1
Filed pursuant to Rule 424(b)(3)
Registration No. 333-46930
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 17, 2001)
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[UBS AG LOGO]
UBS AG
$6,500,000
16.125% GOALs DUE JULY 2, 2002
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Each note being offered has the terms described beginning on page S-14,
including the following:
- - Issuer: UBS AG
- - Issue: $6,500,000 principal amount of GOALs
due July 2, 2002 linked to the
performance of shares of the common
stock of The Gap, Inc.
- - Coupon: 16.125% per annum, payable
semi-annually in arrears on January
2, 2002 and July 2, 2002, which shall
be composed of (1) an interest coupon
representing a rate of 3.75% per
annum and (2) a coupon representing
an option premium of 12.375% per
annum
- - Initial price of $29.19 per share, subject to
The Gap, Inc. antidilution adjustments
common stock
(strike price):
- - Key dates: Trade: June 26, 2001
Settlement: June 29, 2001
Determination: June 27, 2002
Maturity: July 2, 2002
- - Booking branch: The GOALs will be booked in UBS AG,
Jersey Branch
- - Proceeds at maturity are based on the closing price of The Gap, Inc. common
stock three business days before maturity:
If the closing price of The Gap, Inc. common stock is at or above the initial
price per share of $29.19, holders will receive a cash payment equal to the
principal amount of their GOALs.
If the closing price of The Gap, Inc. common stock is lower than the initial
price per share of $29.19, holders will receive 34.2583 shares of The Gap,
Inc. common stock for each $1,000 principal amount of their GOALs (the stock
redemption amount). Fractional shares will be paid in cash. The number of
shares received for each $1,000 invested will be calculated by dividing the
initial price per share of $29.19 into $1,000. The stock redemption amount and
the initial price per share of $29.19 (strike price) may change due to stock
splits or other corporate actions.
- - YOU MAY LOSE ALL OR SOME OF YOUR INVESTMENT IF THE MARKET PRICE OF THE COMMON
STOCK OF THE GAP, INC. DECLINES BELOW THE INITIAL PRICE OF $29.19.
- - Calculation agent: UBS Warburg LLC
- - Listing: The GOALs have been approved for listing on the American Stock
Exchange under the symbol "GGL.A."
SEE "RISK FACTORS" BEGINNING ON PAGE S-4 FOR RISKS RELATED TO AN INVESTMENT IN
THE GOALs.
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT UBS AG
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Per GOAL.................................................... 100% 1.666% 98.334%
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Total....................................................... $6,500,000 $108,290 $6,391,710
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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 AND ACCOMPANYING PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The GOALs are not deposit liabilities of UBS AG and are not insured by the
Federal Deposit Insurance Corporation, an independent agency of the United
States Government, or any other governmental agency of the United States,
Switzerland or any other jurisdiction.
UBS AG may use this prospectus supplement and accompanying prospectus in the
initial sale of any GOAL. In addition, UBS AG, UBS Warburg LLC, UBS PaineWebber
Inc. or any other affiliate of UBS AG may use this prospectus supplement and
accompanying prospectus in a market-making transaction for any GOAL after its
initial sale. Unless UBS AG or its agent informs the purchaser otherwise in the
confirmation of sale, this prospectus supplement and accompanying prospectus are
being used in a market-making transaction.
UBS WARBURG UBS PAINEWEBBER INC.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS JUNE 26, 2001.
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TABLE OF CONTENTS
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PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary.......... S-1
Risk Factors........................... S-4
You may lose some or all of your
principal......................... S-4
Your appreciation potential is
limited........................... S-4
You may not have an active trading
market in the GOALs--Sales in the
secondary market may result in
significant losses................ S-4
The market price of the GOALs will be
influenced by unpredictable
factors........................... S-4
Significant aspects of the tax
treatment of the GOALs are
uncertain......................... S-5
The return on your GOALs may not
reflect the total return you would
have achieved if you had invested
in the common stock of The Gap,
Inc. ............................. S-5
If the market price of The Gap, Inc.
common stock changes, the market
value of your GOALs may not change
in the same manner................ S-6
Trading and other transactions by UBS
AG or its affiliates in the common
stock of The Gap, Inc., or options
and other derivative products on
the common stock of The Gap, Inc.,
may impair the value of the
GOALs............................. S-6
UBS AG's business activities may
create conflicts of interest
between you and us................ S-6
You have no shareholder rights in the
common stock of The Gap, Inc...... S-7
UBS AG and its affiliates have no
affiliation with The Gap, Inc.,
and are not responsible for The
Gap, Inc.'s public disclosure of
information, whether contained in
SEC filings or otherwise.......... S-7
You have limited antidilution
protection........................ S-7
There are potential conflicts of
interest between you and the
calculation agent................. S-7
We can postpone the maturity date if
a market disruption event
occurs............................ S-8
Historical Performance of The Gap,
Inc.................................. S-9
Return Profile at Maturity: Comparison
of Total Return of the GOALs at
Maturity Against Owning the Common
Stock of The Gap, Inc. .............. S-12
Valuation of the GOALs................. S-13
Specific Terms of the GOALs............ S-14
Use of Proceeds and Hedging............ S-24
Supplemental Tax Considerations........ S-25
ERISA Considerations................... S-29
Supplemental Plan of Distribution...... S-30
PROSPECTUS
Prospectus Summary....................... 3
Cautionary Note Regarding Forward-Looking
Information............................ 7
Where You Can Find More Information...... 8
Incorporation of Information About UBS... 8
Presentation of Financial Information.... 9
Limitations on Enforcement of U.S. Laws
Against UBS AG, Its Management and
Others................................. 10
Capitalization of UBS.................... 10
UBS...................................... 11
Use of Proceeds.......................... 13
Description of Notes We May Offer........ 14
Considerations Relating to Indexed
Notes.................................. 51
Considerations Relating to Notes
Denominated or Payable In or Linked to
a Non-U.S. Dollar Currency............. 54
U.S. Tax Considerations.................. 57
Tax Considerations Under The Laws of
Switzerland............................ 68
ERISA Considerations..................... 69
Plan of Distribution..................... 70
Validity of the Notes.................... 72
Experts.................................. 72
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Prospectus Supplement Summary
The following is a summary of the terms of the GOALs, as well as considerations
relating to purchasing a GOAL. All of the information set forth in this section
is qualified in its entirety by the more detailed explanations set forth
elsewhere in this prospectus supplement and the accompanying prospectus.
SUMMARY OF TERMS
The GOALs are issued by UBS AG with a 16.125% annual coupon payable
semi-annually and repayment at maturity linked to the performance of The Gap,
Inc. common stock. If the closing price of The Gap, Inc. common stock on June
27, 2002 (the determination date) is at or above the initial price per share of
$29.19 (strike price), you will receive a cash payment at maturity equal to the
principal amount of the GOALs you hold. If, however, the closing price of The
Gap, Inc. common stock on the determination date is lower than the initial price
per share of $29.19, you will receive 34.2583 shares of common stock of The Gap,
Inc. for each $1,000 principal amount of the GOALs you hold. Fractional shares
will be paid in cash. The number of shares received for each $1,000 invested
will be calculated by dividing the initial price per share of $29.19 into
$1,000. The stock redemption amount and the initial price per share of $29.19
(strike price) may change due to stock splits or other corporate actions.
The hypothetical return profile at maturity of the GOALs versus owning the
common stock of The Gap, Inc. is presented in the graph below, assuming an
initial price of $29.19 per share, an annual coupon of 16.125%, an annual
dividend yield of .30%, a reinvestment rate for GOALs coupons and stock
dividends of 0% and a range of stock performance from -100% to +54.2%.
[RETURN PROFILE AT MATURITY]
STOCK GOAL
----- ----
0 0.09 4.71
0.28 4.90
1.28 5.90
2.28 6.90
3.28 7.90
4.28 8.90
5.28 9.90
6.28 10.90
7.28 11.90
8.28 12.90
9.28 13.90
10.28 14.90
11.28 15.90
12.28 16.90
13.28 17.90
14.28 18.90
15.28 19.90
16.28 20.90
17.28 21.90
18.28 22.90
19.28 23.90
20.28 24.90
21.28 25.90
22.28 26.90
23.28 27.90
24.28 28.90
25.28 29.90
26.28 30.90
27.28 31.90
28.28 32.90
29.28 33.90
30.28 33.90
31.28 33.90
32.28 33.90
33.28 33.90
34.28 33.90
35.28 33.90
36.28 33.90
37.28 33.90
38.28 33.90
39.28 33.90
40.28 33.90
41.28 33.90
42.28 33.90
43.28 33.90
44.28 33.90
45 45.28 33.90
S- 1
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WHO SHOULD AND SHOULD NOT CONSIDER PURCHASING GOALS?
Investors who seek high current income and who are willing to accept the risk of
owning equities in general and the common stock of The Gap, Inc. in particular
should consider purchasing GOALs. These are investors who anticipate that the
common stock of The Gap, Inc. will either remain unchanged or appreciate or
depreciate only to a limited degree during the period of the GOALs.
Investors who are unwilling to own the common stock of The Gap, Inc. or who seek
more traditional bond returns from money market, government or corporate bonds
or other traditional fixed income investments should not purchase a GOAL.
SELECTED PURCHASE CONSIDERATIONS
- - ENHANCED COUPON. The GOALs provide a higher coupon than would generally be
paid on bonds of an issuer with a comparable credit rating.
- - ENHANCED POTENTIAL YIELD. In the event that the stock price of The Gap, Inc.
remains relatively unchanged, GOALs may provide enhanced performance to
investors compared with owning The Gap, Inc. common stock.
- - DIVERSIFICATION. Because the GOALs are linked to the performance of the
common stock of The Gap, Inc. they may help to broaden an existing portfolio
mix of stocks, bonds, mutual funds and cash.
- - EXCHANGE LISTING. The GOALs have been approved for listing on the American
Stock Exchange under the symbol "GGL.A." However, there can be no guarantee of
liquidity in the secondary market.
- - U.S. SETTLEMENT. The GOALs are traded and settled in the U.S. market.
