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Set forth below is information concerning the persons who will be the
directors and executive officers of Goldman Sachs as of the date of the
completion of the offerings. We anticipate appointing additional directors over
time who are not employees of Goldman Sachs or affiliated with management.
Executive officers are appointed by and serve at the pleasure of our
board of directors. A brief biography of each director and executive officer
follows.
Mr. Paulson has been Co-Chairman and Chief Executive Officer or
Co-Chief Executive Officer of The Goldman Sachs Group, L.P. since June 1998 and
served as Chief Operating Officer from December 1994 to June 1998. From 1990 to
November 1994, he was Co-Head of Investment Banking.
Mr. Hurst has been Vice Chairman of The Goldman Sachs Group, L.P. since
February 1997 and has served as Head or Co-Head of Investment Banking since
1990. He is also a director of VF Corporation and IDB Holding Corporation
Ltd.
Mr. Thain has been President of The Goldman Sachs Group, L.P. since
March 1999 and Co-Chief Operating Officer since January 1999. From December 1994
to March 1999, he served as Chief Financial Officer and Head of Operations,
Technology and Finance. From July 1995 to September 1997, he was also Co-Chief
Executive Officer for European Operations. In 1990, Mr. Thain transferred from
FICC to Operations, Technology and Finance to assume responsibility for
Controllers and Treasury. From 1985 to 1990, Mr. Thain was in FICC where he
established and served as Co-Head of the Mortgage Securities Department. Mr.
Thain is a director of The Depository Trust Company.
Mr. Thornton has been President of The Goldman Sachs Group, L.P. since
March 1999 and Co-Chief Operating Officer of The Goldman Sachs Group, L.P. since
January 1999. From August 1998 until January 1999, he had oversight
responsibility for International Operations. From September 1996 until August
1998, he was Chairman, Goldman Sachs — Asia, in addition to his senior
strategic responsibilities in Europe. From July 1995 to September 1997, he was
Co-Chief Executive Officer for European Operations. From 1994 to 1995, he was
Co-Head of Investment Banking in Europe and from 1992 to 1994 was Head of
European Investment Banking Services. Mr. Thornton is also a director of the
Ford Motor Company, BSkyB PLC, Laura Ashley PLC and the Pacific Century
Group.
Sir John Browne has been Group Chief Executive of BP Amoco p.l.c. since
January 1999. He was Group Chief Executive of The British Petroleum Company from
1995 to 1999, having served as a Managing Director since 1991. Sir John is also
a director of SmithKline Beecham p.l.c. and the Intel Corporation, a member of
the supervisory board of DaimlerChrysler AG and a trustee of the British
Museum.
Mr. Johnson has been Chairman of the Executive Committee of the Board
of Directors of Fannie Mae since January 1999. He was Chairman and Chief
Executive Officer of Fannie Mae from February 1991 through December 1998. Mr.
Johnson is also a director of the Cummins Engine Company, Dayton Hudson
Corporation, UnitedHealth Group and Kaufman and Broad Home Corporation, Chairman
of the John F. Kennedy Center for the Performing Arts and Chairman of the Board
of Trustees of The Brookings Institution.
Mr. Weinberg has been Senior Chairman of The Goldman Sachs Group, L.P.
since 1990. From 1984 to 1990, he was Senior Partner and Chairman and, from 1976
to 1984, he served both as Senior Partner and Co-Chairman. Mr. Weinberg is also
a director of Knight-Ridder, Inc., Providian Financial Corp. and Tricon Global
Restaurants, Inc.
Mr. Katz has been General Counsel of The Goldman Sachs Group, L.P. or
its predecessor since 1988. From 1980 to 1988, Mr. Katz was a partner in
Sullivan & Cromwell.
Mr. Palm has been General Counsel of The Goldman Sachs Group, L.P.
since 1992. He also has senior oversight responsibility for Compliance and
Management Controls, and is Co-Chairman of the Global Compliance and Control
Committee. From 1982 to 1992, Mr. Palm was a partner in Sullivan & Cromwell.
Ms. Neustein has been Chief of Staff to the senior partners of The
Goldman Sachs Group, L.P. since 1992. From 1991 to 1992, Ms. Neustein managed
strategic projects for the senior partners. Prior to then, she was in Investment
Banking.
Ms. Tortora has been Chief Information Officer of The Goldman Sachs
Group, L.P. and the Head of Information Technology since March 1999. She has
headed Goldman Sachs' global technology efforts since 1994.
