No. 33-99948
PRICING SUPPLEMENT NO. 2
dated
July 17, 1997
to the
Prospectus
dated
December 28, 1995
and
Prospectus Supplement
dated
January 3, 1996
------------------------
477,865
GS FINANCIAL PRODUCTS U.S., L.P.
MEDIUM-TERM NOTES, SERIES B
-----------------
7% MANDATORILY EXCHANGEABLE NOTES
DUE JULY 23, 1999
(Subject to Mandatory Exchange into Shares of
Common Stock of Oxford Health Plans, Inc.)
------------------
AN INVESTMENT IN THE NOTES TO WHICH THIS PRICING SUPPLEMENT
RELATES PRESENTS CERTAIN RISKS THAT SHOULD BE CAREFULLY
CONSIDERED BY INVESTORS.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
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See "RISK FACTORS" IN THIS PRICING SUPPLEMENT AND "CERTAIN FACTORS" AND
"RISKS RELATED TO INDEXED SECURITIES" IN THE ACCOMPANYING PROSPECTUS, DATED
DECEMBER 28, 1995 (THE "PROSPECTUS"), FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY POTENTIAL INVESTORS IN THE NOTES, INCLUDING THAT THE
VALUE AND/OR THE NUMBER OF SHARES DELIVERED IN EXCHANGE FOR THE NOTES WILL
DEPEND UPON FLUCTUATIONS IN THE VALUE OF THE COMMON STOCK, PAR VALUE $0.01 PER
SHARE (THE "COMMON STOCK"), OF OXFORD HEALTH PLANS, INC. ("OXFORD"). CAPITALIZED
TERMS USED HEREIN BUT NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS ASSIGNED TO
THEM IN THE PROSPECTUS OR THE PROSPECTUS SUPPLEMENT, DATED JANUARY 3, 1996.
THE FOLLOWING SUMMARY OF CERTAIN TERMS OF THE NOTES IS SUBJECT TO THE MORE
DETAILED TERMS OF THE NOTES INCLUDED ELSEWHERE IN THIS PRICING SUPPLEMENT.
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<S> <C>
Medium-Term Notes,
Series B, Offered: 7% Mandatorily Exchangeable Notes
due July 23, 1999 (Subject to
Mandatory Exchange into Shares of
Common Stock of Oxford Health Plans,
Inc.) (the "Notes").
Face Amount or Initial Price: $85.375 per Note.
Notes Offered: $477,865
Specified Currency -
Principal and Interest: U.S. Dollars
Interest Rate: 7% per annum (equivalent to $5.97625
per annum per Note) from and
including the Settlement Date to but
excluding the Maturity Date.
Interest Payment Dates: January 23, April 23, July 23 and
October 23 of each year and on the
Maturity Date, commencing October 23,
1997, or, if any such day is not a
Business Day, the next succeeding
Business Day. See "Description of
Notes -- Interest".
Stated Maturity Date: July 23, 1999 (subject to extension
as herein described, the "Maturity
Date") or, if not a Business Day, the
next succeeding Business Day;
provided, however, that if the fifth
Business Day immediately preceding
July 23, 1999 (or if such
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day is not a Business Day, the next
succeeding Business Day) is not the
Determination Date, the Maturity Date
will be the fifth Business Day
following the Determination Date;
provided, further, however, that in
no event will the Maturity Date be
later than July 30, 1999.
Issue Price: 100% of the Face Amount.
Commission: None. The Issuer will pay Goldman,
Sachs & Co. ("GS&Co.") a fee of
$101,994.31 pursuant to the
Origination Agreement between the
Issuer and GS&Co., which is described
in the Issuer's Annual Report on Form
10-K for the fiscal year ended
November 29, 1996. See "Incorporation
of Certain Documents by Reference" in
the Prospectus.
Net Proceeds to the Issuer: 100% of the Face Amount.
Settlement Date: July 23, 1997.
Calculation Agent: GS&Co. The Calculation Agent, is
an affiliate of the Issuer, and will
have no liability to the Issuer or
any holder of the Notes for any
action taken or omitted to be taken
by it as Calculation Agent in good
faith. See "Risk Factors-- Discretion
of GS&Co. as Calculation Agent" for a
discussion of certain conflicts of
interest that may arise with respect
to GS&Co.'s responsibilities as
Calculation Agent.
Form of Note: Global Note.
Common Stock: Common stock, par value $0.01 per
share, of Oxford Health Plans, Inc.
Principal Amount and On the Maturity Date, the Face Amount
Mandatory Exchange of a Note will be mandatorily
at Maturity: exchanged for Common Stock at the
Exchange Rate (the "Principal
Amount"). The "Exchange Rate" is
equal to (i) if the Final Closing
Price per share of Common Stock is
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greater than or equal to the
Threshold Appreciation Price, a
number of shares of Common Stock per
Note equal to the product of (A) the
Cap Rate and (B) the quotient of the
Initial Price of such Note and the
Final Closing Price, and (ii) if the
Final Closing Price is less than the
Threshold Appreciation Price, one
share of Common Stock per Note. See
"Description of Notes -- Principal
Amount and Mandatory Exchange at
Maturity". The Exchange Rate is
subject to adjustment as a result
of certain dilution events, and an
investor may receive cash on the
Maturity Date upon the occurrence
of certain events. See "Description
of Notes -- Anti-Dilution
Adjustments."
Cap Rate: 1.52
Threshold Appreciation Price: The product of the Cap Rate and the
Initial Price.
Determination Date: The fifth Business Day immediately
prior to the Stated Maturity Date,
provided, however, that if a Market
Disruption Event (as defined under
"Description of Notes--
Definitions") has occurred on such
Business Day, the Determination
Date will be the first following
Business Day on which a Market
Disruption Event has not occurred,
but in no event later than the
fifth Business Day immediately
prior to July 30, 1999.
Final Closing Price: The Closing Price of the Common
Stock on the Determination Date.
Events of Default and
Acceleration: The Principal Amount payable upon
an acceleration of the Notes prior
to the Determination Date is
described under "Description of
Notes -- Events of Default and
Acceleration; Default Amount".
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Defeasance: The provisions described in the
Prospectus under "Description of
Notes -- Defeasance and Covenant
Defeasance" do not apply to the
Notes.
Redemption: The Notes are not redeemable at the
option of the Issuer.
Use of Proceeds: All of the net proceeds from the
issuance of the Notes will be used
by the Issuer to purchase shares of
Common Stock, and the net proceeds
from the writing of the over-the-
counter call options on the Common
Stock will be added to the Issuer's
working capital to support its
Derivative Transaction activities.
See "Use of Proceeds and Hedging"
in this Pricing Supplement and "Use
of Proceeds" in the accompanying
Prospectus.
</TABLE>
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RISK FACTORS
Prior to making an investment decision with respect to the Notes, potential
investors are urged to consider those factors presented below and in the
Prospectus under "Certain Factors" and "Risks Relating to Indexed Securities".
PAYMENT AT MATURITY; LACK OF PRINCIPAL PROTECTION; LIMITED APPRECIATION
The terms of the Notes differ from those of ordinary debt securities in
that the Face Amount of the Notes are mandatorily exchangeable for shares of
Common Stock and the value of the Common Stock that Holders will receive at the
Maturity Date is not fixed, but is based on the price of the Common Stock. See
"Description of Notes --Principal Amount and Mandatory Exchange at Maturity".