SELECTED RISK CONSIDERATIONS
An investment in the GOALs involves significant risks. Some of these risks are
summarized here, but we urge you to read the more detailed explanation of risks
in the "Risk Factors" section of this prospectus supplement, beginning on page
S-4.
- - MARKET RISKS. The GOALs are exposed to the same downside price risk as the
common stock of The Gap, Inc. and do not provide protection of principal. The
GOALs do not have the same price appreciation potential as The Gap, Inc.
common stock. At maturity, the value of the GOALs cannot appreciate above
their principal amount.
- - LIQUIDITY. There may be little or no secondary market for the GOALs. While
UBS Warburg LLC and other affiliates of UBS AG intend to make a market in the
GOALs, they are not required to do so and may cease such market making
activity at any time. If a holder needs to liquidate GOALs prior to maturity,
he or she may have to sell the GOALs at a substantial discount from the
principal amount if the market price of the common stock of The Gap, Inc. is
at, below, or not sufficiently above the initial market price. You should be
willing to hold your GOALs until maturity.
CONSIDERATIONS RELATING TO TAXATION
The terms of the GOALs require (in the absence of an administrative or judicial
ruling to the contrary) that you treat your GOALs for tax purposes as consisting
of two components: (1) a non-contingent debt instrument issued by us and (2) a
put option on the common stock of The Gap, Inc. which you sold to us. Under this
tax treatment, the interest paid is divided into two components for tax
purposes. The interest on the debt component is taxed as ordinary income in the
year it is received or accrued depending on your method of accounting for tax
purposes. The option component is generally not taxed until sale or maturity. At
maturity, the option component is taxed as a short term capital gain if the
closing price of the common stock of The Gap, Inc. on the determination date is
at or above the
S- 2
5
initial stock price. If the stock has declined in value and the final payment on
the GOALs is paid in shares of The Gap, Inc. common stock, the option component
reduces the cost basis of the stock received.
The United States federal income tax consequences of your investment in the
GOALs is uncertain. In the opinion of our counsel, Sullivan & Cromwell, it is
reasonable to treat your GOALs as described above, but it would also be
reasonable to treat your GOALs as a single contingent debt instrument subject to
the special tax rules governing contingent debt instruments. BECAUSE OF THIS
UNCERTAINTY, WE URGE YOU TO CONSULT YOUR TAX ADVISOR AS TO THE TAX CONSEQUENCES
OF YOUR INVESTMENT IN THE GOALS. For a more complete discussion of the United
States federal income tax consequences of your investment in the GOALs,
including tax consequences applicable to non-United States persons and persons
who purchase the GOALs in the secondary market, please see the discussion under
"Supplemental Tax Considerations--Supplemental U.S. Tax Considerations."
S- 3
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RISK FACTORS
The GOALs are not secured debt and are riskier than ordinary unsecured debt
securities. The return on the GOALs is linked to the performance of The Gap,
Inc. common stock and you may lose some or all of the principal amount you
invest in the GOALs. Investing in the GOALs is NOT equivalent to investing
directly in The Gap, Inc. common stock. This section describes the most
significant risks relating to the GOALs. WE URGE YOU TO READ THE FOLLOWING
INFORMATION ABOUT THESE RISKS, TOGETHER WITH THE OTHER INFORMATION IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, BEFORE INVESTING IN THE
GOALs.
YOU MAY LOSE SOME OR ALL OF YOUR PRINCIPAL
The GOALs combine features of equity and debt. The terms of the GOALs differ
from those of ordinary debt securities in that we will NOT pay you a fixed
amount at maturity if the closing price of The Gap, Inc. common stock is less
than $29.19 on the determination date. In that event, our payment to you at
maturity will be 34.2583 shares of The Gap, Inc. common stock per $1,000 face
amount of your GOALs. The GOALs are fully exposed to declines in the market
price of the common stock of The Gap, Inc. THEREFORE, IF THE CLOSING PRICE OF
THE GAP, INC. COMMON STOCK ON THE DETERMINATION DATE IS LESS THAN $29.19, WE
WILL PAY YOU AN AMOUNT OF THE GAP, INC. COMMON STOCK WITH A MARKET VALUE LESS
THAN THE PRINCIPAL AMOUNT OF THE GOALs. ACCORDINGLY, YOU CAN LOSE SOME OR ALL OF
THE AMOUNT THAT YOU INVEST IN THE GOALs. See "Return Profile at Maturity" on
pages S-1 and S-12.
YOUR APPRECIATION POTENTIAL IS LIMITED
The maximum you can receive on your GOALs (excluding semi-annual coupon
payments) is $1,000 per $1,000 face amount. If the closing price of The Gap,
Inc. common stock on the determination date exceeds $29.19, you will not receive
common stock of The Gap, Inc. or any other asset with the value of the common
stock. Instead, you will receive the principal amount of the GOALs. UNDER NO
CIRCUMSTANCES WILL YOU RECEIVE A PRINCIPAL AMOUNT AT MATURITY GREATER THAN THE
PRINCIPAL AMOUNT OF THE GOALs THAT YOU HOLD AT THAT TIME.
YOU MAY NOT HAVE AN ACTIVE TRADING MARKET IN THE GOALs--SALES IN THE SECONDARY
MARKET MAY RESULT IN SIGNIFICANT LOSSES
You should be willing to hold your GOALs until maturity. There may be little or
no secondary market for the GOALs. Although the GOALs have been approved for
listing on the American Stock Exchange under the symbol "GGL.A," it is not
possible to predict whether a secondary market will develop for the GOALs. Even
if a secondary market for the GOALs develops, it may not provide significant
liquidity or trade at prices advantageous to you. UBS Warburg LLC and other
affiliates of UBS AG currently intend to make a market for the GOALs, although
they are NOT required to do so. UBS Warburg LLC or any other affiliate of UBS AG
may stop making a market in the GOALs at any time.
Even if a secondary market for the GOALs develops, it may not provide
significant liquidity and the GOALs may not trade at prices that are
advantageous to you. If you need to sell your GOALs before maturity, you may
have to do so at a substantial discount from the issue price, and as a result
you may suffer substantial losses.
THE MARKET PRICE OF THE GOALS WILL BE INFLUENCED BY UNPREDICTABLE FACTORS
The value of the GOALs may move up or down between the date you purchase them
and the determination date when the calculation agent determines the amount to
be paid to holders of the GOALs at maturity. Therefore, you may sustain a
significant loss if you sell the GOALs in the secondary market. Several factors,
many of which are beyond our control, will influence the value of
S- 4
7
RISK FACTORS
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the GOALs. WE EXPECT THAT GENERALLY THE MARKET PRICE OF THE GAP, INC. COMMON
STOCK ON ANY DAY WILL AFFECT THE VALUE OF THE GOALs MORE THAN ANY OTHER SINGLE
FACTOR. Other factors that may influence the value of the GOALs include:
- - the frequency and magnitude of changes in the market price of The Gap, Inc.
common stock (volatility)
- - the dividend rate paid on The Gap, Inc. common stock (while not paid to
holders of the GOALs, dividend payments, if any, on the common stock of The
Gap, Inc. may have an influence on the market price of the common stock and
the value of options on the common stock and therefore on the GOALs)
- - supply and demand for the GOALs, including inventory positions at the
specialist, UBS Warburg LLC or any other market maker
- - economic, financial, political and regulatory or judicial events that affect
stock markets generally which may also affect the market price of The Gap,
Inc. common stock
- - interest and yield rates in the market
- - the time remaining to the maturity of the GOALs
- - the creditworthiness of UBS AG
While it is possible that the GOALs could trade above their principal amount
prior to maturity, the likelihood of such an increase is limited because the
amount payable at maturity will not exceed the principal amount of the GOALs and
by the market factors set forth above. Even if the GOALs did trade above their
principal amount prior to maturity, the only way to realize such a market
premium would be to sell your GOALs in a secondary market transaction, if such a
transaction were available. MOREOVER, IF YOU SELL YOUR GOALs PRIOR TO MATURITY,
YOU MAY HAVE TO SELL THEM AT A SUBSTANTIAL DISCOUNT FROM THEIR PRINCIPAL AMOUNT
IF THE MARKET PRICE OF THE GAP, INC. COMMON STOCK IS AT, BELOW, OR NOT
SUFFICIENTLY ABOVE THE INITIAL PRICE PER SHARE.
SIGNIFICANT ASPECTS OF THE TAX TREATMENT OF THE GOALs ARE UNCERTAIN
Significant aspects of the tax treatment of the GOALs are uncertain. We do not
plan to request a ruling from the Internal Revenue Service or from any Swiss
authorities regarding the tax treatment of the GOALs, and the Internal Revenue
Service or a court may not agree with the tax treatment described in this
prospectus supplement. Please read carefully the section entitled
"Considerations Relating to Taxation" in the summary section above,
"Supplemental Tax Considerations" below, and the sections "U.S. Tax
Considerations" and "Tax Considerations Under The Laws of Switzerland" in the
accompanying prospectus. YOU SHOULD CONSULT YOUR TAX ADVISOR ABOUT YOUR OWN TAX
SITUATION.
THE RETURN ON YOUR GOALS MAY NOT REFLECT THE TOTAL RETURN YOU WOULD HAVE
ACHIEVED IF YOU HAD INVESTED IN THE COMMON STOCK OF THE GAP, INC.
You will not receive dividends on the common stock of The Gap, Inc. If the
closing price of The Gap, Inc. common stock on June 27, 2002 (the determination
date) is at or above the initial price per share of $29.19 (strike price), you
will receive a cash payment at maturity equal to the principal amount of the
GOALs you hold. If, however, the closing price of The Gap, Inc. common stock on
the determination date is lower than the initial price per share of $29.19, you
will receive 34.2583 shares of common stock of The Gap, Inc. for each $1,000
principal amount of the GOALs you hold. Fractional shares will be paid in cash.
The calculation agent will calculate the value of the GOALs by reference to the
closing price of the common stock of The Gap, Inc. on the determination date.
See "Return Profile at Maturity" on pages S-1 and S-12.
S- 5
8
RISK FACTORS
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IF THE MARKET PRICE OF THE GAP, INC. COMMON STOCK CHANGES, THE MARKET VALUE OF
YOUR GOALs MAY NOT CHANGE IN THE SAME MANNER
Owning the GOALs is not the same as owning common stock of The Gap, Inc.