Mr. Viniar has been Chief Financial Officer of The Goldman Sachs Group,
L.P. and Co-Head of Operations, Finance and Resources since March 1999. From
July 1998 until then, he was Deputy Chief Financial Officer and from 1994 until
then, he was Head of Finance, with responsibility for Controllers and Treasury.
From 1992 to 1994, Mr. Viniar was Head of Treasury and immediately prior to then
was in the Structured Finance Department of Investment Banking.
Mr. Zubrow has been Chief Administrative Officer of The Goldman Sachs
Group, L.P. and Co-Head of Operations, Finance and Resources since March 1999.
From 1994 until then he was chief credit officer and Head of the Credit
Department. From 1992 to 1994, Mr. Zubrow was Head of the Midwest Group in the
Corporate Finance Department of Investment Banking.
In addition, Jon S. Corzine, 52, currently is a Director and
Co-Chairman of Goldman Sachs, but will resign both positions immediately prior
to the date of the offerings. After seeing through the completion of the
offerings, a project Mr. Corzine believes is of great importance to Goldman
Sachs, he is leaving Goldman Sachs to pursue other interests. Mr. Corzine has
been Co-Chairman of The Goldman Sachs Group, L.P. since June 1998 and served as
Chairman and Chief Executive Officer of The Goldman Sachs Group, L.P. from
December 1994 to June 1998 and Co-Chief Executive Officer from June 1998 to
January 1999. Mr. Corzine is a member of the NASD's Board of Governors.
There are no family relationships between any of the executive officers
or directors of Goldman Sachs.
In January 1999, the Management and Partnership Committees were
constituted as part of Goldman Sachs' overall governance structure. The
Management Committee, which is chaired by Mr. Paulson, has responsibility for
policy, strategy and management of our businesses. In addition to Messrs.
Paulson, Thain, Thornton and Hurst, Ms. Neustein and Ms. Tortora, the members of
this committee and their principal positions within Goldman Sachs are: Lloyd C.
Blankfein (Co-Head, FICC), Richard A. Friedman (Co-Head, Merchant Banking),
Steven "Mac" M. Heller (Co-Chief Operating Officer, Investment Banking), Robert
S. Kaplan (Co-Chief Operating Officer, Investment Banking), John P. McNulty
(Co-Head, Asset Management), Michael P. Mortara (Co-Head, FICC), Daniel M.
Neidich (Co-Head, Merchant Banking), Mark Schwartz (President, Goldman
Sachs — Japan), Robert K. Steel (Co-Head, Equities) and Patrick J. Ward
(Co-Head, Equities and Deputy Chairman — Europe). Mr. Katz is counsel to the
Management Committee.
The Partnership Committee, which is chaired by Messrs. Thain and
Thornton, oversees personnel development and career management issues. It
focuses on such matters as recruiting, training, performance evaluation,
diversity, mobility and succession planning and, together with the Management
Committee, is expected to become integral in the process of selecting and
compensating managing directors. In addition to Messrs. Thain and Thornton and
Ms. Neustein, the members of this committee and their principal positions within
Goldman Sachs are: David W. Blood (Head, Asset Management — Europe), Gary D.
Cohn (Head, FICC Commodities and Emerging Markets), W. Mark Evans (Co-Head,
Investment Research), Jacob D. Goldfield (Head, FICC — Europe), David B.
Heller (Head, Equities Derivatives Trading), Philip D. Murphy (President,
Goldman Sachs — Asia), Simon M. Robertson (President, Goldman
Sachs — Europe), Esta E. Stecher (Head, Tax), John S. Weinberg (Co-Head,
Investment Banking Services), Peter A. Weinberg (Co-Chief Operating Officer,
Investment Banking and Deputy Chairman — Europe) and Jon Winkelried (Head,
Leveraged Finance). Mr. Palm is counsel to the Partnership Committee.
Our charter will provide for a classified board of directors consisting
of three classes. The term of the initial Class I directors will terminate on
the date of the 2000 annual meeting of shareholders, the term of the initial
Class II directors will terminate on the date of the 2001 annual meeting of
shareholders and the term of the initial Class III directors will terminate on
the date of the 2002 annual meeting of shareholders. Messrs. Thain and Thornton
will be members of Class I, Sir John Browne and Messrs. Johnson and Weinberg
will be members of Class II and Messrs. Hurst and Paulson will be members of
Class III. Beginning in 2000, at each annual meeting of shareholders, successors
to the class of directors whose term expires at that annual meeting will be
elected for a three-
year term and until their respective successors have been elected and qualified.