There can be no assurance that the value of the Common Stock received by the
Holders upon exchange will be equal to or greater than the Face Amount of the
Notes because the price of the Common Stock is subject to market fluctuations.
The Notes are not principal protected and, accordingly, investors in the Notes
may lose their entire investment.
As described below under "Description of Notes -- Principal Amount and
Mandatory Exchange at Maturity", a Holder of a Note will be entitled to receive
a number of shares of Common Stock (or fractional number) on the Maturity Date
at the Exchange Rate. The "Exchange Rate" is equal to, subject to adjustment as
a result of certain dilution events, (i) if the Final Closing Price per share of
Common Stock is greater than or equal to the Threshold Appreciation Price, a
number of shares of Common Stock per Note equal to the product of (A) the Cap
Rate and (B) the quotient of the Initial Price of such Security and the Final
Closing Price, and (ii) if the Final Closing Price is less than the Threshold
Appreciation Price, one share of Common Stock per Note.
The ability of the Holders of the Notes to participate in the appreciation
of the Common Stock is limited. For example, if the Final Closing Price exceeds
the Threshold Appreciation Price, a Holder will receive a fraction of a share of
Common Stock. The Notes are structured so that in no event will a Holder of
Notes receive cash, property or securities (valued as of the Determination Date)
in excess of $129.77.
The Exchange Rate is subject to adjustment as a result of certain dilution
events, as described under the caption "Description of Notes--Anti-Dilution
Adjustments".
Any amount payable on a Note will be independent of any returns on the
securities transactions discussed under "Effect of Trading and other
Transactions by the Issuer in the Common Stock" below. Therefore, it is possible
that affiliates of the
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Issuer could realize significant gains on their hedging transactions during the
period the Notes are outstanding, but that a Holder of a Note may lose all or a
portion of his or her investment.
If a bankruptcy proceeding is commenced in respect of the Issuer, the claim
of the holder of a Note may, under Section 502(b)(2) of Title 11 of the United
States Code, be less than the amount of the Note that would be due if the Stated
Maturity Date of the Notes were the date of the commencement of the proceeding.
RELATIONSHIP OF NOTES AND THE COMMON STOCK
The market price of the Notes is expected to be affected principally by
changes in the price of the Common Stock, interest rates and estimates of future
volatility in the Common Stock. As indicated under "Oxford Health Plans, Inc. --
Historical Information", the price of the Common Stock has during certain recent
periods been highly volatile. It is impossible to predict whether the price of
the Common Stock will rise or fall. Trading prices of the Common Stock will be
influenced by the financial results and prospects of Oxford and by complex and
interrelated political, economic, financial and other factors that can affect
capital markets generally and the market segment of which the Common Stock is a
part. See "Oxford Health Plans, Inc." Further, prior to the Maturity Date, the
value of the Notes may not have a one-to-one relationship with changes in price
of the Common Stock.
Moreover, since the Exchange Rate is determined in relation to the Final
Closing Price on the Determination Date (which is five Business Days prior to
the Maturity Date) and the price of the Common Stock may fluctuate after the
Determination Date and prior to the Maturity Date, the value of any Common Stock
delivered may be less than the value of such Common Stock on the Determination
Date.
EFFECT OF TRADING AND OTHER TRANSACTIONS BY THE ISSUER IN THE COMMON STOCK
As described under "Use of Proceeds and Hedging," the Issuer will hedge its
obligations under the Notes by acquiring shares of Common Stock, writing
over-the-counter call options on the Common Stock and entering into interest
rate swaps with GS&Co. and/or Goldman Sachs Capital Markets, L.P., an affiliate
of the Issuer ("GSCM"). It is anticipated that GS&Co. will hedge its obligations
under the call options from time to time by (i) acquiring, disposing of or
selling short the Common Stock or other securities of Oxford, (ii) taking
positions in or disposing of positions in listed or over-the-counter options on
the Common Stock and (iii) taking positions in or disposing of positions in
listed or over-the-counter options or other instruments based on broad market
indices or indicies designed to track the performance
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of health care stocks. Moreover, GS&Co. may liquidate its hedges, in whole or in
part, on or prior to the Determination Date. Any of these activities may
adversely affect the value of the Notes and/or the Principal Amount payable on
the Maturity Date. It is possible that GS&Co. could receive substantial returns
with respect to its hedging activities while the value of the Notes may decline.
See "Use of Proceeds and Hedging" for a further discussion of securities
transactions that will be engaged in by the Issuer and may be engaged in by
GS&Co.
GS&Co. and other affiliates of the Issuer may also engage in trading in the
Common Stock for their proprietary accounts, for other accounts under their
management and to facilitate transactions (including block transactions) on
behalf of customers. GS&Co. and other affiliates of the Issuer may also issue or
underwrite other securities or financial instruments with returns indexed to
changes in the value of the Common Stock. Trading in the Common Stock by GS&Co.
and other affiliates of the Issuer and the issuance or underwriting of other
securities or financial instruments indexed to the value of the Common Stock
could adversely affect the value of the Notes.
The Indenture relating to the Notes does not contain any restriction on the
ability of the Issuer to sell, pledge or otherwise convey all or any portion of
the Common Stock to be acquired by it, and no shares of Common Stock will be
pledged or otherwise held in escrow for exchange on the Maturity Date.
Consequently, in the event of a bankruptcy, insolvency or liquidation of the
Issuer, any Common Stock owned by the Issuer will be subject to the claims of
the creditors of the Issuer.
NO RIGHTS AS STOCKHOLDERS
Holders of the Notes will not be entitled to any rights with respect to the
Common Stock (including, without limitation, voting rights and rights to receive
any dividends or other distributions in respect thereof) unless and until such
time, if any, as the Issuer has delivered shares of Common Stock on the Maturity
Date, and unless the applicable record date, if any, for the exercise of such
rights occurs after such date.
POTENTIAL CONFLICTS OF INTEREST
As discussed above under "Effect of Trading and other Transactions by the
Issuer in the Common Stock", GS&Co. and other affiliates of the Issuer expect to
engage in trading activities related to the Common Stock for their proprietary
accounts and to facilitate transactions (including block transactions) for
customers, and GS&Co. and other affiliates of the Issuer may engage in trading
for other accounts under their management. These trading activities may present
a conflict of interests between the interests of Holders of the Notes and the
interests GS&Co. and other affiliates of the
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Issuer will have in their proprietary accounts, in the customer transactions and
in accounts under their management. These trading activities, if they influence
the price of the Common Stock, could be adverse to the interests of the Holders
of the Notes.
GS&Co. and other affiliates of the Issuer may engage in business with
Oxford in the future, including extending loans to, or making equity investments
in, Oxford or providing advisory services to Oxford, including merger and
acquisition advisory services, and purchasing health care services from Oxford.
These activities may present a conflict between GS&Co.'s (or such other of the
Issuer's affiliate's) obligations to Oxford and the interests of Holders of the
Notes. Moreover, GS&Co. has published and anticipates that it will in the future
publish research reports with respect to Oxford. Any of these activities by
GS&Co. or another affiliate of the Issuer may affect the price of the Common
Stock and, therefore, could reduce the Principal Amount and/or the value of the
Notes.
As discussed under "Effect of Trading and other Transactions by the Issuer
in Common Stock," GS&Co. may engage in transactions in the Common Stock, other
securities of Oxford and listed and over-the-counter options on the Common Stock
and various indices in order to hedge its option positions with the Issuer.
These activities may adversely affect the price of the Common Stock and the
Notes, but may result in a profit for GS&Co.