Accordingly, the market value of your GOALs may not have a direct relationship
with the market price of The Gap, Inc. common stock and changes in the market
price of The Gap, Inc. common stock may not result in a comparable change in the
market value of your GOALs. If the market price of the common stock of The Gap,
Inc. increases above the initial price per share of $29.19, the market value of
the GOALs may not increase. It is also possible for the market price of the
common stock of The Gap, Inc. to increase while the market value of the GOALs
declines.
TRADING AND OTHER TRANSACTIONS BY UBS AG OR ITS AFFILIATES IN THE COMMON STOCK
OF THE GAP, INC., OR OPTIONS AND OTHER DERIVATIVE PRODUCTS ON THE COMMON STOCK
OF THE GAP, INC., MAY IMPAIR THE VALUE OF THE GOALs
As described below under "Use of Proceeds and Hedging," we or one or more
affiliates may hedge our obligations under the GOALs by purchasing The Gap, Inc.
common stock, options on that stock or other derivative instruments with returns
linked to or related to changes in the performance of The Gap, Inc. common stock
and we may adjust these hedges by, among other things, purchasing or selling The
Gap, Inc. common stock, options or other derivative instruments at any time and
from time to time. Although they are not expected to, any of these hedging
activities may adversely affect the market price of The Gap, Inc. common stock
and, therefore, the value of the GOALs. It is possible that we or one or more of
our affiliates could receive substantial returns from these hedging activities
while the value of the GOALs may decline.
We or one or more of our affiliates may also engage in trading in The Gap, Inc.
common stock and other investments relating to The Gap, Inc. on a regular basis
as part of our general broker-dealer and other businesses, for proprietary
accounts, for other accounts under management or to facilitate transactions for
customers, including block transactions. Any of these activities could adversely
affect the market price of The Gap, Inc. common stock and, therefore, the value
of the GOALs. We or one or more of our affiliates may also issue or underwrite
other securities or financial or derivative instruments with returns linked or
related to changes in the performance of The Gap, Inc. common stock. By
introducing competing products into the marketplace in this manner, we or one or
more of our affiliates could adversely affect the value of the GOALs.
UBS Warburg LLC also currently intends to make a secondary market in the GOALs.
As a market maker, UBS Warburg LLC's trading of the GOALs may cause UBS Warburg
LLC to be long or short GOALs in its inventory. The supply and demand for the
GOALs, including inventory positions of market makers, may affect the secondary
market price for the GOALs.
The indenture governing the GOALs 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 Gap, Inc. common stock acquired by us or our
affiliates. Neither we nor any of our affiliates will pledge or otherwise hold
common stock of The Gap, Inc. for the benefit of holders of the GOALs in order
to enable the holders to exchange their GOALs for common stock of The Gap, Inc.
under any circumstances. Consequently, in the event of a bankruptcy, insolvency
or liquidation involving us, any common stock of The Gap, Inc. that we own will
be subject to the claims of our creditors generally and will not be available
specifically for the benefit of the holders of the GOALs.
UBS AG'S BUSINESS ACTIVITIES MAY CREATE CONFLICTS OF INTEREST BETWEEN YOU AND US
We and one or more of our affiliates may, at present or in the future, engage in
business with The Gap, Inc. and its competitors, including making loans to or
equity investments in The Gap, Inc. and its
S- 6
9
RISK FACTORS
- --------------------------------------------------------------------------------
competitors or providing either with investment banking, asset management or
other advisory services, including merger and acquisition advisory services.
These activities may present a conflict between our or our affiliates'
obligations and your interests as a holder of the GOALs. Moreover, we or one or
more of our affiliates have published and may in the future publish research
reports on The Gap, Inc. This research is modified from time to time without
notice and may express opinions or provide recommendations that are inconsistent
with purchasing or holding the GOALs. Any of these activities may affect the
market price of The Gap, Inc. common stock and, therefore, the value of the
GOALs.
YOU HAVE NO SHAREHOLDER RIGHTS IN THE COMMON STOCK OF THE GAP, INC.
As an owner of GOALs, you will not have voting rights or rights to receive
dividends or other distributions or any other rights that holders of common
stock of The Gap, Inc. would have.
UBS AG AND ITS AFFILIATES HAVE NO AFFILIATION WITH THE GAP, INC., AND ARE NOT
RESPONSIBLE FOR THE GAP, INC.'S PUBLIC DISCLOSURE OF INFORMATION, WHETHER
CONTAINED IN SEC FILINGS OR OTHERWISE
UBS AG and its affiliates are not affiliated with The Gap, Inc. and have no
ability to control or predict the actions of The Gap, Inc., including any
corporate actions of the type that would require the calculation agent to adjust
the payout to you at maturity, and have no ability to control the public
disclosure of these corporate actions or any other events or circumstances
affecting The Gap, Inc. THE GAP, INC. IS NOT INVOLVED IN THE OFFER OF THE GOALs
IN ANY WAY AND HAS NO OBLIGATION TO CONSIDER YOUR INTEREST AS AN OWNER OF GOALs
IN TAKING ANY CORPORATE ACTIONS THAT MIGHT AFFECT THE VALUE OF YOUR GOALs. THE
GAP, INC. MAY TAKE ACTIONS THAT WILL ADVERSELY AFFECT THE VALUE OF YOUR GOALs.
None of the money you pay for the GOALs will go to The Gap, Inc.
Neither we nor any of our affiliates assumes any responsibility for the adequacy
or accuracy of the information about The Gap, Inc. contained in this prospectus
supplement or in any of The Gap, Inc.'s publicly available filings. YOU, AS AN
INVESTOR IN THE GOALs, SHOULD MAKE YOUR OWN INVESTIGATION INTO THE GAP, INC.
YOU HAVE LIMITED ANTIDILUTION PROTECTION
UBS Warburg LLC, as calculation agent for the GOALs, will adjust the amount
payable at maturity by adjusting the initial price per share (strike price) and
the stock redemption amount for certain events affecting The Gap, Inc. common
stock, such as stock splits and stock dividends, and certain other corporate
actions involving The Gap, Inc., such as mergers. However, the calculation agent
is not required to make an adjustment for every corporate event that can affect
The Gap, Inc. common stock. For example, the calculation agent is not required
to make any adjustments if The Gap, Inc. or anyone else makes a partial tender
or partial exchange offer for the common stock of The Gap, Inc. IF AN EVENT
OCCURS THAT DOES NOT REQUIRE THE CALCULATION AGENT TO ADJUST THE AMOUNT OF THE
GAP, INC. COMMON STOCK PAYABLE AT MATURITY, THE MARKET PRICE OF THE GOALs AND
THE PRINCIPAL AMOUNT OF THE GOALs PAYABLE AT MATURITY MAY BE MATERIALLY AND
ADVERSELY AFFECTED. You should refer to "Role of Calculation Agent" on page S-23
for a description of the items that the calculation agent is responsible to
determine.
THERE ARE POTENTIAL CONFLICTS OF INTEREST BETWEEN YOU AND THE CALCULATION AGENT
Our affiliate, UBS Warburg LLC, will serve as the calculation agent. UBS Warburg
LLC will, among other things, determine the amount, if any, paid out to you on
the GOALs at maturity. For a fuller description of the calculation agent's role,
see "Role of Calculation Agent" on page S-23. The calculation agent will
exercise its judgment when performing its functions. UBS Warburg LLC and
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RISK FACTORS
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other affiliates of UBS AG may also carry out hedging activities related to the
GOALs or to other instruments, including trading in The Gap, Inc. common stock,
as well as in other instruments related to The Gap, Inc. common stock. UBS
Warburg LLC also trades The Gap, Inc. common stock and other financial
instruments relating to The Gap, Inc. on a regular basis as part of its general
broker dealer and other businesses. Any of these activities could influence UBS
Warburg LLC's determination of adjustments made to the GOALs and any such
trading activity could potentially affect the price of The Gap, Inc. common
stock and, accordingly, could affect your payout on the GOALs.
UBS Warburg LLC currently intends to make a secondary market in the GOALs. As a
market maker, UBS Warburg LLC's trading of the GOALs may cause UBS Warburg LLC
to be long or short GOALs in its inventory. The supply and demand for the GOALs,
including inventory positions of market makers, may affect the secondary market
price for the GOALs.
WE CAN POSTPONE THE MATURITY 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. If such a delay occurs, 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. In no event, however, will
the determination date be postponed by more than five business days. As a
result, the maturity date for the GOALs will also be postponed, although not by
more than five business days. If the determination 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 determination date. If the market price of the
common stock of The Gap, Inc. is not available on the last possible
determination date either because of a market disruption event or for any other
reason, the calculation agent will make a good faith estimate of the
exchange-traded price for the common stock of The Gap, Inc. that would have
prevailed in the absence of the market disruption event or such other reason on
the last possible determination date. See "Market Disruption Event" on page
S-15.
S- 8
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HISTORICAL PERFORMANCE OF THE GAP, INC.
According to publicly available documents, The Gap, Inc. is a global specialty
retailer which operates stores selling casual apparel, personal care products
and other accessories for men, women and children under the Gap, Banana Republic
and Old Navy brands. As of March 3, 2001, The Gap, Inc. operated 3,740 stores in
the United States, Canada, the United Kingdom, France, Germany and Japan.
The Gap, Inc. designs virtually all of its products, which in turn are
manufactured by independent sources, and sells them under its brands in the
following store formats:
Gap stores offer extensive selections of classically-styled, high-quality,
casual apparel at moderate price points. Products range from wardrobe basics,
such as denim, khakis and T-shirts, to fashion apparel, accessories and personal
care products for men and women aged teen through adult. The Gap, Inc. entered
the children's apparel market with the introduction of GapKids in 1986 and
babyGap in 1989. These stores offer casual basics, outerwear, shoes and other
accessories in the tradition of Gap style and quality for children aged newborn
through teen. The Gap, Inc. launched GapBody in 1998, offering men's and women's
underwear, sleepwear and personal care products.
Banana Republic now offers sophisticated, fashionable collections of
dress-casual and tailored clothing and accessories for men and women at higher
price points than Gap. Banana Republic products range from clothing, including
intimate apparel, to personal care products and home products.