A director may be removed only for cause by the affirmative vote of the holders
of not less than 80% of the outstanding shares of capital stock entitled to vote
in the election of directors.
It is anticipated that our board of directors will meet at least
quarterly. Members of our board of directors who are employees of Goldman Sachs
or any of its subsidiaries will not be compensated for service on the board of
directors or any committee thereof.
Upon completion of the offerings, Mr. Weinberg will continue in his
role as Senior Chairman under an agreement pursuant to which he will provide
senior advisory services to Goldman Sachs, receive annual compensation of $2
million and participate in various employee benefit plans. The agreement expires
November 24, 2000, unless earlier terminated by either party on 90 days' notice.
Mr. Weinberg has had similar arrangements with Goldman Sachs since 1990.
Our board of directors will have an Audit Committee, composed of
directors who are not employed by Goldman Sachs or affiliated with management.
The Audit Committee will review the results and scope of the audit and other
services provided by our independent auditors as well as review our accounting
and control procedures and policies.
Our board of directors will also have a Compensation Committee. The
Compensation Committee will oversee the compensation and benefits of the
management and employees of Goldman Sachs and will consist entirely of
non-employee directors.
Our board of directors may from time to time establish other committees
to facilitate the management of Goldman Sachs.
Prior to the offerings of our common stock, our business was carried on
in partnership form. As a result, meaningful individual compensation information
for directors and executive officers of Goldman Sachs based on operating in
corporate form is not available for periods prior to the offerings. However,
Goldman Sachs does not believe that the aggregate compensation that will be paid
in fiscal 1999 to the continuing named executive officers referred to below will
exceed levels that are customary for similarly-situated executives in the
investment banking industry.
The following table sets forth compensation information for our Chief
Executive Officer, three of our continuing executive officers named under
"— Directors and Executive Officers" and two former executive officers of The
Goldman Sachs Group, L.P. (the "named executive officers").
(1) The amounts in the table represent compensation for fiscal
1998 only and do not include that portion of each named
executive officer's total partnership return from The Goldman
Sachs Group, L.P. in 1998 attributable to a return on his
invested capital or to his share of the income from
investments made by Goldman Sachs in prior years that was
allocated to the individuals who were partners in those years.
The return on invested capital for each named executive
officer was determined using a rate of 12%, the actual fixed
rate of return that was paid in 1998 to our retired limited
partners on their long-term capital.
Aggregate compensation paid to key employees who are not named
executive officers may exceed that paid to the named executive officers. Each of
Messrs. Paulson, Hurst, Thain, Thornton, Corzine and Zuckerberg have accrued
benefits under the employees' pension plan entitling them to receive annual
benefits upon retirement at age 65 of $10,533, $10,533, $7,074, $11,801, $9,942
and $7,721, respectively. These benefits had accrued prior to November 1992 and
none of these executive officers has earned additional benefits under the
pension plan since November 1992.
Goldman Sachs is entering into employment agreements with each profit
participating limited partner who continues as a managing director and pledge
agreements and agreements relating to noncompetition and other covenants with
all of the managing directors who are profit participating limited partners,
whether or not they retire, including, in both cases, each managing director who
is a member of our board of directors or is an executive officer.
The following are descriptions of the material terms of the employment,
noncompetition and pledge agreements with the manag-ing directors who were
profit participating limited partners. You should, however, refer to the
exhibits that are a part of the registration statement for a copy of the form of
each agreement. See "Available Information".
Employment Agreements
Each employment agreement has an initial term extending through
November 24, 2000 (thereafter no set term), requires each continuing managing
director who was a profit participating limited partner to devote his or her
entire working time to the business and affairs of Goldman Sachs and generally
may be terminated at any time by either that managing director or Goldman Sachs
on 90 days' prior written notice.
Goldman Sachs has entered into similar employment agreements with all
other managing directors, except that they have no set term.
Noncompetition Agreements
Each noncompetition agreement provides as follows:
Confidentiality. Each managing director who was a profit
participating limited partner is required to protect and use "confidential
information" in accordance with the restrictions placed by Goldman Sachs on its
use and disclosure.