DISCRETION OF GS&CO. AS CALCULATION AGENT
GS&Co., as Calculation Agent, has discretion in making certain
determinations in connection with certain anti-dilution adjustments. See
"Description of Notes -- Anti-Dilution Adjustments". The exercise of this
discretion by GS&Co. could adversely affect the value of the Notes and may
present conflicts of interest between GS&Co.'s activities as Calculation Agent
and GS&Co.'s activities for its proprietary accounts, in facilitating
transactions (including block transactions) for its customers and for accounts
under its management. See "Potential Conflicts of Interest" above.
GS&Co. will have no liability to the Issuer or any holder of Notes for any
action taken or omitted to be taken by it as Calculation Agent in good faith.
LACK OF AFFILIATION BETWEEN THE ISSUER AND OXFORD; NO RESPONSIBILITY FOR OXFORD
DISCLOSURE
The Issuer is not affiliated with Oxford and, as of the date of this
Pricing Supplement, does not have any material non-public information concerning
Oxford. The Issuer assumes no responsibility for the adequacy or accuracy of the
information contained in this Pricing Supplement with respect to Oxford or in
any of Oxford's
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publicly available filings. Investors in the Notes should make their own
investigation into Oxford. See "Oxford Health Plans, Inc."
Oxford is not involved in the offering of the Notes and has no obligation
with respect to the Notes, including any obligation to take the interests of the
Holders of the Notes into consideration for any reason. Oxford will not receive
any of the proceeds of the offering of the Notes made hereby and is not
responsible for, and has not participated in, the determination of the timing
of, prices for, or quantities of, the Notes offered hereby or the determination
or calculation of the amount to be paid to Holders of Notes at maturity. Oxford
is not involved with the administration, marketing or trading of the Notes and
has no obligations with respect to the amount to be paid to Holders of the
Notes.
POSSIBLE ILLIQUIDITY OF NOTES; SECONDARY TRADING IN THE NOTES
The Notes are a new issue of securities and it is impossible to predict
whether a secondary market for the Notes will develop or how the Notes will
trade in any market that does develop. The Issuer has been advised by GS & Co.
that it intends to make a market in the Notes but it is not obligated to do so
and any such market making may be discontinued at any time without notice.
DILUTION
The Exchange Rate is subject to adjustment for certain events arising from
stock splits and combinations, stock dividends, extraordinary cash dividends and
certain other events that affect Oxford's capital structure. See "Description of
Notes -- Anti-Dilution Adjustments" below. The Exchange Rate will not be
adjusted for other events, such as offerings of the Common Stock for cash or an
issuer tender or exchange offer at a premium to the then current market price or
a third party tender or exchange offer for less than all of the outstanding
shares of the Common Stock, that may adversely affect the price of the Common
Stock and, therefore, adversely affect the trading price of the Notes and the
amount of Common Stock to be exchanged on the Maturity Date. There can be no
assurance that Oxford will not make offerings of the Common Stock in the future
or effect an issuer tender or exchange offer or take any other action which
adversely affects the value of the Notes but does not result in an anti-dilution
adjustment.
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UNCERTAINTY OF FEDERAL INCOME TAX CONSEQUENCES
Neither the Internal Revenue Service nor any court has decided how the
Notes or similar securities should be treated for United States federal income
tax purposes. As a result, significant aspects of their tax treatment are
uncertain. The Issuer will not ask the Internal Revenue Service to rule on how
the Notes should be treated. The Internal Revenue Service may disagree with the
description on tax consequences of owning the Notes that is described under
"United States Federal Income Tax Considerations".
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DESCRIPTION OF NOTES
SEE "RISK FACTORS" IN THIS PRICING SUPPLEMENT AND "CERTAIN FACTORS" AND
"RISKS RELATING TO INDEXED SECURITIES" IN THE PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE NOTES.
The following description of Notes offered hereby supplements and, to the
extent inconsistent therewith, supersedes the general terms and provisions of
the Notes set forth in the accompanying Prospectus, dated December 28, 1995 (the
"Prospectus"), and the Prospectus Supplement, dated January 3, 1996 (the
"Prospectus Supplement"). For purposes of the general description of Notes set
forth in the Prospectus and the Prospectus Supplement, the Notes offered hereby
constitute "Indexed Notes". All capitalized and undefined terms used herein have
the meanings assigned to them in the Prospectus or the Prospectus Supplement.
GENERAL
The 7% Mandatorily Exchangeable Notes due 1999 (Subject to Mandatory
Exchange into Shares of Common Stock of Oxford Health Plans, Inc.) (the "Notes")
will mature on July 23, 1999 (the "Stated Maturity Date"). The Face Amount of
each Note will be mandatorily exchanged on the Maturity Date for shares of
common stock, par value $0.01 per share (the "Common Stock"), of Oxford Health
Plans, Inc. ("Oxford"). See "--Principal Amount and Mandatory Exchange at
Maturity" below.
The Notes will be issued in a face amount of $85.375 (the "Face Amount")
per Note. The Notes will be issued in the form of one or more Global Notes as
described under "Description of Notes--Book-Entry Notes" in the Prospectus
Supplement.
Settlement for the Notes will be made in immediately available funds. The
Notes will trade in the Depositary's Same Day Funds Settlement System and
secondary market trading activity for the Notes will settle in immediately
available funds.
The Notes are not redeemable at the option of the Issuer, are not repayable
at the option of the holder thereof and are not entitled to the benefits of a
sinking fund.
Solely for purposes of the aggregate principal amount of Notes required for
any consent, waiver, authorization or other action taken or to be taken by
holders of Notes pursuant to the Notes and the Indenture, the principal amount
of the Notes offered hereby will equal the Face Amount of the Notes.
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The Specified Currency for the Notes is U.S. dollars.
GS & Co. will act as Calculation Agent with respect to the Notes. See "Risk
Factors--Potential Conflicts of Interest" and "--Discretion of GS & Co. as
Calculation Agent" in this Pricing Supplement.
PRINCIPAL AMOUNT AND MANDATORY EXCHANGE AT MATURITY
The Notes will mature on the Stated Maturity Date, subject to extension as
hereinafter described (such date of maturity herein referred to as the "Maturity
Date"). In the event that the Stated Maturity Date is not a Business Day, the
Maturity Date will be the next Business Day; provided, however, that if the
fifth Business Day immediately preceding July 23, 1999 (or if such day is not a
Business Day, the next succeeding Business Day) is not the Determination Date,
the Maturity Date will be the fifth Business Day following the Determination
Date, provided, further, however, that in no event will the Maturity Date be
later than July 30, 1999. The Issuer will promptly notify each Holder of a Note
of such extension of the Stated Maturity Date.
On the Maturity Date, the Face Amount of each Note will be mandatorily
exchanged for a number (or fractional number) of shares of Common Stock at the
Exchange Rate (the "Principal Amount"). In the event of a merger of Oxford into
another company, or the liquidation of Oxford, or certain related events,
Holders may, in lieu thereof (or in lieu of a portion thereof), receive
principal payments in cash. The "Exchange Rate" is equal to (i) if the Final
Closing Price per share of Common Stock is greater than or equal to the
Threshold Appreciation Price, a number of shares of Common Stock per Note equal
to the product of (A) the Cap Rate and (B) the quotient of the Initial Price of
the Note and the Final Closing Price, and (ii) if the Final Closing Price is
less than the Threshold Appreciation Price, one share of Common Stock per Note.