Old Navy provides value-priced family apparel. Old Navy offers broad selections
of apparel, shoes and accessories for adults, children and infants, as well as
other items, including personal care products.
The Gap, Inc. common stock is traded on the New York Stock Exchange under the
symbol "GPS." The following table sets forth the quarterly high, low, and
closing prices for the common stock of The Gap, Inc. based on daily closing
prices. The information given below is for the four calendar quarters in each of
1998, 1999 and 2000, the first calendar quarter of 2001 and partial data for the
second calendar quarter of 2001, through June 26, 2001. We obtained the trading
price information set forth below from Bloomberg, without independent
verification.
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HISTORICAL PERFORMANCE OF THE GAP, INC.
- --------------------------------------------------------------------------------
YOU SHOULD NOT TAKE THE HISTORICAL PRICES OF THE GAP, INC. COMMON STOCK AS AN
INDICATION OF FUTURE PERFORMANCE.
QUARTER ENDING QUARTERLY HIGH QUARTERLY LOW QUARTERLY CLOSE
- -------------- -------------- ------------- ---------------
- -----------------------------------------------------------------
3/31/98 $20.94 $15.53 $20.00
6/30/98 $27.78 $19.86 $27.31
9/30/98 $29.67 $21.33 $23.44
12/31/98 $40.46 $21.39 $37.42
3/31/99 $46.63 $37.75 $44.88
6/30/99 $51.08 $40.04 $50.38
9/30/99 $51.63 $31.44 $32.00
12/31/99 $46.88 $31.50 $46.00
3/31/00 $52.88 $39.75 $49.81
6/30/00 $51.05 $28.69 $31.25
9/30/00 $38.63 $19.94 $20.06
12/31/00 $27.31 $18.75 $25.50
3/31/01 $33.00 $23.01 $23.72
6/26/01 $34.90 $23.03 $29.19
The Gap, Inc.'s common 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 Section of the SEC, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of this material can also be obtained from the Public
Reference Section, at prescribed rates. In addition, information filed by The
Gap, Inc. 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 Gap, Inc. under the Exchange Act can be
located by reference to its SEC file number: 1-7562.
Information about The Gap, Inc. 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 Gap, Inc.
with the SEC.
WE OBTAINED THE INFORMATION ABOUT THE GAP, INC. IN THIS PROSPECTUS SUPPLEMENT
FROM THE GAP, INC.'S PUBLIC FILINGS
This prospectus supplement relates only to the GOALs and does not relate to the
common stock of The Gap, Inc. We have derived all information about The Gap,
Inc. 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 Gap, Inc. in connection with the offering of the GOALs. We
do not make any representation that the publicly available documents or any
other publicly available information about The Gap, Inc. are accurate or
complete. Furthermore, we do not know whether The Gap, Inc. has disclosed 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 market price of The Gap, Inc. common stock and,
therefore, the exchange rate the calculation agent uses to determine the number
of shares of The Gap, Inc. common stock you will receive if the closing price of
The Gap, Inc. common stock on the determination date is below $29.19 per share.
Subsequent disclosure of any events of this kind or the disclosure of or failure
to disclose material future events
S- 10
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HISTORICAL PERFORMANCE OF THE GAP, INC.
- --------------------------------------------------------------------------------
concerning The Gap, Inc. could affect the payment we will make to you at
maturity and, therefore, the market value of the GOALs.
WE HAVE NO OBLIGATION TO DISCLOSE INFORMATION ABOUT THE GAP, INC. AFTER THE DATE
OF THIS PROSPECTUS SUPPLEMENT
We or our affiliates currently provide research coverage for The Gap, Inc. and
may, from time to time, publish research reports about The Gap, Inc. We may
discontinue such coverage or cease writing such reports at any time.
We or any of our affiliates may currently or from time to time engage in
business with The Gap, Inc., including making loans to or equity investments in
The Gap, Inc. or providing advisory services to The Gap, Inc., 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 Gap, Inc. and, in
addition, one or more of our affiliates may publish research reports about The
Gap, Inc. NONETHELESS, AS AN INVESTOR IN A GOAL, YOU SHOULD UNDERTAKE SUCH
INDEPENDENT INVESTIGATION OF THE GAP, INC. AS IN YOUR JUDGMENT IS APPROPRIATE TO
MAKE AN INFORMED DECISION WITH RESPECT TO AN INVESTMENT IN A GOAL.
S- 11
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RETURN PROFILE AT MATURITY: COMPARISON OF TOTAL RETURN OF THE GOALS AT
MATURITY AGAINST OWNING THE COMMON STOCK OF THE GAP, INC.
The hypothetical return profile at maturity of the GOALs versus owning the
common stock of The Gap, Inc. is presented in the table below, assuming an
initial price of $29.19 per share, an annual coupon of 16.125%, an annual
dividend yield of .30%, a reinvestment rate for GOALs coupons and stock
dividends of 0% and a range of stock performance from -100% to +54.2%.
ASSUMPTIONS
Stock The Gap, Inc.
Ticker Symbol GPS
Initial Stock Price $29.19
Annual Interest on GOALs 16.125%
Annual Dividend Yield .30% ($.0222 quarterly)
Term of GOALs 368 days
STOCK PERFORMANCE GOAL PERFORMANCE GOAL VS. STOCK
- ------------------------------------------ ------------------------------------------------ ------------------
GOAL
OUTPERFORMANCE
TWO (UNDERPERFORMANCE)
ANNUAL GOAL PAYMENT SEMI-ANNUAL 368 DAY VERSUS STOCK
DIVIDEND % OR STOCK VALUE COUPON TOTAL ------------------
STOCK PRICE PAYMENTS TOTAL CHANGE AT MATURITY PAYMENTS (1) TOTAL RETURN ($) (%)
- ------------------------------------------ ------------------------------------------------ ------------------
$45.00 $0.09 $45.09 54% $29.19 $4.71 $33.90 16.1% -$11.19 -38%
$44.00 $0.09 $44.09 51% $29.19 $4.71 $33.90 16.1% -$10.19 -35%
$43.00 $0.09 $43.09 48% $29.19 $4.71 $33.90 16.1% -$9.19 -31%
$42.00 $0.09 $42.09 44% $29.19 $4.71 $33.90 16.1% -$8.19 -28%
$41.00 $0.09 $41.09 41% $29.19 $4.71 $33.90 16.1% -$7.19 -25%
$40.00 $0.09 $40.09 37% $29.19 $4.71 $33.90 16.1% -$6.19 -21%
$39.00 $0.09 $39.09 34% $29.19 $4.71 $33.90 16.1% -$5.19 -18%
$38.00 $0.09 $38.09 30% $29.19 $4.71 $33.90 16.1% -$4.19 -14%
$37.00 $0.09 $37.09 27% $29.19 $4.71 $33.90 16.1% -$3.19 -11%
$36.00 $0.09 $36.09 24% $29.19 $4.71 $33.90 16.1% -$2.19 -8%
$35.00 $0.09 $35.09 20% $29.19 $4.71 $33.90 16.1% -$1.19 -4%
$34.00 $0.09 $34.09 17% $29.19 $4.71 $33.90 16.1% -$0.19 -1%
$33.81 $0.09 $33.90 16% $29.19 $4.71 $33.90 16.1% $0.00 0%
$33.00 $0.09 $33.09 13% $29.19 $4.71 $33.90 16.1% $0.81 3%
$32.00 $0.09 $32.09 10% $29.19 $4.71 $33.90 16.1% $1.81 6%
$31.00 $0.09 $31.09 7% $29.19 $4.71 $33.90 16.1% $2.81 10%
$30.00 $0.09 $30.09 3% $29.19 $4.71 $33.90 16.1% $3.81 13%
$29.19 $0.09 $29.28 0% $29.19 $4.71 $33.90 16.1% $4.62 16%
$29.00 $0.09 $29.09 0% $29.00 $4.71 $33.71 15.5% $4.62 16%
$28.00 $0.09 $28.09 -4% $28.00 $4.71 $32.71 12.1% $4.62 16%
$27.00 $0.09 $27.09 -7% $27.00 $4.71 $31.71 8.6% $4.62 16%
$26.00 $0.09 $26.09 -11% $26.00 $4.71 $30.71 5.2% $4.62 16%
$25.00 $0.09 $25.09 -14% $25.00 $4.71 $29.71 1.8% $4.62 16%
$24.48 $0.09 $24.57 -16% $24.48 $4.71 $29.19 0.0% $4.62 16%
$24.00 $0.09 $24.09 -17% $24.00 $4.71 $28.71 -1.6% $4.62 16%
$23.00 $0.09 $23.09 -21% $23.00 $4.71 $27.71 -5.1% $4.62 16%
$22.00 $0.09 $22.09 -24% $22.00 $4.71 $26.71 -8.5% $4.62 16%
$21.00 $0.09 $21.09 -28% $21.00 $4.71 $25.71 -11.9% $4.62 16%
$20.00 $0.09 $20.09 -31% $20.00 $4.71 $24.71 -15.3% $4.62 16%
$19.00 $0.09 $19.09 -35% $19.00 $4.71 $23.71 -18.8% $4.62 16%
$18.00 $0.09 $18.09 -38% $18.00 $4.71 $22.71 -22.2% $4.62 16%
$17.00 $0.09 $17.09 -41% $17.00 $4.71 $21.71 -25.6% $4.62 16%
$16.00 $0.09 $16.09 -45% $16.00 $4.71 $20.71 -29.1% $4.62 16%
- ------------------------------------------ ------------------------------------------------ -----------------
$ 0.00 $0.09 $ 0.09 -100% $ 0.00 $4.71 $ 4.71 -83.9% $4.62 16%
- ---------------
(1) The reinvestment rate is assumed to be 0%. A positive reinvestment rate
would increase the total projected return of the GOALs relative to the total
return of the stock.
S- 12
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VALUATION OF THE GOALS
AT MATURITY. As described above, a $1,000 investment in the GOALs will pay
$1,000 at maturity if the market price of the common stock of The Gap, Inc. is
equal to or above the initial stock price of $29.19. If the market price has
declined, however, you will receive a number of shares of The Gap, Inc. common
stock. The value of your investment, therefore, will equal the value of the
shares you receive at maturity, which could be substantially less than the value
of your original investment.