Noncompetition. During the period ending 12 months after the
date a managing director who was a profit participating limited partner ceases
to be employed by Goldman Sachs, that managing director may not:
Nonsolicitation. During the period ending 18 months after the
date a managing director who was a profit participating limited partner ceases
to be employed by Goldman Sachs, that managing director may not, directly or
indirectly, in any manner:
Liquidated Damages. In the case of any breach of the
noncompetition or nonsolicitation provisions prior to the fifth anniversary of
the date of the consummation of the offerings, the breaching managing director
will be liable for liquidated damages. The amount of liquidated damages for each
managing director who initially serves on the board of directors, the Management
Committee or the Partnership Committee of Goldman Sachs is $15 million, and the
amount of liquidated damages for each other managing director who was a profit
participating limited partner is $10 million. These liquidated damages are in
addition to the forfeiture of any future equity-based awards that may occur as a
result of the breach of any noncompetition or nonsolicitation provisions
contained in those awards.
Pledge Agreement
The liquidated damages provisions of each noncompetition agreement will
be secured by a pledge of stock or other assets with an initial value equal to
100% of the applicable liquidated damages amount.
Each pledge agreement will terminate on the earliest to occur of:
The liquidated damages and pledge arrangements discussed above are not
exclusive of any injunctive relief that Goldman Sachs may be entitled to for a
breach of a noncompetition agreement and, after the termination of the pledge
agreement, Goldman Sachs will be entitled to all available remedies for a breach
of a noncompetition agreement.
The employment, noncompetition and pledge agreements generally provide
that any disputes thereunder will be resolved by binding arbitration.
On the date of the consummation of the offerings, we intend to provide
awards to our employees and a limited number of consultants and advisors, other
than managing directors who were profit participating limited partners, in one
or more of the following forms:
Formula Awards
The common stock underlying the restricted stock units awarded based on
a formula generally will be deliverable in equal installments on or about the
first, second and third anniversaries of the date of the consummation of the
offerings, although the common stock may be deliverable earlier in the event of
certain terminations of employment following a change in control. While no
additional service will be required to obtain delivery of the underlying common
stock (i.e., the award is "vested"), delivery of the common stock will be
conditioned on the grantee's satisfying certain requirements, including not
being terminated under the circumstances described in the award agreement prior
to delivery of the common stock and not violating any policy of Goldman Sachs
(including in respect of confidentiality and hedging) or otherwise acting in a
manner detrimental to Goldman Sachs (including violating noncompetition or
nonsolicitation provisions of the award). While these restricted stock units are
outstanding, amounts equal to regular cash dividends that would have been paid
on the common stock underlying these units if the common stock had been actually
issued will be paid in cash at about the same time that the dividends are paid
generally to the shareholders. These amounts will be recorded as compensation
expense since the underlying shares of common stock will not have been
issued.
Pursuant to Accounting Principles Board Opinion No. 25, we will record
non-cash compensation expense of $1,591 million related to the restricted stock
units awarded based on a formula on the date of grant, since future service is
not required as a condition to the delivery of the underlying shares of common
stock. For purposes of calculating both basic earnings per share (pursuant to
Statement of Financial Accounting Standards No. 128) and book value per share,
the shares of common stock underlying the restricted stock units awarded based
on a formula are included in common stock outstanding for the reason described
above.
Discretionary Awards
Restricted Stock Units Awarded on a Discretionary Basis. The
restricted stock units awarded on a discretionary basis will vest, and the
underlying common stock will be delivered, in equal installments on or about the
third, fourth and fifth anniversaries of the date of consummation of the
offerings if the grantee has satisfied certain conditions and the grantee's
employment with Goldman Sachs has not been terminated, with certain exceptions
for terminations of employment due to death, retirement, extended absence or
following a change in control. While these restricted stock units are
outstanding, amounts equal to regular cash dividends that would have been paid
on the common stock underlying these units if the common stock had been actually
issued will be paid in cash at about the same time that the dividends are paid
generally to the shareholders. These amounts will be recorded as compensation
expense since the underlying shares of common stock will not have been
issued.
Pursuant to Accounting Principles Board Opinion No. 25, we will record
non-cash compensation expense of $1,765 million related to the restricted stock
units awarded on
a discretionary basis over the related service period. For purposes of
calculating both basic earnings per share (pursuant to Statement of Financial
Accounting Standards No. 128) and book value per share, the shares of common
stock underlying these restricted stock units are excluded from common stock
outstanding since future service is required as a condition to the delivery of
the underlying shares of common stock. The dilutive effect of these restricted
stock units is, however, included in diluted shares outstanding using the
treasury stock method.