The Exchange Rate is subject to adjustment as a result of certain dilution
events. See " -- Anti-Dilution Adjustments -- Merger, Consolidation or Sale of
Assets". Holders of Notes otherwise entitled to receive fractional shares of
Common Stock in respect of their aggregate holdings of Notes will receive cash
in lieu thereof based on the Final Closing Price.
HYPOTHETICAL EXCHANGE RATES
For illustrative purposes only, the following chart shows the number of
shares of Common Stock the holder of Notes would receive for each Note at
various Final Closing Prices. The table assumes that there will be no dilution
adjustments to the Exchange Rate as described below. Given the Initial Price of
$85.375 and the Threshold Appreciation Price of $129.77, a holder of the Notes
would receive on the Maturity Date the following number of shares of Common
Stock per Note:
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Final Closing Prices Number of Shares
of Common Stock of Common Stock
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400.00 0.3244
375.00 0.3461
350.00 0.3708
325.00 0.3993
300.00 0.4326
275.00 0.4719
250.00 0.5191
225.00 0.5768
200.00 0.6489
175.00 0.7415
150.00 0.8651
125.00 1.0000
100.00 1.0000
75.00 1.0000
50.00 1.0000
25.00 1.0000
0.00 1.0000
INTEREST
Interest will accrue on the Face Amount of the Notes at 7% per annum from
and including the Issue Date to but excluding the Maturity Date. Interest on the
Notes will be payable quarterly on January 23, April 23, July 23 and October 23
in each year and on the Maturity Date, commencing on October 23, 1997 or if any
such day is not a Business Day, the next succeeding Business Day (each, an
"Interest Payment Date"). The Regular Record Date with respect to any Interest
Payment Date will be the January 8, April 8, July 8 or October 8, whether or
not a Business Day, as the case may be, immediately preceding such Interest
Payment Date. If the Stated Maturity Date is extended (as described above under
" -- Principal Amount and Mandatory Exchange at Maturity"), interest will not be
paid on the Stated Maturity Date and will continue to accrue on the Face Amount
of the Notes at 7% per annum to but excluding the Maturity Date and will be
payable on the Maturity Date. Interest will be calculated on the basis of a
360-day year consisting of twelve 30-day months.
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ANTI-DILUTION ADJUSTMENTS
GENERAL
The Exchange Rate will be subject to adjustment by the Calculation Agent as
described below to the extent that any of the events requiring such adjustment
occur during the period commencing on the date of this Pricing Supplement and
ending on the Determination Date. No adjustments to the Exchange Rate will be
made other than those specified below. Such adjustments do not cover all events
that could affect the Exchange Rate, including, without limitation, an issuer
tender or exchange offer at a premium to the market price or a third party
tender or exchange offer for less than all of the outstanding shares of Common
Stock. See "Risk Factors -- Dilution".
No adjustments to the Exchange Rate will be required unless such adjustment
would require a change of at least 0.1% in the Exchange Rate. The Exchange Rate
resulting from any of the adjustments specified below will be rounded to the
nearest one thousandth with five ten-thousandths being rounded upward.
All determinations made by the Calculation Agent will be at the sole
discretion of the Calculation Agent and, in the absence of manifest error, will
be conclusive for all purposes and binding on the Issuer and the Holders of
Notes, and the Calculation Agent will have no liability therefor. The
Calculation Agent will provide information as to any adjustments to the Exchange
Rate upon written request by any Holder of the Notes.
In the case of any adjustment to the Exchange Rate as a result of an event
described under "Stock Splits", "Stock Dividends", "Rights and Warrants" or
"Dividends and Other Distributions", the Final Closing Price shall be adjusted
in the same manner.
For purposes of clarity, it is intended that the adjustments for stock
splits, reverse stock splits, stock dividends, cash dividends and other
distributions described below are meant to apply only if such events actually
occur, as often as they occur.
STOCK SPLITS
If the Common Stock is subject to a stock split or reverse stock split,
then at the opening of business on the first day on which the Common Stock
trades without the right to receive such stock split (the "ex-dividend date"),
the Exchange Rate will be adjusted by multiplying such Exchange Rate by a
fraction, the numerator of which will be the number of shares of the Common
Stock outstanding at the close of business on the record date for holders of the
Common Stock entitled to such split plus or minus the change in the number of
shares resulting from such stock split or reverse stock split and
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the denominator of which will be the number of shares of the Common Stock
outstanding at the close of business on such record date.
STOCK DIVIDENDS
If the Common Stock is subject to a stock dividend that is given ratably to
all holders of shares of the Common Stock, then at the opening of business on
the ex-dividend date, the Exchange Rate will be adjusted by multiplying such
Exchange Rate by a fraction, the numerator of which will be the number of shares
of the Common Stock outstanding at the opening of business on such ex-dividend
date plus the number of shares constituting such stock dividend and the
denominator of which will be the number of shares of the Common Stock
outstanding at the opening of business on such ex-dividend date.
DIVIDENDS AND OTHER DISTRIBUTIONS
There will be no adjustments to the Exchange Rate to reflect cash dividends
or other distributions paid with respect to the Common Stock other than (i)
distributions that constitute Spin-Off Events as described in the first
paragraph under "--Merger, Consolidation or Sale of Assets" below and (ii)
Extraordinary Dividends as described below. A dividend or other distribution
with respect to the Common Stock will be deemed to be an "Extraordinary
Dividend" if such dividend or other distribution exceeds the immediately
preceding non-Extraordinary Dividend, if any, for the Common Stock by an amount
equal to at least 6% of the Closing Price of the Common Stock on the first
Business Day immediately preceding the ex-dividend date. If an Extraordinary
Dividend occurs with respect to the Common Stock, the Exchange Rate will be
adjusted by multiplying such Exchange Rate by a fraction, the numerator of which
will be the Closing Price of the Common Stock on the Business Day immediately
preceding the ex-dividend date with respect to such Extraordinary Dividend and
the denominator of which will be the difference between such Closing Price and
the Extraordinary Dividend Amount. The "Extraordinary Dividend Amount" with
respect to an Extraordinary Dividend for the Common Stock will equal (i) in the
case of cash dividends or other distributions that constitute quarterly
dividends, the amount per share of such Extraordinary Dividend minus the amount
per share of the immediately preceding non-Extraordinary Dividend for the Common
Stock or (ii) in the case of cash dividends or other distributions that do not
constitute quarterly dividends, the amount per share of such 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, whose
determination will be conclusive. A distribution on the Common Stock that
constitutes a Spin-Off Event and that also constitutes an Extraordinary Dividend
will only cause an adjustment to the Exchange Rate pursuant to the first
paragraph under "--Merger, Consolidation or Sale of Assets" below.
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<PAGE>
RIGHTS AND WARRANTS
If Oxford issues rights or warrants to all holders of the Common Stock to
subscribe for or purchase the Common Stock at an exercise price per share less
than the Closing Price of the Common Stock on the record date for determining
the holders of the Common Stock entitled to receive such rights and warrants,
then the Exchange Rate will be adjusted by multiplying such Exchange Rate by a
fraction, the numerator of which will be the number of shares of the Common
Stock outstanding at the close of business on such record date, plus the number
of additional shares of the Common Stock offered for subscription or purchase
pursuant to such rights or warrants and the denominator of which will be the
number of shares of the Common Stock outstanding at the close of business on
such record date, plus the number of additional shares of the Common Stock which
the aggregate offering price of the total number of shares of the Common Stock
so offered for subscription or purchase pursuant to such rights or warrants
would purchase at the Closing Price of the Common Stock on such record date,
which will be determined by multiplying such total number of shares offered by
the exercise price of such rights or warrants and dividing the product so
obtained by such Closing Price.