PRIOR TO MATURITY. The value of the GOALs will be affected by a number of
interrelated factors including, but not limited to, supply and demand, the
market price of The Gap, Inc. common stock, the volatility and dividend level of
the stock, the time remaining to maturity of the GOALs, the level of interest
rates and other economic conditions, as well as the perceived creditworthiness
of the issuer. Generally, the value of the GOALs will tend to rise with an
increase in the stock price and falling volatility, although this increase in
value is limited because the value at maturity cannot exceed the principal
amount of the GOALs. The value of the GOALs will generally decline with a
decrease in the stock price, increasing volatility and an increase in the
dividend payable on the stock. In addition, rising interest rates will on
balance negatively affect the value of the GOALs. You should understand that the
value of the GOALs is driven by a range of interrelated factors and that while
the market price of the stock is an important variable, it cannot be used as the
sole measure to approximate value of this investment. You should not use any
single variable to approximate the value of this investment.
S- 13
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SPECIFIC TERMS OF THE GOALS
Please note that references to "UBS," "we," "our" and "us" refer only to UBS AG
and not to its consolidated subsidiaries. Also, in this section, references to
"holders" mean those who own GOALs registered in their own names, on the books
that we or the trustee maintain for this purpose, and not those who own
beneficial interests in GOALs registered in street name or in GOALs issued in
book-entry form through The Depository Trust Company or another depositary.
Owners of beneficial interests in the GOALs should read the section entitled
"Legal Ownership of Notes" in the accompanying prospectus.
The GOALs are part of a series of debt securities entitled "Medium Term Notes,
Series A" that we may issue under the indenture from time to time. This
prospectus supplement summarizes specific financial and other terms that apply
to the GOALs. Terms that apply generally to all Medium Term Notes, Series A are
described in "Description of Notes We May Offer" in the accompanying prospectus.
The terms described here (i.e., in this prospectus supplement) 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.
Please note that the information about the trade date, settlement date, price to
public and net proceeds to UBS AG on the front cover relates only to the initial
sale of the GOALs. If you have purchased GOALs in a market-making transaction
after the initial sale, information about the price and date of sale to you will
be provided in a separate confirmation of sale.
We describe the terms of the GOALs in more detail below.
INTEREST/OPTION PREMIUM
The GOALs bear interest from June 29, 2001 at a rate of 16.125% per annum,
payable semi-annually in arrears on January 2, 2002 and July 2, 2002, which
annual interest amount shall be composed of (a) a coupon representing interest
at a rate of 3.75% per annum and (b) a coupon representing an option premium of
12.375% per annum.
PAYMENT AT MATURITY
Payment at maturity for a GOAL is different from ordinary debt securities
because a GOAL does not provide a guaranteed return of the original principal
amount invested. Instead, at maturity, the GOALs pay in cash an amount based on
the performance of the common stock of The Gap, Inc. The GOALs are exposed in
full to declines in the market price of the common stock of The Gap, Inc. If the
closing price of a share of the common stock of The Gap, Inc. is zero at
maturity, you will lose the entire principal amount that you invest in the GOALs
(excluding semi-annual coupon payments). At maturity, we will pay as principal
to the holders of the GOALs:
- - if the closing price of the common stock of The Gap, Inc. is equal to or
above the initial price of $29.19 per share on the determination date
(subject to antidilution adjustments), cash in an amount equal to 100% of the
outstanding principal amount of the GOALs; or
- - if the closing price of the common stock of The Gap, Inc. is less than the
initial price of $29.19 per share on the determination date (subject to
antidilution adjustments), 34.2583 shares for each $1,000 principal amount of
GOALs (the stock redemption amount). Fractional shares will be paid in cash.
S- 14
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SPECIFIC TERMS OF THE GOALS
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STOCK REDEMPTION AMOUNT
If the payment at maturity is in shares of The Gap, Inc. common stock, the
number of shares of common stock of The Gap, Inc. received for each $1,000
invested in the GOALs is referred to as the stock redemption amount. The stock
redemption amount is calculated by dividing $1,000 by the initial price of the
shares which is set at the close on the trade date. The stock redemption amount
and the initial price (strike price) may change due to stock splits or other
corporate actions. See "--Antidilution Adjustments" below.
The closing price on the trade date is referred to here as the initial price or
the strike price.
MATURITY DATE
The maturity date will be July 2, 2002 unless that day is not a business day, in
which case the maturity date will be the next following business day. If the
third business day before this applicable day is not the determination date
referred to below, however, then the maturity date will be the third business
day following the determination date, although the maturity date will never be
later than the third business day after July 5, 2002 or, if July 5, 2002 is not
a business day, later than the fourth business day after July 5, 2002. The
calculation agent may postpone the determination date--and therefore the
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."
REGULAR RECORD DATES FOR INTEREST
The regular record date relating to an interest payment date for the GOALs will
be the January 1 or July 1 next preceding that interest payment date, whether or
not the record date is a business day. For the purpose of determining the holder
at the close of business on a regular record date when business is not being
conducted, the close of business will mean 5:00 p.m., New York City time, on
that day.
DETERMINATION DATE
The determination date will be the third business day prior to July 2, 2002,
unless the calculation agent determines that a market disruption event occurs or
is continuing on that 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 July 5, 2002 or, if July 5,
2002 is not a business day, later than the first business day after July 5,
2002.
MARKET DISRUPTION EVENT
As described above, the calculation agent will use the closing price of The Gap,
Inc. common stock on the determination date to determine whether we will pay the
outstanding principal amount of the GOALs or exchange the GOALs for shares of
common stock of The Gap, Inc. at maturity. If a market disruption event occurs
or is continuing on a day that would otherwise be a determination 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. In
no event, however, will the determination date be postponed by more than five
business days.
If the determination 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 determination date. If the market price of The Gap, Inc. is not available
on the last possible determination date either because of a market disruption
event or for any other reason, the calculation agent will make a good faith
estimate of the
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SPECIFIC TERMS OF THE GOALS
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exchange-traded price for the common stock of The Gap, Inc. that would have
prevailed in the absence of the market disruption event or such other reason on
the last possible determination date.
Any of the following will be a market disruption event:
- - a suspension, absence or material limitation of trading in The Gap, Inc.
common stock in its primary market for more than two hours or during the
one-half hour before the close of trading in that market, as determined by
the calculation agent in its sole discretion
- - a suspension, absence of trading or material limitation of trading in option
contracts relating to The Gap, Inc. common 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
- - The Gap, Inc. common stock does not trade on the New York Stock Exchange, or
the primary market for The Gap, Inc. common 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 our ability or the ability
of any of our affiliates to unwind all or a material portion of a hedge with
respect to the GOALs that we or our affiliates have effected or may effect as
described below under "Use of Proceeds and Hedging."
The following events will not be market disruption events:
- - a limitation on the hours or numbers of days of trading, but only if the
limitation results from an announced change in the regular business hours of
the relevant market
- - a decision to permanently discontinue trading in the option contracts
relating to The Gap, Inc. common stock
For this purpose, an "absence of trading" in the primary securities market on
which option contracts related to The Gap, Inc. common 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 Gap, Inc. common stock, if available, in the primary market for those
contracts, by reason of any of:
- - a price change exceeding limits set by that market
- - an imbalance of orders relating to those contracts
- - 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 Gap, Inc. common stock in the primary market for those
contracts.
ANTIDILUTION ADJUSTMENTS
As described above, the amount of cash payable at maturity of the GOALs will be
based on the closing price of the common stock of The Gap, Inc. on the
determination date and the stock redemption amount. The stock redemption amount
will be the same as the initial stock redemption amount unless the calculation
agent adjusts the stock redemption amount as described below. The calculation
agent will adjust the strike price or the stock redemption amount or both as
described below, if an event described below occurs and the calculation agent
determines that such event has a diluting or concentrative effect on the
theoretical value of the common stock of The Gap, Inc. The adjustments described
below do not cover all events that could affect the market value of the GOALs.
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SPECIFIC TERMS OF THE GOALS
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We describe the risks relating to dilution above under "Risk Factors--You have
limited antidilution protection."
Below you will find examples of how certain corporate actions and other events
may lead to adjustments to the stock redemption amount. In each case where the
stock redemption amount changes, the strike price (initial price) will generally
also change. Typically, the strike price will be adjusted as follows:
The calculation agent will adjust the strike price by multiplying the prior
strike price and a fraction whose numerator is the prior stock redemption
amount and whose denominator is the new stock redemption amount.
New Strike Price = Prior Strike Price X Prior Stock Redemption Amount
-----------------------------
New Stock Redemption Amount
The adjustments described below do not cover all events that could affect the
value of the GOALs. We describe the risks relating to dilution above under "Risk
Factors--You have limited antidilution protection."
HOW ADJUSTMENTS WILL BE MADE
If one of the events described below occurs and the calculation agent determines
that the event has a diluting or concentrative effect on the theoretical value
of the common stock of The Gap, Inc., the calculation agent will calculate a
corresponding adjustment to the strike price or the stock redemption amount or
both as the calculation agent determines appropriate to account for that
diluting or concentrative effect. For example, if an adjustment is required
because of a two-for-one stock split, then the stock redemption amount for the
GOALs will be adjusted to double the prior stock redemption amount, and, as a
result, the strike price will be reduced proportionately. The calculation agent
will also determine the effective date of that adjustment, and the replacement
of the underlying shares of The Gap, Inc. common stock, if applicable, in the
event of consolidation or merger. Upon making any such adjustment, the
calculation agent will give notice as soon as practicable to the trustee,
stating the adjustment to the strike price or redemption amount or both.
If more than one event requiring adjustment occurs, the calculation agent will
make such an adjustment for each event in the order in which the events occur,
and on a cumulative basis. Thus, having adjusted the strike price or the stock
redemption amount or both for the first event, the calculation agent will adjust
the strike price or the stock redemption amount or both for the second event,
applying the required adjustment to the strike price and stock redemption amount
as already adjusted for the first event, and so on for any subsequent events.