Discretionary Options. The options to purchase shares of common
stock awarded on a discretionary basis will be granted with an exercise price
generally equal to the initial public offering price per share set forth on the
cover page of this prospectus, although in certain non-U.S. jurisdictions
certain employees may be granted discretionary options with a lower exercise
price. These discretionary options will generally be exercisable in equal
installments commencing on or about the third, fourth and fifth anniversaries of
the date of the consummation of the offerings if the grantee has satisfied
certain conditions and the grantee's employment with Goldman Sachs has not been
terminated, with certain exceptions for terminations of employment due to death,
retirement, extended absence or following a change in control. These
discretionary options will thereafter generally remain exercisable, subject to
satisfaction of certain conditions, until the tenth anniversary of the date of
the consummation of the offerings or, if earlier, upon expiration of a period,
as specified in the award agreement, following termination of employment.
These discretionary options will be accounted for pursuant to
Accounting Principles Board Opinion No. 25, as permitted by paragraph 5 of
Statement of Financial Accounting Standards No. 123. Since these options will
have no intrinsic value on the date of grant, no compensation expense will be
recognized.
Contribution to the Defined Contribution Plan. On the date of
the consummation of the offerings, Goldman Sachs will make an initial
irrevocable contribution of 12,555,866 shares of common stock to the defined
contribution plan. Certain senior employees, principally managing directors who
are not profit participating limited partners, will be selected to participate
in the defined contribution plan. The right to receive shares will vest, and the
underlying common stock will be distributable to participants in the defined
contribution plan, in equal installments on or about the third, fourth and fifth
anniversaries of the initial contribution if the participant has satisfied
certain conditions and the participant's employment with Goldman Sachs has not
been terminated, with certain exceptions for terminations of employment due to
death or following a change in control. Dividends paid on shares allocated to
participants will be distributed currently.
We will record non-cash compensation expense of $666 million related to
the initial irrevocable contribution of shares of common stock to the defined
contribution plan. This non-cash expense will be recognized on the date it is
funded in accordance with Statement of Financial Accounting Standards No.
87.
Change in Control
The restricted stock units awarded based on a formula, the restricted
stock units awarded on a discretionary basis, the options to purchase shares of
common stock awarded on a discretionary basis and the defined contribution plan
provide that (i) if a change in control occurs and (ii) within 18 months
thereafter a grantee's or participant's employment is terminated by Goldman
Sachs other than for cause or the grantee or participant terminates employment
for good reason, in each case, as determined by Goldman Sachs:
"Good reason" means a materially adverse alteration in the grantee's or
participant's position or in the nature or status of the grantee's or
participant's responsibilities from those in effect immediately prior to the
change in control, as determined by Goldman Sachs, or certain relocations by
Goldman Sachs of a grantee's or participant's principal place of employment.
The Stock Incentive Plan
The following is a description of the material terms of the stock
incentive plan. You should, however, refer to the exhibits that are a part of
the registration statement for a copy of the stock incentive plan. See
"Available Information".
Types of Awards. The stock incentive plan provides for grants of
incentive stock options (within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended), nonqualified stock options, stock
appreciation rights, dividend equivalent rights, restricted stock, restricted
stock units and other awards. The stock incentive plan also permits the making
of loans to purchase shares of common stock.
Shares Subject to the Stock Incentive Plan; Other Limitations on
Awards. Subject to adjustment as described below, the total number of shares
of common stock of The Goldman Sachs Group, Inc. that may be issued under the
stock incentive plan through its fiscal year ending in 2002 may not exceed
300,000,000 shares and, in each fiscal year thereafter, may not exceed five
percent (5%)
of the issued and outstanding shares of common stock, determined as of the last
day of the immediately preceding fiscal year, increased by the number of shares
available for awards in previous fiscal years but not covered by awards granted
in such years. These shares may be authorized but unissued common stock or
authorized and issued common stock held in Goldman Sachs' treasury or otherwise
acquired for the purposes of the stock incentive plan. If any award is forfeited
or is otherwise terminated or canceled without the delivery of shares of common
stock, if shares of common stock are surrendered or withheld from any award to
satisfy a grantee's income tax or other withholding obligations, or if shares of
common stock owned by a grantee are tendered to pay the exercise price of
awards, then such shares will again become available under the stock incentive
plan. No more than 200,000,000 shares of common stock may be available for
delivery in connection with the exercise of incentive stock options. The maximum
number of shares of common stock with respect to which options or stock
appreciation rights may be granted to an individual grantee in 1999 is 3,500,000
shares of common stock and, in each fiscal year that follows, is 110% of the
maximum number of shares of common stock applicable for the preceding fiscal
year.