MERGER, CONSOLIDATION OR SALE OF ASSETS
If (A) (i) there occurs any reclassification or change of the Common Stock,
(ii) Oxford or any surviving entity or subsequent surviving entity of Oxford (a
"Successor") has been subject to a merger, combination or consolidation and
either (x) is not the surviving entity or (y) survives and all of the
outstanding shares of the Common Stock are exchanged for or converted into
Exchange Property (as defined below), (iii) any statutory exchange of securities
of Oxford or any Successor with another entity occurs (other than pursuant to
clause (ii) above), (iv) any sale, lease, transfer, or conveyance to another
entity of the property of Oxford or any Successor as an entirety or
substantially an entirety, (v) Oxford or any Successor is liquidated, dissolved
or wound up, (vi) Oxford issues to all of its shareholders equity securities of
an issuer other than Oxford (other than in a transaction described in clauses
(ii), (iii), (iv) or (v) above, a "Spin-off Event") or (vii) a tender or
exchange offer is consummated for all the outstanding shares of the Common Stock
or for all of a particular type of Exchange Property (any such event in clauses
(i) through (vii), a "Reorganization Event"), and (B) in the case of (i) a
Reorganization Event other than a Spin-Off Event, the effective time of such
Reorganization Event occurs prior to the Determination Date or (ii) a Spin-Off
Event, the record date fixed for the determination of the shareholders of Oxford
entitled to receive the securities distributed in such Spin-Off Event (the
"Spin-Off Record Date") occurs prior to the Determination Date, then each Note
will be exchangeable for Exchange Property (as defined below). In the case of a
Reorganization Event, the Final Closing Price will be equal to the sum of the
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<PAGE>
Transaction Values for each type of Exchange Property, as of the Determination
Date. The "Transaction Value" means (i) for any cash received in any such
Reorganization Event, the product of (A) the Exchange Rate (as in effect
immediately prior to such Reorganization Event) and (B) the amount of cash
received per share of the Common Stock, (ii) for any property other than cash or
securities received in any such Reorganization Event, the product of (A) the
Exchange Rate applicable to such Exchange Property as of the Determination Date
and (B) the market value of such Exchange Property received for each share of
the Common Stock as determined by the Calculation Agent, and (iii) for any
security received in any such Reorganization Event, an amount equal to the
product of (A) the Exchange Rate applicable to such Exchange Property as of the
Determination Date and (B) the Closing Price per share of such security
multiplied by the quantity of such security received for each share of the
Common Stock. "Exchange Property" means securities, cash or any other assets
distributed in any Reorganization Event, including, in the case of a Spin-off
Event, the share of the Common Stock with respect to which the spun-off security
was issued. If Exchange Property consists of more than one type of Exchange
Property, Holders will receive an amount of each type of Exchange Property in
the same proportion as each type of Exchange Property bears to the Transaction
Value for all the Exchange Property.
For purposes of the preceding paragraph, in the case of a consummated
tender or exchange offer for all of a particular type of Exchange Property,
Exchange Property will be deemed to include the amount of cash or other property
paid by the offeror in the tender or exchange offer with respect to such
Exchange Property (in an amount determined on the basis of the rate of exchange
in such tender or exchange offer). In the event of a tender or exchange offer
with respect to Exchange Property in which an offeree may elect to receive cash
or other property, Exchange Property will be deemed to include the kind and
amount of cash and other property received by offerees who elect to receive
cash.
The Calculation Agent will be solely responsible for the determination and
calculation of any adjustments to the Exchange Rate and of any related
determinations and calculations with respect to any distributions of stock,
other securities or other property or assets (including cash) in connection with
any corporate event described in the second preceding paragraph, and its
determinations and calculations with respect thereto will be conclusive and
binding on the Issuer and the holders of the Notes.
NOTWITHSTANDING THE FOREGOING, THE AMOUNT PAYABLE BY THE ISSUER ON THE
MATURITY DATE WITH RESPECT TO EACH NOTE WILL NOT UNDER ANY CIRCUMSTANCES EXCEED
$129.77 PER NOTE OR AN AMOUNT OF CASH, PROPERTY AND/OR SECURITIES HAVING AN
EQUIVALENT VALUE AS OF THE DETERMINATION DATE.
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<PAGE>
EVENTS OF DEFAULT AND ACCELERATION; DEFAULT AMOUNT
In case an Event of Default with respect to the Notes shall have occurred
and be continuing prior to the Determination Date, the amount payable to a
Holder on any day on which the principal of the Notes becomes payable upon any
acceleration, will equal the Default Amount and, on or after the Determination
Date, the Principal Amount; provided, however, that, solely for purposes of the
aggregate principal amount of Notes required for any consent, waiver,
authorization or other action taken or to be taken by holders of Notes pursuant
to the Notes and the Indenture, the principal amount of the Notes offered hereby
will equal the Face Amount of the Notes.
DEFINITIONS
"Oxford" means Oxford Health Plans, Inc., a Delaware corporation.
"Business Day" means any day that is not a Saturday, a Sunday or a day on
which the Nasdaq National Market System (or, if different, the principal
securities exchange on which the Common Stock (or, in the case of a
Reorganization Event, any Exchange Property) is then listed) is authorized or
obligated by law or executive order to close.
"Cap Rate" means 1.52.
"Closing Price" means, with respect to any security on any date, the
closing sale price or last reported sale price, regular way, for the security on
the principal national securities exchange on which such security is listed for
trading on such date or, in the event such security is not listed on any
national securities exchange, on Nasdaq on any such date or, in the event such
security is not quoted through Nasdaq on any such date, on such other U.S.
national market system that is the primary market for the trading of such
security or, in the event such security is not listed on any national securities
exchange, or through Nasdaq or any other U.S. national market system, the
Closing Price with respect to such security will be the mean, as determined by
the Calculation Agent, of the bid prices for such security obtained from as many
dealers in such security (which may include the Calculation Agent or its
affiliate), but not exceeding three, as will make such bid prices available to
the Calculation Agent.
"Common Stock" means the common stock, par value $0.01 per share, of
Oxford.
"Default Amount" means, on any day, an amount, in U.S. dollars, equal to
the cost of having a Qualified Financial Institution expressly assume, as of
such day, the due and punctual payment of the Principal Amount of and interest
on the Notes offered
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<PAGE>
hereby, and the performance and observance of every covenant thereof and of
the Indenture on the part of the Issuer to be performed or observed with respect
to such Notes (or to undertake other obligations providing the same economic
value to the Holder of such Notes as the Issuer's obligations thereunder). Such
cost will equal (i) the lowest amount that a Qualified Financial Institution
(selected as provided below) would charge to effect such assumption (or
undertaking) plus (ii) the reasonable expenses (including reasonable attorneys'
fees) incurred by the Holder of such Notes in preparing any documentation
necessary for such assumption (or undertaking). During the Default Quotation
Period, each of the Holder of a Note and the Issuer may request a Qualified
Financial Institution to provide a quotation of the amount it would charge to
effect such assumption (or undertaking) and will notify the other in writing of
such quotation. The amount referred to in clause (i) of this paragraph will
equal the lowest (or, if there is only one, the only) quotation so obtained, and
as to which notice is so given, during the Default Quotation Period; provided,
however, that, with respect to any quotation, the party not obtaining such
quotation may object, on reasonable and significant grounds, to the effectuation
of such assumption (or undertaking) by the Qualified Financial Institution
providing such quotation and notify the other party in writing of such grounds
within two Business Days after the last day of the Default Quotation Period, in
which case such quotation will be disregarded in determining the Default Amount.
