.01 120% 22.6% 100.4% 2.04%
69.34 130% 32.6% 108.8% 10.41%
74.68 140% 42.6% 117.2% 18.78%
80.01 150% 52.6% 125.5% 27.15%
85.34 160% 62.6% 133.9% 35.52%
90.68 170% 72.6% 142.3% 43.88%
96.01 180% 82.6% 150.6% 52.25%
101.35 190% 92.6% 159.0% 60.62%
106.68 200% 102.6% 167.4% 68.99%
</TABLE>
-------------------------
The hypothetical total return on the index stock represents the difference
between (i) the hypothetical closing price of one share of index stock on the
stated maturity date plus the dividends that would be paid on one share at the
assumed dividend yield rate during the seven-year period from the trade date to
the stated maturity date, without reinvestment of those dividends, and (ii) the
reference price of the index stock. This difference is expressed as a percentage
of the reference price.
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
seven-year 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 will equal 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 cash value of the index stock
that we would be obligated to deliver on that date in an automatic exchange.
There will be no automatic exchange on the stated maturity date, however, unless
the cash value of the index stock to be delivered 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.
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<PAGE> 23
Therefore, we have assumed that unless the cash value of that stock 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 price of the
index stock will be the same on the determination date and the stated maturity
date.
------------------------------------------------------
We cannot predict the market price of the index stock 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
index stock 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 index stock or
listed and over-the-counter options on the index stock 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 index stock or other securities of the index stock
issuer,
- take short positions in the index stock or other securities of the index stock
issuer -- 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 index stock, 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 index stock,
listed or over-the-counter options on the index stock 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 Index Stock 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
MEDTRONIC, INC.
According to its publicly available documents, Medtronic, Inc. provides
device-based therapies that restore health, extend life and alleviate pain. Its
principal products include those for braycardia pacing, tachyarrhymia
management, atrial fibrillation management, heart failure management, heart
valve replacement, malignant and non-malignant pain and movement disorders.
Medtronic, Inc.'s products are sold worldwide.
WHERE INFORMATION ABOUT THE INDEX STOCK
ISSUER CAN BE OBTAINED
The index stock 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 the index 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 the index stock issuer under the Exchange Act can be located by reference
to its SEC file number: 1-03761.
Information about the index 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
the index stock issuer with the SEC.
WE OBTAINED THE INFORMATION ABOUT THE
INDEX STOCK ISSUER IN THIS PROSPECTUS
SUPPLEMENT FROM THE INDEX STOCK
ISSUER'S PUBLIC FILINGS
This prospectus supplement relates only to your note and does not relate
to the index stock or other securities of the index stock issuer. We have
derived all information about the index stock issuer 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 inquiry of the index
stock issuer with respect to the index 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 the index
stock issuer are accurate or complete. Furthermore, we do not know whether all
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 index stock and,
therefore, the exchange rate -- have been publicly disclosed. Subsequent
disclosure of any events of this kind or the disclosure of or failure to
disclose material future events concerning the index 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 index stock.
We or any of our affiliates may currently or from time to time engage in
business with the index stock issuer, including making loans to or equity
investments in the index stock issuer or providing advisory services to the
index stock issuer, 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 index stock issuer and, in addition, one or more of our
affiliates may publish research reports about the index stock issuer. As an
investor in a note, you should undertake such
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<PAGE> 26
independent investigation of the index stock
issuer as in your judgment is appropriate to make an informed decision with
respect to an investment in a note.
HISTORICAL TRADING PRICE INFORMATION
The index stock is traded on the New York Stock Exchange under the symbol
"MDT". The following table sets forth the quarterly high, low and closing prices
for the index stock on the New York Stock Exchange for the four calendar
quarters in each of 1998, 1999 and 2000 and for the first calendar quarter in
2001, through January 5, 2001. 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 index stock as an
indication of future performance. We cannot give you any assurance that the
price of the index stock will increase sufficiently for you to receive an amount
in excess of the face amount of your note at maturity.
<TABLE>
<CAPTION>
HIGH LOW CLOSE
---- --- -----
<S> <C> <C> <C>
1998
Quarter ended March 31.................................... 28.8750 22.8125 25.9375
Quarter ended June 30..................................... 31.8750 24.4375 31.8750
Quarter ended September 30................................ 34.9063 25.6875 28.9375
Quarter ended December 31................................. 38.3438 25.2188 37.1250
1999
Quarter ended March 31.................................... 44.0625 33.0938 35.8750
Quarter ended June 30..................................... 38.9375 31.1875 38.9375
Quarter ended September 30................................ 40.7188 32.4688 35.5000
Quarter ended December 31................................. 39.9375 32.2500 36.4375
2000
Quarter ended March 31.................................... 57.0000 34.5000 51.4375
Quarter ended June 30..................................... 57.1875 47.0000 49.8125
Quarter ended September 30................................ 56.2500 47.5000 51.8125
Quarter ended December 31................................. 61.0000 47.5000 60.3750
2001
Quarter ended March 31 (through January 5, 2001).......... 59.5000 53.6875 53.6875
Closing Price on January 5, 2001.......................... 53.6875
</TABLE>
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<PAGE> 27
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.
Although the applicable United States Treasury regulations do not directly
address notes such as your note, your note should 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 in the secondary market, 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. 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
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<PAGE> 28
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
fair market value of the amount of cash or index stock 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. Your holding period in any index stock you receive
will begin on the day after receipt.
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> 29
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-29
<PAGE> 30
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 to the offered notes to be
sold. 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.
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<PAGE> 31
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)
Hestor 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: 0.25% Exchangeable Notes due 2008, issued by The Goldman Sachs Group,
Inc.
(Exchangeable for Common Stock of Medtronic, Inc.)
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 January 5, 2001 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.
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.
S-31
<PAGE> 32
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.)
--------------------------------------
(DTC participant account number for
delivery of index stock, if any)
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-32
<PAGE> 33
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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.
-------------------------
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
Medtronic, Inc............................ S-25
Supplemental Discussion of Federal Income
Tax Consequences........................ S-27
Employee Retirement Income Security Act... S-29
Supplemental Plan of Distribution......... S-30
Notice of Exchange........................ S-31
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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$17,000,000
THE GOLDMAN SACHS
GROUP, INC.
0.25% EXCHANGEABLE NOTES DUE 2008
(EXCHANGEABLE FOR COMMON STOCK
OF MEDTRONIC, INC.)
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[GOLDMAN SACHS LOGO]
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GOLDMAN SACHS & CO.
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