Our Stock Incentive Plan Committee has the authority to adjust the
terms of any outstanding awards and the number of shares of common stock
issuable under the stock incentive plan for any increase or decrease in the
number of issued shares of common stock resulting from a stock split, reverse
stock split, stock dividend, spin-off, combination or reclassification of the
common stock, or any other event that the Stock Incentive Plan Committee
determines affects our capitalization.
Eligibility. Awards may be made to any director, officer or
employee of Goldman Sachs, including any prospective employee, and to any
consultant or advisor to Goldman Sachs selected by the Stock Incentive Plan
Committee.
Administration. The stock incentive plan will be administered by
our board of directors or by the Stock Incentive Plan Committee, a committee
appointed by our board of directors.
The Stock Incentive Plan Committee will have the authority to construe,
interpret and implement the stock incentive plan, and prescribe, amend and
rescind rules and regulations relating to the stock incentive plan. The
determination of the Stock Incentive Plan Committee on all matters relating to
the stock incentive plan or any award agreement will be final and binding.
Stock Options and Stock Appreciation Rights. The Stock Incentive
Plan Committee may grant incentive stock options and nonqualified stock options
to purchase shares of common stock from Goldman Sachs (at the price set forth in
the award agreement), and stock appreciation rights in such amounts, and subject
to such terms and conditions, as the Stock Incentive Plan Committee may
determine. No grantee of an option or stock appreciation right will have any of
the rights of a shareholder of The Goldman Sachs Group, Inc. with respect to
shares subject to their award until the issuance of the shares.
Restricted Stock. The Stock Incentive Plan Committee may grant
restricted shares of common stock in amounts, and subject to terms and
conditions, as the Stock Incentive Plan Committee may determine. The grantee
will have the rights of a shareholder with respect to the restricted stock,
subject to any restrictions and conditions as the Stock Incentive Plan Committee
may include in the award agreement.
Restricted Stock Units. The Stock Incentive Plan Committee may
grant restricted stock units in amounts, and subject to terms and conditions, as
the Stock Incentive Plan Committee may determine. Recipients of restricted stock
units have only the rights of a general unsecured creditor of Goldman Sachs and
no rights as a shareholder of The
Goldman Sachs Group, Inc. until the common stock underlying the restricted stock
units is delivered.
Other Equity-Based Awards. The Stock Incentive Plan Committee
may grant other types of equity-based awards, including the grant of
unrestricted shares, in amounts, and subject to terms and conditions, as the
Stock Incentive Plan Committee may determine. These awards may involve the
transfer of actual shares of common stock, or the payment in cash or otherwise
of amounts based on the value of shares of common stock, and may include awards
designed to comply with, or take advantage of certain benefits of, the local
laws of non-U.S. jurisdictions.
Change in Control. The Stock Incentive Plan Committee may
provide in any award agreement for provisions relating to a change in control of
The Goldman Sachs Group, Inc. or any of its subsidiaries or affiliates,
including, without limitation, the acceleration of the exercisability of, or the
lapse of restrictions with respect to, the award.
Dividend Equivalent Rights. The Stock Incentive Plan Committee
may in its discretion include in the award agreement a dividend equivalent right
entitling the grantee to receive amounts equal to the dividends that would be
paid, during the time such award is outstanding, on the shares of common stock
covered by such award as if such shares were then outstanding.
Nonassignability. Except to the extent otherwise provided in the
award agreement or approved by the Stock Incentive Plan Committee, no award or
right granted to any person under the stock incentive plan will be assignable or
transferable other than by will or by the laws of descent and distribution, and
all awards and rights will be exercisable during the life of the grantee only by
the grantee or the grantee's legal representative.
Amendment and Termination. Except as otherwise provided in an
award agreement, the board of directors may from time to time suspend,
discontinue, revise or amend the stock incentive plan and the Stock Incentive
Plan Committee may amend the terms of any award in any respect.
U.S. Federal Income Tax Consequences of the Stock Incentive
Plan. The following is a brief description of the material U.S. federal
income tax consequences generally arising with respect to awards.
The grant of an option or stock appreciation right will create no tax
consequences for the participant or Goldman Sachs. Upon exercising an option,
other than an incentive stock option, the participant will generally recognize
ordinary income equal to the difference between the exercise price and the fair
market value of the shares acquired on the date of exercise and Goldman Sachs
generally will be entitled to a tax deduction in the same amount. A participant
generally will not recognize taxable income upon exercising an incentive stock
option and Goldman Sachs will not be entitled to any tax deduction with respect
to an incentive stock option if the participant holds the shares for the
applicable periods specified in the Internal Revenue Code of 1986, as
amended.