The Default Quotation Period will be the period beginning on the day the Default
Amount first becomes due and payable and ending on the third Business Day after
such due day, unless no such quotation is so obtained, or unless every such
quotation so obtained is objected to within five Business Days after such due
day as provided above, in which case the Default Quotation Period will continue
until the third Business Day after the first Business Day on which prompt notice
is given of such a quotation as provided above, unless such quotation is
objected to as provided above within five Business Days after such first
Business Day, in which case the Default Quotation Period will continue as
provided in this sentence. Notwithstanding the foregoing, if the Default
Quotation Period (and the subsequent two Business Day objection period) has not
ended prior to the Determination Date, then the Default Amount will equal the
Principal Amount.
"Determination Date" means the fifth Business Day immediately prior to the
Stated Maturity Date, provided, however, that if a Market Disruption Event has
occurred on such Business Day, the Determination Date will be the first
following Business Day on which a Market Disruption Event has not occurred, but
in no event later than the fifth Business Day immediately prior to July 30,
1999.
"Face Amount" or "Initial Price" means $85.375 per Note.
"Final Closing Price" means the Closing Price of the Common Stock on the
Determination Date.
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<PAGE>
"Market Disruption Event" means, with respect to the Common Stock, (i) (a)
a suspension, absence or material limitation of trading of the Common Stock on
the primary market for the Common Stock for more than two hours of trading or
during the one-half hour period preceding the close of trading in such market or
a suspension, absence or material limitation on the primary market for trading
in options contracts related to the Common Stock, if available, during the
one-half hour period preceding the close of trading in such market, in each case
as determined by the Calculation Agent in its sole discretion, or (b) the Common
Stock does not trade on the primary market for the Common Stock, and (ii) a
determination by the Calculation Agent in its sole discretion that either event
described in clauses (a) or (b) above materially interfered with the ability of
the Issuer or any of its affiliates to unwind all or a material portion of the
hedge with respect to the Notes. For purposes of determining whether a Market
Disruption Event has occurred (i) a limitation on the hours or number of days of
trading will not constitute a Market Disruption Event if it results from an
announced change in the regular business hours of the relevant market, (ii) a
decision to permanently discontinue trading in the relevant option contract will
not constitute a Market Disruption Event, (iii) limitations pursuant to NYSE
Rule 80A (or any applicable rule or regulation enacted or promulgated by the
NYSE, the National Association of Securities Dealers, Inc., any other
self-regulatory organization or the Securities and Exchange Commission of
similar scope as determined by the Calculation Agent) on trading during
significant market fluctuations will constitute a Market Disruption Event, (iv)
a suspension of trading in an options contract on the Common Stock by the
primary securities market trading in such options, if available, by reason of
(x) a price change exceeding limits set by such securities exchange or market,
(y) an imbalance of orders relating to such contracts or (z) a disparity in bid
and ask quotes relating to such contracts will constitute a suspension or
material limitation of trading in options contracts related to the Common Stock
and (v) an "absence of trading" on the primary securities market on which
options contracts related to the Common Stock are traded will not include any
time when such securities market is itself closed for trading under ordinary
circumstances. References to the Common Stock in this definition will also be
deemed to refer to any Exchange Property consisting of securities.
"Nasdaq" means the Nasdaq National Market System.
"NYSE" means the New York Stock Exchange, Inc.
"Qualified Financial Institution" means, at any time, a financial
institution organized under the laws of any jurisdiction in the United States of
America, Europe or Japan that at such time has outstanding debt obligations with
a stated maturity of one year or less from the date of issue and rated A-1 or
higher by Standard & Poor's Ratings Group or P-1 or higher by Moody's Investors
Service, Inc. (or such other comparable rating, if any, then used by such rating
agency).
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<PAGE>
CALCULATION AGENT
All determinations made by the Calculation Agent will be at the sole
discretion of the Calculation Agent and, in the absence of manifest error, will
be conclusive for all purposes and binding on the Issuer and the Holders of
Notes, and the Calculation Agent will have no liability therefor.
DEFEASANCE AND COVENANT DEFEASANCE
The Notes are not subject to defeasance or covenant defeasance as described
under "Description of Debt Securities -- Defeasance and Covenant Defeasance" in
the Prospectus.
USE OF PROCEEDS AND HEDGING
In connection with hedging the Issuer's obligations under the Notes, the
Issuer will acquire shares of Common Stock, write over-the-counter call options
on Common Stock and enter into interest rate swaps with GS&Co. and/or GSCM. The
Issuer does not anticipate entering into any other transactions to hedge the
Notes. The Issuer has used all of the net proceeds for the issuance of the Notes
to purchase shares of Common Stock and will add the net proceeds from the
writing of the over-the-counter options to its working capital to support its
Derivative Transaction activities.
GS&Co., in order to hedge its position under the call options, may sell
Common Stock contemporaneously with the pricing of the Notes. After the date
hereof, GS&Co. may from time to time (i) acquire, dispose of or sell short
shares of Common Stock or other securities of Oxford, (ii) take positions in or
dispose of positions in listed or over-the-counter options on the Common Stock
and/or (iii) take positions in or dispose of positions in listed or
over-the-counter options or other instruments based on broad market indices or
indices designed to track the performance of health care stocks. In addition,
the Issuer, GS&Co. or one of its affiliates may purchase or otherwise acquire a
long or short position in Notes from time to time and may, in their sole
discretion, hold or resell such Notes.
GS&Co. may liquidate its hedges, in whole or in part, on or prior to the
Determination Date. Such liquidation may involve purchase or sales of (i) the
Common Stock, (ii) listed or over-the-counter options on the Common Stock or
(iii) listed or over-the-counter options or other instruments based on broad
market indices or indices designed to track the performance of health care
stocks.
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<PAGE>
WHILE THE HEDGING ACTIVITY DISCUSSED ABOVE MAY ADVERSELY AFFECT THE MARKET
VALUE FROM TIME TO TIME OF THE NOTES AND THE PRINCIPAL AMOUNT PAYABLE ON THE
MATURITY DATE, THERE WILL BE NO DIRECT RELATIONSHIP BETWEEN THE GAINS OR LOSSES
THAT AFFILIATES OF ISSUER REALIZE FROM THEIR HEDGING ACTIVITIES AND THE VALUE OF
THE COMMON STOCK FOR WHICH THE NOTES WILL BE EXCHANGED ON THE MATURITY DATE. See
"RISK FACTORS -- EFFECT OF TRADING AND OTHER TRANSACTIONS BY THE ISSUER IN THE
COMMON STOCK" AND "-- POTENTIAL CONFLICTS OF INTEREST".
OXFORD HEALTH PLANS, INC.
According to publicly available documents, Oxford is a managed care company
providing health benefit plans in the greater New York and Philadelphia
metropolitan areas. Oxford's product line includes traditional health
maintenance organizations, point-of-service plans, third party administration of
employer funded benefit plans and dental plans. Oxford is subject to the
information requirements of the Securities Exchange Act of 1934, as amended.
Accordingly, Oxford files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Copies of such
reports, proxy statements and other information may be inspected and copied at
certain offices of the Commission or on the Commission's web site
(http://www.sec.gov.).