For any dilution event described below, other than a consolidation or merger,
the calculation agent will not have to adjust the exchange rate unless the
adjustment would result in a change to the strike price or the stock redemption
amount of at least 0.1% in the strike price or stock redemption amount that
would apply without the adjustment. The exchange rate resulting from any
adjustment will be rounded up or down, as appropriate, to, in the case of the
strike price, the nearest cent, and, in the case of the stock redemption amount,
the nearest thousandth, with one-half cent and five hundred-thousandths,
respectively, being rounded upward.
If an event requiring antidilution adjustment occurs, the calculation agent will
make the adjustments with a view to offsetting, to the extent practical, any
change in your economic position relative to the GOALs, 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.
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SPECIFIC TERMS OF THE GOALS
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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
your written request.
The following events are those that may require an antidilution adjustment:
- - a subdivision, consolidation or reclassification of The Gap, Inc. common stock
or a free distribution or dividend of any shares of The Gap, Inc. common stock
to existing holders of shares of The Gap, Inc. common stock by way of bonus,
capitalization or similar issue
- - a distribution or dividend to existing holders of shares of The Gap, Inc.
common stock of:
- shares of The Gap, Inc. common stock,
- other share capital or securities granting the right to payment of
dividends and/or the proceeds of liquidation of The Gap, Inc. equally or
proportionately with such payments to holders of shares of The Gap, Inc.
common stock, or
- any other type of securities, rights or warrants in any case for payment
(in cash or otherwise) at less than the prevailing market price as
determined by the calculation agent
- - the declaration by The Gap, Inc. of an extraordinary or special dividend or
other distribution whether in cash or shares of The Gap, Inc. common stock or
other assets
- - a repurchase by The Gap, Inc. of its common stock whether out of profits or
capital and whether the consideration for such repurchase is cash, securities
or otherwise
- - any other similar event that may have a diluting or concentrative effect on
the theoretical value of The Gap, Inc. common stock
- - a consolidation of The Gap, Inc. with another company or merger of The Gap,
Inc. with another company.
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 Gap, Inc. common stock is subject to a stock split, then the calculation
agent will adjust the stock redemption amount to equal the sum of the prior
stock redemption amount--i.e., the stock redemption amount before that
adjustment--plus the product of (1) the number of new shares issued in the stock
split with respect to one share of The Gap, Inc. common stock and (2) the prior
stock redemption amount. The strike price will also be adjusted as discussed
above.
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 Gap, Inc. common stock is subject to a reverse stock split, then the
calculation agent will adjust the stock redemption amount to equal the product
of the prior stock redemption amount and the quotient of (1) the number of
shares of The Gap, Inc. common stock outstanding immediately after the reverse
stock split becomes effective and (2) the number of shares of The Gap, Inc.
common stock
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SPECIFIC TERMS OF THE GOALS
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outstanding immediately before the reverse stock split becomes effective. The
strike price will also be adjusted as discussed above.
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 Gap, Inc. common stock is subject to a stock dividend payable in shares
of The Gap, Inc. common stock, then the calculation agent will adjust the stock
redemption amount to equal the sum of the prior stock redemption amount plus the
product of (1) the number of shares issued in the stock dividend with respect to
one share of The Gap, Inc. common stock and (2) the prior stock redemption
amount. The strike price will also be adjusted as discussed above.
OTHER DIVIDENDS AND DISTRIBUTIONS
The stock redemption amount will not be adjusted to reflect dividends or other
distributions paid with respect to The Gap, Inc. common stock, other than:
- - stock dividends described above,
- - issuances of transferable rights and warrants as described in "--Transferable
Rights and Warrants" below,
- - distributions that are spin-off events described in "--Reorganization Events"
below, and
- - extraordinary dividends described below.
A dividend or other distribution with respect to The Gap, Inc. common 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 Gap, Inc.
common stock by an amount equal to at least 10% of the closing price of The Gap,
Inc. common stock on the business day before the ex-dividend date. The
ex-dividend date for any dividend or other distribution is the first day on
which The Gap, Inc. common stock trades without the right to receive that
dividend or distribution.
If an extraordinary dividend occurs, the calculation agent will adjust the stock
redemption amount to equal the product of (1) the prior stock redemption amount
and (2) a fraction, the numerator of which is the closing price of The Gap, Inc.
common 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 extraordinary dividend amount with respect to an extraordinary dividend for
The Gap, Inc. common 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 Gap, Inc.
common stock minus the amount per share of the immediately preceding dividend,
if any, that was not an extraordinary dividend for The Gap, Inc. common 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 Gap, Inc. common stock that is a dividend payable in The Gap, Inc. common
stock, an issuance of rights or warrants or a spin-off event and also an
extraordinary dividend will result in an adjustment to the stock redemption
amount only
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SPECIFIC TERMS OF THE GOALS
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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 Gap, Inc. issues transferable rights or warrants to all holders of The
Gap, Inc. common stock to subscribe for or purchase The Gap, Inc. common stock
at an exercise price per share that is less than the closing price of The Gap,
Inc. common stock on the business day before the ex-dividend date for the
issuance, then the stock redemption amount will be adjusted by multiplying the
prior stock redemption amount by the following fraction:
- - the numerator will be the number of shares of The Gap, Inc. common stock
outstanding at the close of business on the day before that ex-dividend date
plus the number of additional shares of The Gap, Inc. common stock offered for
subscription or purchase under those transferable rights or warrants, and
- - the denominator will be the number of shares of The Gap, Inc. common stock
outstanding at the close of business on the day before that ex-dividend date
plus the product of (1) the total number of additional shares of The Gap, Inc.
common stock offered for subscription or purchase under the transferable
rights or warrants and (2) the exercise price of those transferable rights or
warrants divided by the closing price on the business day before that
ex-dividend date.
REORGANIZATION EVENTS
Each of the following is a reorganization event:
- - The Gap, Inc. common stock is reclassified or changed
- - The Gap, Inc. has been subject to a merger, consolidation or other combination
and either is not the surviving entity or is the surviving entity but all
outstanding The Gap, Inc. common stock is exchanged for or converted into
other property
- - a statutory share exchange involving outstanding The Gap, Inc. common stock
and the securities of another entity occurs, other than as part of an event
described above
- - The Gap, Inc. sells or otherwise transfers its property and assets as an
entirety or substantially as an entirety to another entity
- - The Gap, Inc. effects a spin-off--that is, issues to all holders of The Gap,
Inc. common stock equity securities of another issuer, other than as part of
an event described above
- - The Gap, Inc. 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
The Gap, Inc. common stock.
ADJUSTMENTS FOR REORGANIZATION EVENTS
If a reorganization event occurs, then the calculation agent will adjust the
stock redemption amount by adjusting the amount and type of property or
properties--whether cash, securities, other property or a combination--that a
prior holder of an amount of shares of the common stock of The Gap, Inc. equal
to the stock redemption amount would hold after the reorganization event has
occurred. We refer to this new property as the distribution property.
For the purpose of making an adjustment required by a reorganization event, the
calculation agent, in its sole discretion, will determine the value of each type
of distribution property. For any distribution property consisting of a
security, the calculation agent will use the closing price of 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 common stock of The Gap,
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SPECIFIC TERMS OF THE GOALS
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Inc. 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 stock
redemption amount to consist of the distribution property in the event as
described above, the calculation agent will make further antidilution
adjustments for any later events that affect the distribution property, or any
component of the distribution property, comprising the new stock redemption
amount. The calculation agent will do so to the same extent that it would make
adjustments if the common stock of The Gap, Inc. were outstanding and were
affected by the same kinds of events. If a subsequent reorganization event
affects only a particular component of the stock redemption amount, the required
adjustment will be made with respect to that component, as if it alone were the
stock redemption amount.
For example, if The Gap, Inc. merges into another company and each share of the
common stock of The Gap, Inc. is converted into the right to receive two common
shares of the surviving company and a specified amount of cash, the stock
redemption amount will be adjusted to consist of two common shares of the
surviving company and the specified amount of cash. The calculation agent will
adjust the common share component of the new stock redemption 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 section entitled "--Antidilution Adjustments," as if the common shares
were shares in the common stock of The Gap, Inc. In that event, the cash
component will not be adjusted but will continue to be a component of the stock
redemption amount (with no interest adjustment). Consequently, the final GOALs
value will include the final value of the two shares of the surviving company
and the cash.
In this prospectus supplement, references to the calculation agent adjusting the
stock redemption amount in respect of a dilution event mean that the calculation
agent will adjust the stock redemption amount in the manner described in this
subsection if the dilution event is a reorganization event. If a reorganization
event occurs, the distribution property distributed in the event will be
substituted for the common stock of The Gap, Inc. as described above.
Consequently, in this prospectus supplement, references to the common stock of
The Gap, Inc. mean any distribution property that is distributed in a
reorganization event and comprises the adjusted stock redemption amount.
Similarly, references to The Gap, Inc., mean any successor entity in a
reorganization event.
DEFAULT AMOUNT ON ACCELERATION
If an event of default occurs and the maturity of the GOALs is accelerated, we
will pay the default amount in respect of the principal of the GOALs at
maturity. We describe the default amount below under "--Default Amount."
For the purpose of determining whether the holders of our Series A medium-term
notes, of which the GOALs are a part, are entitled to take any action under the
indenture, we will treat the outstanding principal amount of the GOALs as the
outstanding principal amount of that note. Although the terms of the GOALs may
differ from those of the other Series A medium-term notes, holders of specified
percentages in principal amount of all Series A medium-term notes, together in
some cases with other series of our debt securities, will be able to take action
affecting all the Series A medium-term notes, including the GOALs. This action
may involve changing some of the terms that apply to the Series A medium-term
notes, accelerating the maturity of the Series A medium-term notes after a
default or waiving some of our obligations under the indenture. We discuss these
matters in the attached prospectus under "Description of Notes We May
Offer--Default, Remedies and Waiver of Default" and "--Modification and Waiver
of Covenants."
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SPECIFIC TERMS OF THE GOALS
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DEFAULT AMOUNT
The default amount for the GOALs on any day will be an amount, in U.S. Dollars
for the principal of the GOALs, 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 the GOALs 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 the GOALs. 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
holders of the GOALs in preparing any documentation necessary for this
assumption or undertaking.