With respect to other awards, upon the payment of cash or the issuance
of shares or other property that is either not restricted as to transferability
or not subject to a substantial risk of forfeiture (e.g., delivery under
the restricted stock units), the participant will generally recognize ordinary
income equal to the cash or the fair market value of shares or other property
delivered. Goldman Sachs generally will be entitled to a deduction in an amount
equal to the ordinary income recognized by the participant.
The Defined Contribution Plan
The defined contribution plan is not intended to be qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended, and is not
subject to the Employee
Retirement Income Security Act of 1974, as amended.
The following is a description of the material terms of the defined
contribution plan. You should, however, refer to the exhibits that are a part of
the registration statement for a copy of the defined contribution plan. See
"Available Information".
Eligibility and Participation. Our board of directors or the
Defined Contribution Plan Committee, a committee appointed by our board of
directors, will select the employees to participate in the defined contribution
plan.
Contributions. Goldman Sachs will make an initial irrevocable
contribution to the Defined Contribution Plan Trust, the trust underlying the
defined contribution plan, of 12,555,866 shares of common stock simultaneously
with the consummation of the offerings. Goldman Sachs may contribute additional
shares of common stock or cash to the Defined Contribution Plan Trust from time
to time in its sole discretion. We currently intend to make ongoing
contributions to the defined contribution plan and to reallocate forfeitures
under the defined contribution plan to participants.
Allocation of Contributions. There will be established an
account in the name of each participant and a separate, unallocated account to
which any forfeitures of common stock will be credited pending reallocation to
participants. The Defined Contribution Plan Committee will designate the number
of shares of common stock allocable to the account of each participant. Any
common stock remaining in the unallocated account as of the last day of each
plan year due to forfeitures and any distributions received on common stock
credited to the unallocated account will be reallocated among the accounts of
participants who are employed by Goldman Sachs on the last day of each plan year
pro rata to each such participant's share of Goldman Sachs contributions, for
that plan year, or on such other formulaic basis as the Defined Contribution
Plan Committee may determine.
Voting and Tendering of Common Stock. Shares of common stock
allocated to participants who are parties to the shareholders' agreement
referred to below will be voted in accordance with the shareholders' agreement
and will be tendered by the trustee of the Defined Contribution Plan Trust in
accordance with confidential instructions provided by the participants if the
transfer restrictions under the shareholders' agreement are waived (and will not
be tendered if the transfer restrictions are not waived). See "Certain
Relationships and Related Transactions — Shareholders' Agreement" for a
discussion of those provisions. Any shares of common stock allocated to accounts
of participants who are not subject to the shareholders' agreement will be voted
and tendered by the trustee of the Defined Contribution Plan Trust in accordance
with confidential instructions provided by the participant. Shares held in
participants' accounts with respect to which the trustee of the Defined
Contribution Plan Trust does not receive voting or tendering directions will not
be voted or tendered.
Shares of common stock held in the unallocated account will be voted or
tendered by the trustee in the same proportion as the shares of common stock
allocated to participants' accounts with respect to which voting or tendering
instructions are received.
Dividends. Any cash dividends on shares of common stock
allocated to a participant's account will be distributed to each participant
after the end of the calendar quarter in which such dividend is received.
Vesting and Distribution. With respect to the initial
contribution of common stock to the defined contribution plan, the right to
receive shares of common stock allocated to a participant's account generally
will become vested, and the common stock generally will be distributable, in
equal installments on or about the third, fourth and fifth anniversaries of the
date of such contribution if the participant satisfies certain conditions and
the participant's employment with Goldman Sachs
has not been terminated, with certain exceptions for termination due to death or
following a change in control.
With respect to contributions to the defined contribution plan (other
than the initial contribution), the Defined Contribution Plan Committee may
determine the dates on which the right to receive common stock (or cash)
allocated to a participant's account will vest and be distributable.
Administration of the Defined Contribution Plan. The defined
contribution plan will be administered by the Defined Contribution Plan
Committee. Our board of directors may, however, determine allocations of
contributions or resolve to otherwise administer the defined contribution
plan.