THIS PRICING SUPPLEMENT RELATES ONLY TO THE NOTES OFFERED HEREBY AND DOES
NOT RELATE TO THE COMMON STOCK. ALL DISCLOSURES CONTAINED IN THIS PRICING
SUPPLEMENT REGARDING OXFORD ARE DERIVED FROM THE PUBLICLY AVAILABLE DOCUMENTS
DESCRIBED IN THE PRECEDING PARAGRAPH OR OTHER SPECIFIED SOURCES. THE ISSUER HAS
NOT PARTICIPATED IN THE PREPARATION OF SUCH DOCUMENTS OR MADE ANY DUE DILIGENCE
INQUIRY WITH RESPECT TO THE INFORMATION PROVIDED THEREIN AND ASSUMES NO
RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF ANY SUCH INFORMATION. INVESTORS
IN THE NOTES ARE URGED TO CONDUCT THEIR OWN INVESTIGATION INTO OXFORD. THE
ISSUER MAKES NO REPRESENTATION THAT SUCH PUBLICLY AVAILABLE DOCUMENTS OR ANY
OTHER PUBLICLY AVAILABLE INFORMATION REGARDING OXFORD ARE ACCURATE OR COMPLETE.
FURTHERMORE, THERE CAN BE NO ASSURANCE THAT ALL EVENTS OCCURRING PRIOR TO THE
DATE OF THIS PRICING SUPPLEMENT (INCLUDING EVENTS THAT WOULD AFFECT THE ACCURACY
OR COMPLETENESS OF THE PUBLICLY AVAILABLE DOCUMENTS DESCRIBED IN THE PRECEDING
PARAGRAPH) THAT WOULD AFFECT THE TRADING PRICE OF THE COMMON STOCK (AND
THEREFORE THE NUMBER OF SHARES OF COMMON STOCK WHICH WILL BE
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<PAGE>
EXCHANGED FOR THE NOTES ON THE MATURITY DATE) HAVE BEEN PUBLICLY DISCLOSED.
SUBSEQUENT DISCLOSURE OF ANY SUCH EVENTS OR THE DISCLOSURE OF OR FAILURE TO
DISCLOSE MATERIAL FUTURE EVENTS CONCERNING OXFORD COULD AFFECT THE TRADING PRICE
OF THE NOTES AND THE NUMBER OF SHARES OF COMMON STOCK WHICH WILL BE EXCHANGED
FOR THE NOTES ON THE MATURITY DATE.
HISTORICAL INFORMATION
The Common Stock is quoted on Nasdaq under the symbol "OXHP". The following
table sets forth the quarterly high and low Closing Prices for the Common Stock
quoted on Nasdaq for the four calendar quarters in 1995 and 1996, and for the
first three calendar quarters in 1997 (through July 17, 1997), and the closing
price at July 17, 1997, all as reported by Bloomberg Financial Services. The
prices set forth in the following table have been adjusted to reflect the
two-for-one splits, effected by means of a stock dividend, on each outstanding
share of Common Stock, which were payable on March 27, 1995 and April 1, 1996 to
holders of record on March 6, 1995 and March 25, 1996, respectively. The Issuer
assumes no responsibility for the accuracy or completeness of this information
and has relied upon this information without independent verification. The
historical prices of the Common Stock should not be taken as an indication of
future performance. No assurance can be given that the prices of the Common
Stock will remain at a level which will result in an investor recouping his or
her original investment in the Notes. See "Risk Factors -- Payment at Maturity;
Lack of Principal Protection; Limited Appreciation".
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<PAGE>
<TABLE>
<CAPTION>
HIGH LOW
($) ($)
<S>
1995 <C> <C>
Quarter ended March 31............................. 29 1/4 19 5/8
Quarter ended June 30.............................. 28 15/16 20 1/4
Quarter ended September 30......................... 36 3/8 23 1/4
Quarter ended December 31.......................... 41 3/16 30 3/16
1996
Quarter ended March 31............................. 44 5/8 31 11/16
Quarter ended June 30.............................. 52 1/4 39 1/2
Quarter ended September 30......................... 49 3/4 31 1/16
Quarter ended December 31.......................... 60 7/8 41 1/4
1997
Quarter ended March 31............................. 65 7/8 49 1/2
Quarter ended June 30.............................. 74 1/4 56 1/2
Quarter ended September 30......................... 86 3/8 74 3/8
(through July 17, 1997)
Closing price on July 17, 1997........................ 86 3/8
</TABLE>
Historically, Oxford has not paid cash dividends on the Common Stock. The
Issuer makes no representation as to the amount of dividends, if any, that
Oxford may pay in the future. In any event, Holders of the Notes will not be
entitled to receive any cash dividends that may be payable on the Common Stock.
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<PAGE>
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of the principal United States federal income tax
consequences of ownership of the Notes deals only with a Note held as a capital
asset by an initial purchaser who or that is (i) a citizen or resident of the
United States, (ii) a domestic corporation or (iii) otherwise subject to United
States federal income taxation on a net income basis in respect of a Note (a
"U.S. Holder"). It does not discuss the rules that may apply to special classes
of holders such as life insurance companies, banks, tax-exempt organizations,
dealers in securities, currencies or commodities, persons that hold Notes that
are a hedge or that are hedged against price risks or that are part of a
straddle or conversion transaction, or persons whose functional currency is not
the U.S. dollar. The summary is based on current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), its legislative history, existing
and proposed regulations thereunder, published rulings and court decisions, all
as in effect on the date hereof and all subject to change at any time, perhaps
with retroactive effect.
NO STATUTORY, JUDICIAL OR ADMINISTRATIVE AUTHORITY DIRECTLY DISCUSSES HOW
THE NOTES SHOULD BE TREATED FOR UNITED STATES FEDERAL INCOME TAX PURPOSES. AS A
RESULT, THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN
THE NOTES ARE HIGHLY UNCERTAIN. ACCORDINGLY, A PROSPECTIVE INVESTOR IN THE NOTES
SHOULD CONSULT ITS TAX ADVISOR IN DETERMINING THE TAX CONSEQUENCES OF AN
INVESTMENT IN THE NOTES, INCLUDING THE APPLICATION OF STATE, LOCAL OR OTHER TAX
LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
Pursuant to the terms of the Indenture, the Issuer and every holder of
Notes will be obligated (in the absence of an administrative determination or
judicial ruling to the contrary) to characterize the Notes for all tax purposes
as a forward contract to purchase shares of Common Stock on the Maturity Date,
under the terms of which contract (i) at the time of issuance of the Notes the
holder deposits irrevocably with the Issuer a fixed amount of cash equal to the
purchase price of the Notes to assure the fulfillment of the holder's purchase
obligation described in clause (iii) below, which deposit will unconditionally
and irrevocably be applied on the Maturity Date to satisfy such obligation, (ii)
until the Maturity Date the Issuer will be obligated to pay interest on such
deposit at a rate equal to the stated rate of interest on the Notes as
compensation to the holder for the Issuer's use of such cash deposit during the
term of the Notes and (iii) on the Maturity Date such cash deposit
unconditionally and irrevocably will be applied by the Issuer in full
satisfaction of the holder's obligation under the forward purchase contract, and
the Issuer will deliver to the holder the
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<PAGE>
number of shares of Common Stock that the holder is entitled to receive at that
time pursuant to the terms of the Notes. (Prospective investors should note that
cash proceeds of this offering will not be segregated by the Issuer during the
term of the Notes, but instead will be commingled with the Issuer's other
assets). Consistent with the above characterization, (i) amounts paid to the
Issuer in respect of the original issue of Notes will be treated as allocable in
their entirety to the amount of the cash deposit attributable to such Notes and
(ii) amounts denominated as interest that are payable with respect to the Notes
will be characterized as interest payable on the amount of such deposit,
includible annually in the income of a U.S. Holder as interest income in
accordance with such holder's method of accounting.