During the default quotation period for the GOALs, which we describe below, the
holders of the GOALs 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 date as described above.
If either of these two events occurs, the default quotation period will continue
until the third business day after the first business day on which prompt notice
of a quotation is given as described above. If that quotation is objected to as
described above within five business days after that first business day,
however, the default quotation period will continue as described in the prior
sentence and this sentence.
In any event, if the default quotation period and the subsequent two business
day objection period have not ended before the determination date, then the
default amount will equal the principal amount of the GOALs.
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 & Poors' 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.
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SPECIFIC TERMS OF THE GOALS
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MANNER OF PAYMENT AND DELIVERY
Any payment on or delivery of the GOALs at maturity will be made to accounts
designated by you and approved by us, or at the office of the trustee in New
York City, but only when the GOALs are surrendered to the trustee at that
office. We also may make any payment or delivery in accordance with the
applicable procedures of the depositary. We may make any delivery of The Gap,
Inc. common stock or distribution property ourselves or cause our agent to do so
on our behalf.
BUSINESS DAY
When we refer to a business day with respect to the GOALs, we mean a day that is
a business day of the kind described in the attached prospectus but that is not
a day on which the principal securities market for The Gap, Inc. common stock is
authorized by law or executive order to close.
MODIFIED BUSINESS DAY
As described in the attached prospectus, any payment on the GOALs 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, except as described under "Maturity Date" and "Determination Date"
above. The same will apply to any delivery of The Gap, Inc. common stock that
would otherwise be due on a day that is not a business day. For the GOALs,
however, the term business day has a different meaning than it does for other
Series A 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 value of the
GOALs at maturity, the closing price of the common stock of The Gap, Inc.,
antidilution adjustments, market disruption events, business days, the default
amount and the amount payable in respect of your GOALs. 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 the
GOALs. We may change the calculation agent after the original issue date without
notice.
SPECIAL CALCULATION PROVISIONS
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,
- - if that security is not listed on any national securities exchange, on the
Nasdaq National Market System on that day, or
- - if that security is not quoted on the Nasdaq National Market System on that
day, on any other U.S. national market system that is 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.
BOOKING BRANCH
The GOALs will be booked through UBS AG, Jersey Branch.
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Use of Proceeds and Hedging
We will use the net proceeds we receive from the sale of the GOALs for the
purposes we describe in the attached prospectus under "Use of Proceeds." We or
our affiliates may also use those proceeds in transactions intended to hedge our
obligations under the GOALs as described below.
In anticipation of the sale of the GOALs, we or our affiliates expect to enter
into hedging transactions involving purchases of The Gap, Inc. common stock and
listed or over-the-counter options on The Gap, Inc. common stock prior to and on
the trade date. From time to time, we or our affiliates may enter into
additional hedging transactions or unwind those we have entered into. In this
regard, we or our affiliates may:
- - acquire or dispose of The Gap, Inc. common stock or other securities of The
Gap, Inc.,
- - take or dispose of positions in listed or over-the-counter options or other
instruments based on The Gap, Inc. common stock,
- - 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, or
- - any combination of the three.
We or our affiliates may acquire a long or short position in securities similar
to the GOALs from time to time and may, in our or their sole discretion, hold or
resell those securities.
We 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 Gap, Inc.
common stock, listed or over-the-counter options on The Gap, Inc. common stock
or listed or over-the-counter options or other instruments based on indices
designed to track the performance of the Nasdaq National Market or other
components of the U.S. equity market.
The hedging activity discussed above may adversely affect the market value of
the GOALs from time to time. See "Risk Factors" above for a discussion of these
adverse effects.
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Supplemental Tax Considerations
The following is a general description of certain United States and Swiss tax
considerations relating to the GOALs. It does not purport to be a complete
analysis of all tax considerations relating to the GOALs. Prospective purchasers
of GOALs should consult their tax advisers as to the consequences under the tax
laws of the country of which they are resident for tax purposes and the tax laws
of Switzerland and the United States of acquiring, holding and disposing of
GOALs and receiving payments of interest, principal and/or other amounts under
the GOALs. This summary is based upon the law as in effect on the date of this
prospectus supplement and is subject to any change in law that may take effect
after such date.
SUPPLEMENTAL U.S. TAX CONSIDERATIONS
The discussion below supplements the discussion under "U.S. Tax Considerations"
in the attached prospectus and is subject to the limitations and exceptions set
forth therein. Except as otherwise noted under "Non-United States Holders"
below, this discussion is only applicable to you if you are a United States
holder (as defined in the accompanying prospectus).
In the opinion of our counsel, Sullivan & Cromwell, it would be reasonable to
treat your GOAL as either (i) an investment unit consisting of a non-contingent
debt instrument issued by us to you (the "Debt Portion") and a put option on The
Gap, Inc. common stock written by you and purchased by us (the "Put Option") or
(ii) a single contingent debt instrument subject to the special tax rules
governing contingent debt instruments. The discussion below discusses the United
States federal income tax consequences that would be applicable to you under
either characterization. The terms of your GOAL, however, require you and us (in
the absence of an administrative determination or judicial ruling to the
contrary) to treat your GOAL for all tax purposes as an investment unit
consisting of the Debt Portion and Put Option. In purchasing your GOAL, you
agree to these terms.
NO STATUTORY, JUDICIAL OR ADMINISTRATIVE AUTHORITY DIRECTLY DISCUSSES HOW YOUR
GOAL SHOULD BE TREATED FOR UNITED STATES FEDERAL INCOME TAX PURPOSES. AS A
RESULT, THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF YOUR INVESTMENT IN
A GOAL ARE UNCERTAIN. ACCORDINGLY, WE URGE YOU TO CONSULT YOUR TAX ADVISOR AS TO
THE TAX CONSEQUENCES OF HAVING AGREED TO THE REQUIRED TAX TREATMENT OF YOUR GOAL
DESCRIBED ABOVE AND AS TO THE APPLICATION OF STATE, LOCAL OR OTHER TAX LAWS TO
YOUR INVESTMENT IN YOUR GOAL.
Treatment as an Investment Unit. If your GOAL is properly treated as an
investment unit consisting of a Debt Portion and Put Option, it is likely that
the Debt Portion of your GOAL would be treated as having been issued for the
principal amount of the GOAL and that interest payments on the GOAL would be
treated in part as payments of interest and in part as payments for the Put
Option. Amounts treated as interest would be includible in income by you in
accordance with your regular method of accounting for interest for United States
federal income tax purposes. Amounts treated as payment for the Put Option would
be deferred and would either be included in income by you upon the maturity,
early redemption or sale of your GOAL or would reduce the basis of any common
stock of The Gap, Inc. you receive upon the maturity or early redemption of your
GOAL. The terms of your GOAL require you and us to treat the Debt Portion as
paying annual interest of 3.75% and the Put Option as paying annual payments of
12.375%.
A cash payment of the principal amount of your GOAL upon the maturity of your
GOAL would likely be treated as (i) payment in full of the principal amount of
the Debt Portion, which would likely not result in the recognition of gain or
loss if you are an initial purchaser of your GOAL and (ii) the lapse of the Put
Option which would likely result in your recognition of short-term capital gain
in an
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amount equal to the amount paid to you for the Put Option and deferred as
described in the preceding paragraph.
A payment of The Gap, Inc. common stock upon the maturity of your GOAL would
likely be treated as (i) payment in full of the principal amount of the Debt
Portion, which would likely not result in the recognition of gain or loss if you
are an initial purchaser of your GOAL and (ii) the exercise by us of the Put
Option and your purchase of The Gap, Inc. common stock for an amount equal to
the principal amount of your GOAL. Your United States federal income tax basis
in The Gap, Inc. common stock you receive would equal the principal amount of
your GOAL less the amount of payments you received for the Put Option and
deferred as described in the second preceding paragraph. Your holding period in
The Gap, Inc. common stock you receive would begin on the day after you
beneficially receive such common stock. If you receive cash in lieu of a
fractional share of The Gap, Inc. common stock, you would recognize a short-term
capital gain or loss in an amount equal to the difference between the amount of
cash you receive and your tax basis (determined in the manner described above)
in the fractional share.
Upon an early redemption or sale of your GOAL for cash or The Gap, Inc. common
stock, you would be required to apportion the value of the amount you receive
between the Debt Portion and Put Option on the basis of the values thereof on
the date of the redemption or sale. You would recognize gain or loss with
respect to the Debt Portion in an amount equal to the difference between (i) the
amount apportioned to the Debt Portion and (ii) your adjusted United States
federal income tax basis in the Debt Portion (which would generally be equal to
the principal amount of your GOAL if you are an initial purchaser of your GOAL).
Except to the extent attributable to accrued but unpaid interest (or, as
discussed below with respect to secondary purchasers, accrued market discount)
with respect to the Debt Portion, such gain or loss would be long-term capital
gain or loss if your holding period in your GOAL is greater than one year. The
amount of cash or The Gap, Inc. common stock that you receive that is
apportioned to the Put Option (together with any amount of premium received in
respect thereof and deferred as described in the preceding paragraph) would be
treated as short-term capital gain. If the value of the Debt Portion on the date
of the sale or early redemption of your GOAL is in excess of the amount you
receive upon such sale or early redemption, you would likely be treated as
having made a payment (to us in the case of an early redemption or to the
purchaser in the case of a sale) equal to the amount of such excess in order to
extinguish your rights and obligations under the Put Option. In such a case, you
would likely recognize short-term capital gain or loss in an amount equal to the
difference between the premium you previously received in respect of the Put
Option and the amount of the deemed payment made by you to extinguish the Put
Option.
If you are a secondary purchaser of your GOAL, you would be required to allocate
your purchase price for your GOAL between the Debt Portion and Put Option based
on the respective fair market values of each on the date of purchase. If,
however, the portion of your purchase price allocated to the Debt Portion in
accordance with the preceding sentence is in excess of your purchase price for
your GOAL, you would likely be treated for tax purposes as having paid nothing
for the Put Option (i.e., your purchase price for the Put Option would be zero)
and as having received a payment for obligating yourself under the Put Option
(which will be deferred as described in the fourth preceding paragraph) in an
amount equal to such excess. If the portion of your purchase price allocated to
the Debt Portion is at a discount from, or is in excess of, the principal amount
of your GOAL, you may be subject to the market discount or amortizable bond
premium rules described in the accompanying prospectus under "U.S. Tax
Considerations--Original Issue Discount--Market Discount" and "U.S. Tax
Considerations--Notes Purchased at a Premium" with respect to the Debt Portion.