Amendments. Subject to limitations with respect to contributions
previously made to the defined contribution plan, our board of directors
reserves the right to modify, alter, amend or terminate the defined contribution
plan or the Defined Contribution Plan Trust. No modification or amendment of the
defined contribution plan may be made which would cause or permit any part of
the assets of the Defined Contribution Plan Trust to be used for, or diverted
to, purposes other than for the exclusive benefit of participants or their
beneficiaries, or which would cause any part of the assets of the Defined
Contribution Plan Trust to revert to or become the property of Goldman
Sachs.
Limit on Liability. All distributions under the defined
contribution plan will be paid or provided solely from the assets of the Defined
Contribution Plan Trust and Goldman Sachs will have no responsibility or
liability to any participant or beneficiary relating to the common stock or
other assets of the Defined Contribution Plan Trust. The agreement establishing
the Defined Contribution Plan Trust will provide that no creditor of Goldman
Sachs will have any rights to the assets of the Defined Contribution Plan
Trust.
U.S. Federal Income Tax Consequences. The following is a brief
description of the material U.S. federal income tax consequences generally
arising with respect to participation in the defined contribution plan. A
participant in the defined contribution plan will recognize ordinary income upon
the vesting of shares of common stock allocated to such participant's account in
an amount equal to the fair market value of the vested shares. Goldman Sachs
will generally be entitled to a deduction equal to the fair market value of the
shares at the time of the contribution in the taxable year in which the
participant recognizes income under the defined contribution plan in respect of
the vesting of shares of common stock.
Overview
To perpetuate the sense of partnership and teamwork that exists among
our senior professionals, and to reinforce the alignment of employee and
shareholder interests, our board of directors has adopted a partner compensation
plan for the purpose of compensating senior professionals. The partner
compensation plan will be administered by our board of directors or the Partner
Compensation Plan Committee, a committee appointed by our board of
directors.
Individuals will be selected to participate in the partner compensation
plan for a one- or two-fiscal year cycle. Upon selection to the partner
compensation plan, participants will be allocated a percentage interest in a
pool for annual bonus payments in addition to base salaries. The size of the
pool will be established by the Partner Compensation Plan Committee annually,
taking into account our results of operations and other measures of financial
performance. The Partner Compensation Plan Committee may also retain an
unallocated percentage of the pool that it may allocate among participants at
fiscal year end in its sole discretion. By linking the participant's annual
bonus payments to our results
as a whole, as opposed to the results of any participant's individual business
unit, we believe it will provide additional incentives for teamwork. Further, we
believe that the tying of the bonus payments to overall financial results will
more closely align the interests of the participants with our shareholders.
Finally, we believe that the retention of a percentage of the pool for
allocation among participants at fiscal year end in amounts determined at the
sole discretion of the Partner Compensation Plan Committee will provide
appropriate compensation flexibility.
The following is a description of the material terms of the partner
compensation plan. You should, however, refer to the exhibits that are a part of
the registration statement for a copy of the partner compensation plan. See
"Available Information".
Eligibility and Participation
Consistent with our historical practice of partnership elections, the
initial cycle will be through the end of fiscal 2000. It is expected that the
participants in the initial cycle will consist of the continuing managing
directors who were profit participating limited partners. Prior to the one- or
two-fiscal year cycle commencing with fiscal 2001, and on or before each
succeeding cycle, the Partner Compensation Plan Committee will determine the
participants in the partner compensation plan. Individual participants may also
be added from time to time outside the annual or biennial selection process.
Determination of Salary and Bonus
The aggregate amount of compensation to be included in the partner
compensation plan for each fiscal year will be determined by the Partner
Compensation Plan Committee, taking into account measures of our financial
performance it deems appropriate (which in 1999 will include a full year's
results), including, but not limited to, earnings per share, return on average
common equity, pre-tax income, pre-tax operating income, net revenues, net
income, profits before taxes, book value per share, stock price, earnings
available to common shareholders and ratio of compensation and benefits to net
revenues.
Prior to the commencement of the first fiscal year in any one- or
two-fiscal year cycle, and prior to the consummation of the offerings in the
case of the initial cycle, the Partner Compensation Plan Committee will
determine both the salaries of and the percentage of the partner compensation
plan pool that may be allocable to any particular participant. The percentage
allocated to any particular participant is expected to be applicable for each
fiscal year within the applicable cycle. Any remaining portion of the partner
compensation plan pool not so allocated will be allocated to individual
participants at the end of the fiscal year in amounts determined by the Partner
Compensation Plan Committee.
Amounts payable under the partner compensation plan will be satisfied in cash or as awards under the stock incentive plan, as determined by the Partner Compensation Plan Committee and recommended to the Stock Incentive Plan Committee.
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