Assuming that the Notes are characterized as described above, a holder's
tax basis in a Note generally would equal the holder's cost for the Note. Upon
the sale or exchange of a Note, a U.S. Holder generally would recognize gain or
loss equal to the difference between the amount realized on the sale or exchange
and the U.S. Holder's tax basis in the Note. Such gain or loss generally would
be long-term capital gain or loss if the U.S. Holder has held the Note for more
than one year at the time of disposition. Upon delivery of the shares of Common
Stock at Maturity, a U.S. Holder would not recognize gain or loss on the
purchase of such shares of Common Stock against application of the monies
received by the Issuer in respect of the Notes. A U.S. Holder would have a tax
basis in such stock equal to the U.S. Holder's tax basis in the Notes (less the
portion of the tax basis of the Notes allocable to any fractional share, as
described in the next sentence) and would have a holding period in such stock
beginning on the date following the date of receipt of such shares of Common
Stock. A U.S. Holder would recognize gain or loss (which would be short-term
capital gain or loss) with respect to cash received in lieu of fractional
shares, in an amount equal to the difference between the cash received and the
portion of the basis of the Notes allocable to fractional shares (based on the
relative number of fractional shares and full shares delivered to the holder).
In the case of a U.S. Holder that purchases a Note at a date later than
the issue date (a "subsequent purchaser"), the subsequent purchaser's purchase
price for the Note would be apportioned between the forward purchase contract
for Common Stock and the deposit based on the respective values of the forward
purchase contract and the deposit at the time of the subsequent purchase. To the
extent that such purchase price is apportioned to the deposit and is greater
than the Initial Price, a subsequent purchaser may be treated as having
purchased a Note with premium that could offset inclusions of interest income
that otherwise might be required in respect of the Note. To the extent such
purchase price is apportioned to the deposit and the subsequent purchaser's
purchase price for the Note is less than the Initial Price, the deposit could be
subject to the market discount rules which would require the recharacterization
as ordinary income of any gain recognized in respect of such discount. To the
extent that the purchase price is
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<PAGE>
apportioned to the forward purchase contract, such purchase price will be
reflected in the adjusted basis in the Common Stock acquired, pursuant to such
forward purchase contract.
Alternatively, the Internal Revenue Service may assert that a Note should
be treated as a single debt instrument subject to special rules governing
contingent payment debt instruments (the "Contingent Payment Regulations"). If
the Contingent Payment Regulations were to apply to the Notes, a U.S. Holder
would be required to include in income for each accrual period an amount
determined by constructing a projected payment schedule for the Notes and
applying rules similar to those for accruing original issue discount on a
hypothetical non-contingent debt instrument with that projected payment
schedule. This method is applied by first determining the yield at which the
Issuer would issue a noncontingent fixed rate debt instrument with terms and
conditions similar to the Notes (the "comparable yield") and then determining a
payment schedule as of the issue date that would produce the comparable yield.
If the Contingent Payment Regulations were to apply to the Notes, gain or
loss upon the sale, exchange or retirement of the Notes would be determined by
the difference, if any, between the fair market value of the amount received by
the U.S. Holder and the U.S. Holder's adjusted basis in the Notes. In general, a
U.S. Holder's adjusted basis in a Note would equal the amount paid for the Note,
increased by the amount of interest previously accrued by the holder (in
accordance with the comparable yield and the projected payment schedule), and
decreased by the amount of interest payments received by the holder with respect
to the Note. Any gain upon sale, exchange or retirement of the Notes would be
ordinary interest income; any loss would be ordinary loss to the extent of
interest included as income in the current or previous taxable years by the U.S.
Holder in respect of the Notes, and thereafter, capital loss.
Under this alternative characterization, if the subsequent purchaser's
purchase price is different than the Initial Price, the premium and market
discount rules would not apply. Instead, under the Contingent Payment
Regulations, the difference would be allocated on a reasonable economic basis
between accruals of interest and the final payment at maturity. To the extent
that such difference is allocated to accruals of interest, the difference will
be treated under rules analogous to those that apply to premium or original
issue discount (i.e., any excess in the subsequent purchaser's purchase price
that is allocable to daily accruals of interest would create premium that could
be offset against accruals of interest income that might otherwise be required
in respect of a Note and any decrease in the subsequent purchaser's purchase
price as compared to the Initial Price might result in such purchaser being
required to include additional amounts in interest income prior to the receipt
of cash interest payments). To the extent such difference is allocated to the
final payment, the difference will increase or decrease the ordinary income or
loss recognized upon the delivery of the Common Stock.
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<PAGE>
Even if the Contingent Payment Regulations do not apply to the Notes, it is
possible that the Internal Revenue Service could seek to characterize the Notes
in a manner that results in tax consequences to U.S. Holders different from
those reflected in the Indenture and described above. For example, the Internal
Revenue Service could seek to allocate less than all of the amounts paid for the
Notes to the cash deposit described above and treat the cash deposit as a debt
instrument acquired at a discount. In that case, U.S. Holders would be required
to include such original issue discount in income as it accrues in addition to
stated interest on the Notes. Prospective investors should consult their tax
advisors as to possible alternative characterizations of the Notes for United
States federal income tax purposes.
SUPPLEMENTAL PLAN OF DISTRIBUTION
Subject to the terms and conditions of a Terms Agreement, the Issuer has
agreed to sell to GS&Co., and GS&Co. has agreed to purchase, 190,000 Notes.
GS&Co. may resell the Notes from time to time at the Initial Price, at prices
related to the market price of the Notes or the Common Stock or at negotiated
prices. For a discussion of the implications of any such resales by GS&Co. to
investors at a price above or below the Initial Price, see "United States
Federal Income Tax Considerations". The remainder of the Notes will be sold by
the Issuer through GS&Co., as agent.
As compensation for its services in connection with the offering of the
Notes, including its purchase of Notes pursuant to the Terms Agreement, the
Issuer will pay GS&Co. a fee of $101,994.31 pursuant to an Origination Agreement
between GS&Co. and the Issuer, which is described in the Issuer's Annual Report
in Form 10-K for the fiscal year ended November 29, 1996. See "Incorporation of
Certain Documents by Return" in the Prospectus.
VALIDITY OF NOTES
The validity of the Notes offered hereby will be passed upon by Maples and
Calder, George Town, Grand Cayman, Cayman Islands, British West Indies, and by
Sullivan & Cromwell, New York, New York. Sullivan & Cromwell will rely as to all
matters of Cayman Islands law upon the opinion of Maples and Calder. See
"Validity of Notes" in the Prospectus.
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<PAGE>
The Issuer's Medium-Term Notes, Series B will be offered for sale in the
aggregate principal amount of up to $500,000,000 (or the equivalent thereof in
any foreign currencies or currency units) (provided that the Issuer reserves the
right to increase such aggregate principal amount from time to time). After
giving effect to the issuance of the Notes to which this Pricing Supplement
relates, $113,797,724 principal amount of Medium-Term Notes, Series B have been
issued by the Issuer.
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GOLDMAN, SACHS & CO.
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The date of this Pricing Supplement is July 17, 1997.
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