The portion of your purchase price that is allocated to the Put Option would
likely be offset for tax purposes against amounts you subsequently receive with
respect to the Put Option (including amounts received upon a sale of the GOAL
that are attributable to the Put Option), thereby reducing the amount of gain or
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increasing the amount of loss you would recognize with respect to the Put Option
or with respect to the sale of any common stock of The Gap, Inc. you receive
upon the exercise of the Put Option.
Example of Tax Treatment as an Investment Unit. The following example is
for illustrative purposes only. Assume that you purchased a GOAL on the
initial issuance with an underlying stock issued by a hypothetical XYZ
Company at par for $1,000 and will receive a 16% annual coupon. Assume
further that the $160 annual coupon consists of an interest payment on the
Debt Portion of 6%, or $60, and a payment with respect to the Put Option of
10%, or $100. Under the treatment agreed to, you would include the interest
portion of $60 in ordinary income in the year it is received or accrued,
depending on your accounting method for tax purposes. Initially, the
portion of the coupon attributable to the Put Option ($100) would not be
subject to tax.
For a 12 month GOAL that is not sold prior to maturity, the coupon payments
would total $160, $60 of which would be taxed as ordinary interest income
in the year it is received or accrued and $100 of which would not be
subject to tax until maturity. If the share price of XYZ Company is equal
to or higher than the initial stock price of $100 at maturity, you would
receive $1,000 cash and recognize a short-term capital gain of $100 (that
is, the amount of the payments previously received by you with respect to
the Put Option). If the share price of XYZ Company at maturity is below the
$100 initial stock price, you would receive 10 shares of XYZ Company stock
for your GOALs (that is, $1,000 principal amount/$100 per share initial
price = 10 shares). Your basis in the shares received would be $900, which
is the initial purchase price of your GOAL ($1,000) less the payments
previously made to you with respect to the Put Option ($100).
The above example can be summarized as follows:
INITIAL INVESTMENT
Dollars invested in the GOALs............................... $1,000
Annual coupon............................................... 16%
Fixed income component of coupon.......................... 6%
Option component of income................................ 10%
Initial stock price of XYZ company.......................... $100
Number of shares received if stock price at maturity has
declined from the initial price ($1,000 par amount/initial
stock price of $100 = 10 shares of XYZ common stock)...... 10
EVERY TOTAL FOR
6 MONTHS 368 DAYS
-------- -------------
COUPON PAYMENT
Ordinary interest income (taxed in year received or
accrued).................................................. $30 $60
Option component of income (tax impact deferred until
maturity)................................................. $50 $100
-------- -------------
Total coupon.............................................. $80 $160
THERE ARE TWO POTENTIAL OUTCOMES AT MATURITY
1) If XYZ common stock is at or above $100 at maturity, then
the:
Investor receives repayment of principal............... $1,000
Investor recognizes short term capital gains tax on the
option component of income........................... $100
2) If XYZ common stock is below $100 at maturity, then the:
Investor receives 10 shares of XYZ common stock the market
value of which depends on the stock price of XYZ company.
The cost basis of the stock is:
Initial Investment..................................... $1,000
Less: total interest on option component............... -$100
-------------
Net cost basis.............................................. $900
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SUPPLEMENTAL TAX CONSIDERATIONS
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Alternative Characterization. If your GOAL is properly treated as a single debt
instrument subject to the special U.S. Treasury Regulations governing contingent
debt instruments, the amount of interest you would be required to take into
account for each accrual period would be determined by constructing a projected
payment schedule for your GOAL 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 we would issue a non-contingent fixed rate debt instrument with
other terms and conditions similar to the GOAL and then determining as of the
issue date a payment schedule (including all fixed payments of interest actually
provided for and a hypothetical payment at maturity) that would produce the
comparable yield. These rules would generally have the effect of (i) treating
each payment of stated interest on your GOAL in part as taxable interest income
(to the extent of the comparable yield) and thereafter as a tax-free return of
capital and (ii) requiring you to use an accrual (rather than the cash receipts
and disbursements) method of accounting with respect to interest on your GOAL.
If your GOAL is treated as a contingent debt instrument, you would recognize
gain or loss upon the sale, early redemption or maturity of your GOAL in an
amount equal to the difference, if any, between the cash or the fair market
value of any common stock of The Gap, Inc. received at such time and your
adjusted United States federal income tax basis in your GOAL. In general, your
adjusted United States federal income tax basis in your GOAL would equal the
amount you paid for your GOAL, increased by the amount of interest you
previously accrued with respect to your GOAL (in accordance with the comparable
yield and the projected payment schedule) and decreased by the amount of
interest payments you received with respect to your GOAL. Any gain recognized by
you upon the sale, early redemption or maturity of your GOAL would be ordinary
interest income and any loss recognized by you at such time would be ordinary
loss to the extent of interest you included as income in the current or previous
taxable years in respect of your GOAL, and thereafter, capital loss. Your
holding period in any common stock of The Gap, Inc. received upon the maturity
of your GOAL would begin on the day after your receipt of The Gap, Inc. common
stock.
If your GOAL is treated as a contingent debt instrument and you purchase your
GOAL in the secondary market at a price that is at a discount from, or in excess
of, the adjusted issue price of your GOAL, such excess or discount would not be
subject to the generally applicable market discount and amortizable bond premium
rules described in the accompanying prospectus but rather would be subject to
special rules set forth in Treasury Regulations governing contingent debt
instruments. Accordingly, if you purchase your GOAL in the secondary market at a
price other than the adjusted issue price of your GOAL, you should consult your
tax advisor as to the possible application of such rules to you.
Wash Sale Rules. If you purchase your GOAL at original issue and you sell
shares of The Gap, Inc. common stock prior or subsequent to such purchase, your
purchase of a GOAL will not cause you to be subject to any restriction or
limitation with respect to the recognition of loss, if any, for federal income
tax purposes upon your sale of The Gap, Inc. common stock. If you are a
secondary purchaser of a GOAL or if you have shorted shares of The Gap, Inc.
common stock, you should consult your tax advisor regarding the possible
application of the wash sale rules to your sale of shares of The Gap, Inc.
common stock prior or subsequent to your purchase of a GOAL.
Non-United States Holders. If you are not a United States holder, you will not
be subject to United States withholding tax with respect to payments on your
GOAL but you will be subject to generally applicable information reporting and
backup withholding requirements with respect to payments on your GOAL unless you
comply with certain certification and identification requirements as to your
foreign status.
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SUPPLEMENTAL TAX CONSIDERATIONS
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SUPPLEMENTAL TAX CONSIDERATIONS UNDER THE LAWS OF SWITZERLAND
TAX ON PRINCIPAL AND INTEREST
Under present Swiss law, payment of interest on and repayment of principal of
the GOALs by us are not subject to Swiss withholding tax (Swiss Anticipatory
Tax), and payments to holders of the GOALs who are non-residents of Switzerland
and who during the taxable year have not engaged in trade or business through a
permanent establishment within Switzerland will not be subject to any Swiss
Federal, Cantonal or Municipal income tax.
GAINS ON SALE OR REDEMPTION
Under present Swiss Law, a holder of GOALs who is a non-resident of Switzerland
and who during the taxable year has not engaged in trade or business through a
permanent establishment within Switzerland will not be subject to any Swiss
Federal, Cantonal or Municipal income or other tax on gains realized during the
year on the sale or redemption of a GOAL.
STAMP, ISSUE AND OTHER TAXES
There is no tax liability in Switzerland in connection with the issue and
redemption of the GOALs. However, GOALs sold through a bank or other dealer
resident in Switzerland or Liechtenstein are subject to Turnover Tax.
RESIDENTS OF SWITZERLAND
For residents of Switzerland, for tax purposes, that portion of the annual
interest payment representing interest shall be treated as income and that
portion of the annual interest payment representing an option premium shall be
treated as a capital gain.
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ERISA Considerations
We, UBS Warburg LLC, UBS PaineWebber Inc. and other of our affiliates may each
be considered a "party in interest" within the meaning of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or a "disqualified
person" (within the meaning of Section 4975 of the Internal Revenue Code of
1986, as amended (the "Code")) with respect to an employee benefits plan that is
subject to ERISA and/or an individual retirement account that is subject to the
Code ("Plan"). The purchase of GOALs by a Plan with respect to which UBS Warburg
LLC, UBS PaineWebber Inc. or any of our affiliates acts as a fiduciary as
defined in Section 3(21) of ERISA and/or Section 4975 of the Code ("Fiduciary")
would constitute a prohibited transaction under ERISA or the Code unless
acquired pursuant to and in accordance with an applicable exemption. The
purchase of GOALs by a Plan with respect to which UBS Warburg LLC, UBS
PaineWebber Inc. or any of our affiliates does not act as a Fiduciary but for
which any of the above entities does provide services could also be prohibited,
but one or more exemptions may be applicable. Any person proposing to acquire
any GOAL on behalf of a Plan should consult with counsel, and represent that
such an exemption is available to the Plan, regarding the applicability of the
prohibited transaction rules and the applicable exemptions thereto.
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Supplemental Plan of Distribution
UBS AG has agreed to sell to UBS Warburg LLC and UBS PaineWebber Inc., and UBS
Warburg LLC and UBS PaineWebber Inc. have agreed to purchase from UBS AG, the
aggregate principal amount of the GOALs specified on the front cover of this
prospectus supplement. UBS Warburg LLC and UBS PaineWebber Inc. intend to resell
the offered GOALs at the original issue price applicable to the offered GOALs to
be resold. In the future, we or one or more of our affiliates may repurchase and
resell the offered GOALs in market-making transactions. For more information
about the plan of distribution and possible market-making activities, see "Plan
of Distribution" in the attached prospectus.
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